Exam 1 Practice Problems

Question 2: What factors should you keep in our mind as a financial manager when selecting methods of capital budgeting? and Why is rebalancing between methods of capital budgeting are important?

Defining capital investments and the capital budgeting process Match each definition with its capital budgeting method. Methods 1. Accounting rate of return 2. Internal rate of return 3. Net present value 4. Payback Definitions a. Is only concerned with the time it takes to get cash outflows returned. b. Considers operating income but not the time value of money in its analyses. c. Compares the present value of cash outflows to the present value of cash inflows to determine investment worthiness. d. The true rate of return an investment earns.

All parts are under one questions and per your policy can be answered in full.  1. Concepts used in cash flow estimation and risk analysis You can come across different situations in your life where the concepts from capital budgeting will help you in evaluating the situation and making calculated decisions. Consider the following situation:   A. The following table contains five definitions or concepts. Identify the term that best corresponds to the concept or definition given.   Concept or Definition Term An example of externality that can have a negative effect on a firm      The cash flow at the end of the life of the project      Creates value for a company because it gives the company the right but not the obligation to take future action to increase its cash flows      The risk of a project without factoring in the impact of diversification      A risk analysis technique that measures changes in the internal rate of return (IRR) and net present value…

1. Concepts used in cash flow estimation and risk analysis You can come across different situations in your life where the concepts from capital budgeting will help you in evaluating the situation and making calculated decisions. Consider the following situation: The following table contains five definitions or concepts. Identify the term that best corresponds to the concept or definition given. Concept or Definition Term The specific cash flows that should be considered in a capital budgeting decision      A cost that has been incurred and may be related to a project but should not be part of the decision to accept or reject a project      The cash flows that the asset or project is expected to generate over its life      The effects on other parts of the firm      The cost of not choosing another mutually exclusive project by accepting a particular project        A successful sushi chain in Hong Kong spent $500,000 to conduct a study on whether to open…

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What is meant by the term financial planning tools? State the examples of such tools.Explain the purpose of financial planning tool in reviewing financial data: 2 purposes for cash flow forecast and 2 for break-even analysis

Financial accounting: the payback period method

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Statement 1: Capital Budgeting is a decision-making tool Statement 2: In the capital budgeting phase, all the cash inflows, outflows, and savings (such as tax savings resulting from the depreciation of the purchased assets) are evaluated.  Select the correct response: a. Only statement 1 is correct b. Only statement 2 is correct.  c. Both statements are correct d. Both statements are incorrect

Defining capital investments and the capital budgeting process Match each definition with its capital budgeting method. Methods Accounting rate of return Internal rate of return Net present value Payback Definitions It is only concerned with the time it takes to get cash outflows returned. It considers operating income but not the time value of money in its analyses. Compares the present value of cash outflows to the present value of cash inflows to determine investment worthiness. The true rate of return an investment earns.

In proper capital budgeting analysis we evaluate incremental __________ cash flows. Select one: a. accounting b. operating c. before-tax d. financing

Please answer each of the following questions in detail. Make sure to provide examples for each of the questions below. Describe and explain the significance of each of the following: payback period, internal rate of return (IRR), modified internal rate of return (MIRR), net present value (NPV), and profitability index (PI). Explain. Provide examples for better clarity.Discuss the notions of conventional and nonconventional cash flows in capital budgeting. Which investment evaluation criteria would you use for unconventional cash flows and why? Provide a fictitious unconventional cash flow example and apply the payback period, NPV, IRR, MIRR, and PI methods to your example. Interpret the results. Kindly answer all the questions and sub-questions.

Source and deployment of funds concerned with 1)Ratio analysis 2)Risk analysis 3)cash flow analysis 4) profitability analysis

Multiple choice: 1. Too large an investment in fixed capital may leave too little money for A. Working capital B. Settlements C. Compliance D. Requirements 2. Circulating capital A. Cash on hand B. Working capital C. Net balances D. Cash disbursement

Capital budgeting can also be referred to as Blank______. Multiple choice question. capital restructuring cash flow discounting strategic asset allocation working capital management

In capital budgeting decisions, cash flows should always be considered when they Blank______. Multiple choice question. arise in an accounting sense actually occur are published in financial statements

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Explain how a financial manager may be able to use the cash flow breakeven to plan their financing needs in the future.

Discuss arguments supporting the need for improving the Statement of Cash Flows(SCF). What suggestions do Broom and the authors of the text make regarding improvement?

When making a capital budgeting decision, which of the following are NOT relevant? The size of a cash flow The risk of a cash flow The accounting earnings from a cash flow The timing of a cash flow Multiple Choice I only II only III only II and III only III and IV only They are all relevant.

SECTION B Answer all the questions below:. B1) Do you think capital budgeting is important? Justify? B2) List all the techniques of Capital Budgeting? You think are relevant today? B3) Do you think that these techniques are really helpful to financial managers? B4) Do you think that these techniques can be used in situations like COVID-19? B5) According to you which technique is better and why?

Which of the following are a part of capital budgeting? More than one answer may be correct. Multiple select question. Deciding how to finance operations Deciding what new products to introduce Deciding in what markets to compete Deciding how to manage short-term operating activities