CFO & PV Finance Departments Term Paper

Moreover, many firms do not groom their CFOs to one day take the top position, wary of just such limitations.

In many industries, CFOs are not suited to the CEO role, because their skills do not reflect the key competitive advantages of the firm. However, in many cases the CFO is in the best position to drive shareholder value, and their skills in evaluating and structuring mergers and acquisitions can prove invaluable.

2) 1. The present value of 5700 one year from now at 3.6% interest is $5,501.93. The present value of 8900 two years from now at 3.6% interest is $8,294.14. The combined present value of these two accounts is $13.796.07.

2. At a 5% discount rate, the NPVs of the cash flows are: Year 1 $43.809m; Year 2 $67.120m; Year 3 $57.877m for a total of $168.806m. At a 12% discount rate the NPVs of these flows are: Year 1 $41.071m; Year 2 $58.992 m; Year 3 $47.689 m for a total of $147.753m.

At a discount rate of 10% the NPVs of the cash flows are: Year 1 $41.818M; Year 2 $61.157m; Year 3 $50.338m for a total of $153.313m. At a discount rate of 8% the NPVs of the cash flows are: Year 1 $42.592m; Year 2 $63.443m; Year 3 $53.186m for a total of $159.222m. At a discount rate of 6% the NPVs of the cash flows are: Year 1 $43.396m; Year 2 $65.859m; Year 3 $56.254m for a total of $165.510.

At a discount rate of 4% the NPVs of the cash flows are: Year 1 $44.230m; Year 2 $68.417m; Year 3 $59.562m for a total of $172.10m.

With each change in the discount rate from 10% down to 2%, the value of the flows is greater. The time value of the money increases as the discount rate decreases, as less money is theoretically lost due to inflation or interest. Therefore, as the value of the flows increases, the value of the mine today also increases, such that the flows at a 2% discount rate are as follows: Year 1 $45.098m; Year 2 $71.126m; Year 3 $63.135m for a total NPV of the mine of $179.360m.

3. a) Confirmed that the IRR is listed as 13.453% and the NPV at 10% is 101.24743 given these cash flows.

A b) the IRR of the project is 6.05%. The NPV with a discount rate of 8% is -$870,000. The company should not undertake the project. With respect to the IRR, this is lower than the company's cost of capital, which means the proposal should be rejected. With respect to NPV, the net present value of the cash flows is negative, meaning a fiscal loss, so again the project should be rejected.

A c) the NPVs with the following discount rates are as follows: d=0, NPV = $3.2m; d=4, NPV = $993,000; d=8, NPV = ($870,000); d=12, NPV = ($2.4m); d=16, NPV = ($3.8m). As the cost of capital for the firm increases, the project's net present value decreases. The point at which the NPV intersects with zero is around 6%, which is the IRR for the project.

Works Cited

Sandrick, Karen. (1995). From CFO to CEO:.....