Section 1
There are several advantages of choosing a finance officer to the chief executive officer position. To begin with is the knowledge of the business the finance officer has concerned the company. In addition to the financial knowledge of the business, the financial officer understands how it functions at the executive level. Having he grasp of the company's financial picture, this enables him to implement the financial recommendations from the chief executive officers' position than in the financial officers' position.
Secondly, the chief financial officer has the understanding of running a business in a cost effective manner. Has the knowledge of deciding what is profitable for the company. Therefore, he is a decision maker as the chief executive officer. In the project selecting, the financial officer has the knowledge of choosing the profitable and goal oriented project in a long run basis. This gives him the attributes of being the chief executive officer.
There are also some disadvantages of having the financial officer as the chief executive officer. The first shortcoming is the financial officer has concentrated and specialized on finance and accounting. Therefore, he may lack the marketing and managerial aspects that the chief executive officer must have in the coordination of the company's activities. Then, the financial officer concentrates with the numbers. For the chief executive officer, a lot of concentration is on the benefit of the company growth as a whole.
Section 2
The accuracy of the net present value of the proposed project depends on the interest rate of the evaluation. The depends on factors such as the initial cost of investment and expenses on the project. The pressure point is most likely to occur during the depreciation evaluation as per the rate decided on in the market. Some of the capital such as land has zero depreciation rate compared to other capital assets. A car company considering manufacturing a car that operates on a new fuel has a lot of uncertainty on the market demand and the cost. It will be the first entry to the market thus the tax not well defined, and revenue to generate is unknown. Therefore working with the mere numbers that cannot give accurate net present value
A husband and wife opening a retail business have an advantage of comparing their business with the surrounding retail businesses. Though the operating expenses depreciation and taxes are hard to establish, thus it gives unsatisfactory net present value. Opening a branch of Starbucks in a new location has the advantage of being not at the initial stage. This is as a result of the comparison of the net present value of the existing Starbucks and a new one. This thus gives most accurate net present value calculation. The initial investment and the cashflows are not new even after introduced it in a new location.
Section 3
The small companies are going for the convertible debt as a form of financing their business. The reason behind this is compensation of a discount or warrant from the lender. In additional, there is less transaction cost comparing to the issuing debt versus equity. Some companies believe the equity will have additional worth at later dates, and it will not dilute by issuing debt and convert it later. This makes the idea of convertible debt be a choice of the upcoming companies. Finally, the investors get the opportunity to invest in a company where they put their money into a convertible note. Then they have the privilege of setting the price in later. In allowing the firms to convert bonds into the stock, they are given some value in return.
Reference
Yvon, S. (2010). Convertible bonds-demystified. London: Trafford On Demand Pub.
