23.5. Key Financial Decisions

Try these first

1. 1.

   What does NPV stand for?

   Hint

   Think about the value of future cash flows.

2. 2.

   What type of financing involves giving away ownership?

   Hint

   Focus on how companies attract investors.

3. 3.

   What does IRR stand for?

   • Internal Rate of Return
   • Investment Return Rate
   • Interest Rate Risk

   Hint

   It relates to the rate at which the investment grows.

4. 4.

   Dividends are always distributed to shareholders.

   • True
   • False

   Hint

   Consider how companies balance between paying dividends and growth.

5. 5.

   A company has an initial investment of $100,000 in a project with cash flows of$30,000, $40,000, and$50,000 over three years. Calculate the NPV assuming a discount rate of 10%.

   Hint

   Use the NPV formula to discount future cash flows.

6. 6.

   Discuss how a change in market conditions might impact a company’s dividend policy and provide a hypothetical scenario.

   Hint

   Consider factors like cash flow and growth expectations.