Question
Bonnie appears to be very excited with the above project. She is happy to invest all her savings and external borrowings to make the project
Bonnie appears to be very excited with the above project. She is happy to invest all her savings and external borrowings to make the project happen. Your concern is that Bonnie ignores all together the fundamental concepts from managerial finance. As such, as her advisor, you take an appropriate approach to carefully explain to her various issues concerning managerial finance for non-finance director/owner like Bonnie.
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Bonnies bank account currently has a balance of A$2,750,000. This account effectively pays no interest income. You advise Bonnie to put this entire amount in the 1-year deposit account. The offers from two local banks are considered. The first bank, ABC, adds interest income every quarter at the rate of 5% per annum whereas the second bank, XYZ, adds interest every six-month at the rate of 4.5% per annum. Advise Bonnie where she should deposit her savings and how much she will have in one year. (Hint: Calculate the Effective Annual Rate).
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Bonnie is concerned that she may not have sufficient cash for her company. Her view is that a company should hold as much as cash possible, and the more the better. Is this view appropriate and how can you advise Bonnie? Explain within 100 words including references if required.
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It is widely agreed that the most important and relevant concept, among others, from managerial finance to business is the time value of money. Within 150 words, justify this view and provide example wherever relevant.
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