Assignment
Answer the following in short form 2-5 sentences each! Some are just multiple choice!
1. In capital budgeting, what cost basis is used for a new asset?
2. What is the cash flow result to a corporation from a reduction in working capital, and how does a reduction in working capital affect shareholders?
3. How is the initial investment in a capital expenditure calculated? How are sunk costs treated in calculating an initial investment?
4. Suppose a firm is developing a new product. If the firm anticipates that sales of its existing products are likely to be reduced by products introduced by its competitors, how are those lost sales considered in capital budgeting?
5. Which of these items do cash flow decision methods capture?
Select one:
a. Cost of capital and fixed cost
b. Return on investment and EBITA
c. Time value of money and risk factors
d. Present value of money and inflation rate
6. If a firm has unlimited funds, what decisions should it make regarding independent projects?
7. When are deductions for taxes made in comparing two proposed capital investments?
Select one:
a. After making the comparisons
b. Before making the comparisons
c. During the first year of a project
d. Taxes are not deducted in the comparisons
8. In capital budgeting, what are "intermediate cash flows?"
9. How can a firm use accounts receivable management to evaluate its 2/10, Net 30 discount trade credit policy?
10. How are accounts receivable days calculated for purposes of the cash conversion cycle?
Select one:
a. Accounts receivable / average daily sales
b. Accounts receivable - inventory
c. Accounts receivable / inventory
d. Accounts receivable - accounts payable
11. What is political risk, and how can a firm minimize political risk?
12. Choose the correct definition of "working capital gap."
Select one:
a. The difference between the working capital a firm budgets and the average daily working capital
b. The difference in days between the time payment to a supplier is required and payment from customers is received
c. The difference in days between the time inventory is paid for and the time the inventory is shipped from a supplier
d. The difference between the outstanding accounts receivable of a firm and its outstanding accounts payable
13. Define "capital budget" and "capital budgeting."