12.6.1. Key Areas

Try these first

1. 1.

   What is capital budgeting?

   Hint

   Think about investments that last for years.

2. 2.

   What does working capital management focus on?

   Hint

   Consider cash flow and daily operations.

3. 3.

   What is the main focus of capital budgeting?

   • Short-term profits
   • Long-term investment decisions
   • Daily operational expenses

   Hint

   Consider where a company places its large investments.

4. 4.

   True or False: Financing decisions can only involve acquiring loans.

   • True
   • False

   Hint

   Remember the balance between debt and equity.

5. 5.

   A firm is considering investing in new technology that requires a capital expenditure of $500,000, expected to generate a return of$150,000 annually for five years. Determine the NPV if the discount rate is 10%.

   Hint

   Remember the formula for calculating NPV and apply the discount factor.

6. 6.

   Imagine a company that needs to decide between issuing bonds or stocks to raise $1 million. Discuss the potential advantages and disadvantages of both options and their impact on the company's long-term financial health.

   Hint

   Consider long-term implications and immediate advantages of cash flow.