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Treasury Bills versus Treasury Notes and Changes in Interest Rates

The daily market transactions for treasury instruments are in the billions. The current average daily volume of "Treasuries" is approximately $150 billion. Like you, corporations may have extra cash to invest.

In this case, you, as a finance manager, are considering investing $50,000 in either a Treasury bill that you will renew every 6 months or investing in a 5-year Treasury note that you will hold until maturity. Current interest rates are expected to increase.

Would you invest in the Treasury bill or Treasury note? Discuss your reasoning.

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Presentation to the Board of Directors, The Pros and Con of Debt Financing

The calculation of after-tax cost of debt plays a role in managing capital costs. You have been asked to present a few matters related to Debt (Bond) financing to the Board of Directors.

Please briefly explain to the Board 1) the usual collateral position of Bondholders (Lenders) versus Equity investors, 2) why common stockholders can demand a higher rate of return than lenders, and 3) why you would suggest debt (or equity) financing.

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APA

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Modigliani and Miller: A Challenge to Capital Budgeting Strategies

Financing corporate purchases and overall capital budgeting usually requires the finance manager to assess tax rates, dividend payout policy, weighting of capital sources, and more.

However, the Modigliani and Miller propositions state that, in most situations, it does not matter if the firm's capital is raised by issuing stock or selling debt.

As a student you might assume studies of capital budgeting strategies will no longer be reviewed in coursework. Before coming to that conclusion please discuss the principles presented by Modigliani and Miller and explain your agreement or disagreement.