Please Answer The Following In Short Form: 2-5 Sentences Eac

Please Answer The Following In Short Form 2 5 Sentences Each Some Are

1. In capital budgeting, the cost basis used for a new asset is typically the initial purchase price plus any additional costs necessary to bring the asset to operational condition, such as installation and transportation costs. Sunk costs are excluded because they are unrecoverable and do not influence future decisions. The focus is on incremental cash flows that the project will generate or require.

2. The cash flow result to a corporation from a reduction in working capital is an influx of cash, which improves liquidity. A reduction in working capital generally benefits shareholders by increasing free cash flow, which can lead to higher dividends or reinvestment opportunities.

3. The initial investment in a capital expenditure is calculated as the purchase price plus any additional costs like installation, minus any salvage value at the end of the project. Sunk costs, which are past expenses not recoverable, are not included in the initial investment calculation.

4. Lost sales due to increased competition are considered incremental cash flows—specifically, they are subtracted from the projected sales in capital budgeting analyses to reflect the true additional value of the new product.

5. The correct answer is: c. Time value of money and risk factors. Cash flow decision methods capture the impact of the time value of money and associated risk on investment evaluations.

6. If a firm has unlimited funds, it should undertake all independent projects that have a positive net present value (NPV), as these will increase overall value regardless of capital constraints.

7. Deductions for taxes are made during the comparison of proposed capital investments, specifically after estimating the cash flows but before final decision-making, to assess their net after-tax benefit.

8. In capital budgeting, “intermediate cash flows” refer to the incremental cash inflows and outflows that occur during the lifespan of a project, excluding the initial investment and final salvage value.

9. A firm can evaluate its accounts receivable management by analyzing the impact of its trade credit terms, such as the 2/10, Net 30 discount, on cash flow, receivables collection, and overall liquidity to optimize credit policy and working capital.

10. Accounts receivable days are calculated as: a. Accounts receivable / average daily sales, to determine how long receivables are outstanding relative to sales.

11. Political risk is the threat of loss due to political changes or instability in a country. Firms can minimize this risk through diversification, political risk insurance, and engaging in government lobbying or partnerships.

12. The correct definition of “working capital gap” is: b. The difference in days between the time payment to a supplier is required and payment from customers is received, reflecting the firm's liquidity cycle.

13. A “capital budget” is a plan for a company's long-term investments in assets; “capital budgeting” is the process of evaluating, selecting, and managing these investments to maximize value.