1. (TCO 8) Planning for capital investments is an important function of management. You are responsible for considering purchasing a new exhibit. It would cost $136,000 and have an estimated useful life of 5 years. The salvage value is $70,000. It is expected to increase net annual cash flows by $25,000. The borrowing rate is 8%. The cost of capital is 10%. Calculate the net present value of this project. (1) Explain the pros and cons of using this method to evaluate a capital expenditure and (2) show all computations required to arrive at the correct solution.
2. To adequately plan for the success of the business a budget must be developed. (1) Indicate the benefits of budgeting (10 points) and (2) state the essentials of effective budgeting . Include textbook page references to identify where the correct answer was located.
3. Financial statement analysis is used by investors, creditors and managers of business to evaluate the operation and health of the business. This information is in part the basis for decision making. (1) Identify ratios used to evaluate the profitability of a company and (2) provide an example of how the results of this analysis could be used to make business decisions.
4. There are three different forms of business; sole-proprietor, partnership and corporation. (1) Explain why a corporation''s government regulations may be a disadvantage and (2) as a stockholder explain why a stockholder would want to own preferred stock.