Which of the following should be included in the initial outlay? A. Purchase price of new equipment B. Increased working capital requirements C. Pre-existing firm overhead reallocated to the new project D. A and B above 2. Which of the following is NOT included in the calculation of the initial outlay for a capital budget? A. Additional working-
Net Present Value
Net present value is the most important concept of finance. It is used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. The difference between the present value of cash inflow and cash outflow is termed as net present value (NPV). It is used for capital budgeting and investment planning. It is also used to compare similar investment alternatives.
Investment Decision
The term investment refers to allocating money with the intention of getting positive returns in the future period. For example, an asset would be acquired with the motive of generating income by selling the asset when there is a price increase.
Factors That Complicate Capital Investment Analysis
Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, equipment, etc.
Capital Budgeting
Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitability of the business in the long term. The benefits of capital budgeting may be in the form of increased revenue or reduction in cost. The capital budgeting decisions include replacing or rebuilding of the fixed assets, addition of an asset. These long-term investment decisions involve a large number of funds and are irreversible because the market for the second-hand asset may be difficult to find and will have an effect over long-time spam. A right decision can yield favorable returns on the other hand a wrong decision may have an effect on the sustainability of the firm. Capital budgeting helps businesses to understand risks that are involved in undertaking capital investment. It also enables them to choose the option which generates the best return by applying the various capital budgeting techniques.
1. Which of the following should be included in the initial outlay?
A. Purchase price of new equipment
B. Increased working capital requirements
C. Pre-existing firm overhead reallocated to the new project
D. A and B above
2. Which of the following is NOT included in the calculation of the initial outlay for a capital
budget?
A. Additional working-capital investments
B. Training expenses
C. Installation
D. All is included in the initial outlay
3. Dividend policy is influenced by:
A. a firm's capital structure mix.
B. a company's investment opportunities.
C. a company's availability of internally generated funds.
D. all of the above.
4.Which of the following dividend policies will cause dividends per share to fluctuate the
most?
A. Stable dollar dividend
B. Constant dividend payout ratio
C. Small, low, regular dividend plus a year-end extra
D. No difference between the various dividend policies
5.Which of the following statements would be consistent with the bird-in-the-hand dividend
theory?
A. Dividends are less certain than
B. Dividends are more certain than capital gains income
C. Investors are indifferent whether stock returns come from dividend income or capital
gains income
D. Wealthy investors prefer corporations to defer dividend payments because capital
gains produce greater after-tax income
6. Which of the following is the most valid reason to split a stock that has a market price of
RM110 per share?
A. Conserve cash
B. Obtain additional capital
C. Increase investor's net worth
D. Reduce the market price to a more popular trading range
7. A firm following an aggressive financing policy is
A not subject to any increased risks regarding cash shortiall
B. subject to a negligible increased risk of a cash shortfall
C. subject to increased risks of a cash shortfall
D. none of the above.
8. The risk-return trade-off in managing a firm's working capital involves which of the
following?
A A trade-off between debt and equity
B. A trade-off between liquidity and activity
C. A trade-off between the firm's liquidity and its profitability
D. None of the above
9. Which of the following statements about factoring is TRUE?
A. The borrowing firm can obtain a greater advance against inventory in a factoring
arrangement than in a typical line of credit secured by accounts receivable
B. The firm, not the factor bears the risk of collecting bad receivables in a factoring
arrangement
C. Factoring involves the outright sale of a firm's accounts receivable to the factor
D. Factoring firms sell the receivables of other firms
10. A company is technically insolvent when
A. current ratio is less than 1.0.
B.
C.earnings before interest payments are less than the interest payments.
D. it lacks the necessary liquidity to promptly pay its current debt obligations.
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