respond to the below post, do not rate post: Manage Discussion Entry The current
respond to the below post, do not rate post:
Manage Discussion Entry
The current money market rate as of June 01, 2022 is 0.83%, and the bank prime loan is 4.00% (Federal Reserve, 2022). If my business had $7 million set aside for an expenditure in three months, I would have to make an educated decision if I wanted to invest it in the meantime. I would first prioritize to see if any short-term projects could bring in revenue. The manager of the project would have to check the feasibility of it. The NPV and IRR would be calculated to help determine the route to take. If a positive NPV is calculated, then the project is one to invest in. I would then consider investing in a three-month Treasury bill. “A Treasury Bill (T-Bill) is a short-term U.S. government debt obligation backed by the Treasury Department with a maturity of one year or less” (Hayes, 2022). It is exempt from state and local taxes; only subject to federal tax. Since the T-Bill is set at a fixed income rate, a stable income will be provided to the business. As of June 01, 2022, the three-month interest rate for T-Bills in 1.12 (Federal Reserve, 2022).
If there was a chance that the money was needed earlier, it would be better for the business to issue debt financing. Debt financing is preferred over the equity financing. “Debt financing involves the borrowing of money whereas equity financing involves selling a portion of equity in the company” (Maverick, 2022). My second choice would be to invest in a four-week T-Bill. The current interest rate for four-weeks in 0.75 (Federal Reserve, 2022).
References:
Federal Reserve. (2022). Board of governors of the Federal Reserve System. The Fed – H.15 – Selected Interest Rates (Daily) – June 02, 2022. Retrieved June 2, 2022, from https://www.federalreserve.gov/releases/h15/
Hayes, A. (2022, June 2). Treasury Bills (T-bills). Investopedia. Retrieved June 2, 2022, from https://www.investopedia.com/terms/t/treasurybill.asp
Maverick, J. B. (2022, April 20). Equity financing vs. debt financing: What’s the difference? Investopedia. Retrieved June 2, 2022, from https://www.investopedia.com/ask/answers/042215/what-are-benefits-company-using-equity-financing-vs-debt-financing.asp
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