Question

Monitoring the Cost Of Money: Interest Rates

Interest rates, the cost of money, influence most all factors related to personal and corporate capital budgeting. The more obvious personal information for the cost of money is the rates associated with a mortgage or car loan. As a CFO you would “shop” interest rates to find the best rate for your financing needs.

1. Would you, as the CFO, finance your projects as soon as possible if the cost of capital was expected to drop? Please explain.

2. More importantly, where do you find the information to analyze expected changes in interest rates?

3. Please list references and in-text citations.

Answer 1

Answer :- Yes if there was a possibility that my projece finances are drop in future or we say it is in the proocess of dropping . I would finance my project. At that case i want to be a fixed rate or a low rate interest to insure that i stop my project finances from transfering or settleing due to high rates of interest. No person wants that he was fixed at high interest rates , this makes a bad end . It means high interest rates will eat you in the end. Many times there is a position that the rstes of interest or interest cost can be high as compared to original high financial project cost.

Answer (b) If i were analyse there there is a expectation of dropping the cost of capital . I use the free cash flow that is after tax . The FCF is equal to the incremental cash flow after tax net of capital expenditures and working capital investment in the project.The After Tax Free Cash Flow also equal to the operating income net of capital Expenditures , Tax expenses and interest expenses. and also the net working capital invested specifically