please answer all the questions not just one question B. If the correct answer i

Question

please answer all the questions not just one question

B. If the correct answer is not listed, then measured using 1 In capital budgeting benefits and costs are a. cash flows b. net income c. additions to retained earnings d. changes in depreciation 2. Net working capital is usually defined as a. current assets b. current liabilities c. current assets + current liabilities d. current assets - current liabilities ecreasing the proportion of current liabilities on a companyý's balance sheet wil result in a. lower costs b. greater expected profits c. higher risk d. less flexibility 4. The goal of a business firm is to a. maximize earnings per share (E.P.S.) b. minimize the risks faced by the firm c. maximize the stock price d. increase sales revenues 5. Which of the following will have a smaller present value? a. Annuity due b. Ordinary annuity

Explanation / Answer

1:Cash flows

In capital budgeting cash flows are taken into account since it represents actual cash inflow and outflow arising from the project. Net Income takes into account non cash expenses like depreciation. Also interest is not considered since cost of capital is already used as discount factor. Addition to retained earnings is an accounting treatment and not specifically related to the decision. Changes in depreciation is non cash and not considered but the tax effect of depreciation is considered.

2: d:Current assets- current liabilities

Working capital is the capacity to meet short term liabilities using immediate assets.

3: d less flexibility

Current liabilities give flexibility to meet the seasonal needs of the business. It does not result in lower costs or greater profits since they depend on revenue and cost proportion. Reducing liabilities will in fact decrease risk due to better liquidity.

4: c: Maximize stock price

Goal is to maximize shareholder wealth which is determined by share price. Maximizing EPS only focuses at profits which is not the only goal. Minimizing risk is not the main goal since that will not strike the right balance between risk and profits. Increasing revenues will not always result in increasing shareholder wealth and hence not the main goal.

5: Ordinary annuity

Since the ordinary annuity is received after 1 year it has a discounted value. Annuity due is received at the start of the year and hence discounted lesser.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.