D076 - Finance Skills for Managers

1 - PI's break-even point. If the PI is 1.15, then the project generates 15% more in the present value of cash inflow than the initial investment. One the other hand, if PI is .90, the project generates cash inflows that are 10% short of the initial investment. You should accept a project with a PI greater than 1 and you should reject a project with a PI less than 1 3 Key uses of the cash budget - indicating future financing needs, providing a basis for corrective action, and providing the data for performance evaluation A specialist - provides liquidity and lowers the cost of trading stocks between sellers and buyers activity ratios - (also called efficiency ratios) measures how well the company uses its assets to generate sales or cash - the firm's operational efficiency and profitability. Includes accounts receivable turnover, average collection period, inventory turnover, total asset turnover, fixed asset turnover, and operating income return on investment Advantages of PI - (1) considers the time value of money (2) Takes into account the risk of future cash flows through the cost of capital (3) Includes all future cash flows (4) Indicates whether an investment will create value for the company Advantages of Stock - one of the major advantages of stock is that it does not require a fixed interest payment or return of principal to investors. The funds are available to help grow the company without the need to specifically repay the proceeds.