[SOLUTION] Finance for Managers

We, Executives of the F & H company, reviewing complaints from the investors about the company’s slow growth of profits and dividends.

Unlike those doubters, we have confidence in the long-run demand for mechanical encabulators, despite competing digital products. We are, therefore, determined to invest to maintain our share of the overall encabulator market.

Don't use plagiarized sources. Get Your Custom Essay on
[SOLUTION] Finance for Managers
Just from $10/page
Order Essay

F&H has a rigorous CAPEX approval process, and we are confident of returns around 8% on investment. That’s a far better return than F&H earns on its cash holdings. The CFO went on to explain that F&H invested excess cash in short-term U.S. government securities, which are almost entirely risk-free but offered only a 4% rate of return.

Please answer the following questions in detail, provide examples whenever applicable, support your argument with citing peer-reviewed sources.

Is a forecasted 8% return in the encabulator business necessarily better than a 4% safe return on short-term U.S. government securities? Justify why or why not?

Is F&H’s opportunity cost of capital 4%?

How in principle should the CFO determine the cost of capital?

Order this solution Finance for Managers on our client site: gpafix.com