Foundations Of Financial Management
Foundations Of Financial Management
17th Edition
ISBN: 9781260013917
Author: BLOCK, Stanley B., HIRT, Geoffrey A., Danielsen, Bartley R.
Publisher: Mcgraw-hill Education,
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Chapter 7, Problem 2DQ
Summary Introduction

To explain: The similarities as well as differences in lockbox systems and regional collection offices.

Introduction:

Lockbox systems:

It is a system in which remittances are collected from the customer by putting lockboxes in multiple locations. The bank will empty the lockboxes and deposit the amount in the bank account of the company.

Regional collection offices:

These are office setups to manage the receivables of a particular region. These offices collect remittances from the customer. The firm has to set these offices up in the regions it deals in.

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Scenario one: Under what circumstances would it be appropriate for a firm to use different cost of capital for its different operating divisions? If the overall firm WACC was used as the hurdle rate for all divisions, would the riskier division or the more conservative divisions tend to get most of the investment projects? Why? If you were to try to estimate the appropriate cost of capital for different divisions, what problems might you encounter? What are two techniques you could use to develop a rough estimate for each division’s cost of capital?
Scenario three: If a portfolio has a positive investment in every asset, can the expected return on a portfolio be greater than that of every asset in the portfolio? Can it be less than that of every asset in the portfolio? If you answer yes to one of both of these questions, explain and give an example for your answer(s). Please Provide a Reference
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Foundations Of Financial Management

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