Fin370 Week 3 Dqs

Topics: Net present value, Investment, Internal rate of return Pages: 2 (524 words) Published: October 14, 2010
DQ1
How would you define working capital?
I would define working capital as short term decisions relating to the next one year period which can be reversible. Working capital can ensure that the firm can continue its operations, and to see if there is sufficient money flow to satisfy both maturing short term debt and upcoming operational expenses. What could happen if an organization neglected to manage its working capital? If an organization neglected to manage its working capital. The organization could make decisions that could cost them if the working capital is not managed right. The organization could be in real trouble. What techniques would you recommend for your organization?

I think I would use cash because it will allow the business to meet the day to day expenses but it could reduce cash holding costs. Inventory can allow for uninterrupted production and reduce the investment in raw materials. Debtors will attract customers that might impact cash flows and cash conversion cycle will off set by the increase revenue and return on capital.

DQ2
What is capital planning?
Capital planning is the process used to determine whether a firms long term investments (which are new machinery, replacement machinery, new plants and products) all these has to return more than what the company is paying for it over the long term. What is the internal rate of return important to an organization? Internal rate of return is important to an organization because it measures the financial efficiency of the organization. Why is net present value important to a project?

The net present value is very important because it is used to planning capital investment. It is used in capital planning in analyzing the profitability of the investment in the project. How would you select from multiple projects presented to your organization? Some factors would have to be determined before selecting the project after complete capital planning and...
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