FINC 3620- Exam 3 || with A+ Guaranteed Solutions.
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Course
FINC 3620-
Institution
FINC 3620-
Business life cycles correct answers -Start-up
-Growth
-Mature
-Decline
Three goals of cash management correct answers 1.) Dont run out of cash
2.) Achieve positive cash flow
3.) Maximize return on excess cash
Positive Working Capital correct answers The amount by which the current asset...
FINC 3620- Exam 3 || with A+ Guaranteed Solutions.
Business life cycles correct answers -Start-up
-Growth
-Mature
-Decline
Three goals of cash management correct answers 1.) Dont run out of cash
2.) Achieve positive cash flow
3.) Maximize return on excess cash
Positive Working Capital correct answers The amount by which the current assets of a business
exceed the current liabilities of a business
Screening Decision correct answers -Seeing if choices meet a certain criteria
-Helps to narrow down choices
-Payback is good for this
Payback correct answers -Calculates the number of years it will take a business to get back the
money it invests in a proposed project or asset purchase
-Acceptable when you want your money back quickly
Payback factors correct answers -Cost of the project
-Average expected annual after-tax benefit of the project or asset
Payback disadvantages correct answers -Doesn't consider TVM
-Favors investment with a quick return over those with the largest overall return
-Doesn't provide a clear answer regarding whether one should invest in a particular opportunity
NPV correct answers -Considers the TVM by discounting the future CF associated with a
proposed project or asset purchase back to the present
-Lowest total cost
NPV is a correct answers Dollar amount above
Discount Rate= correct answers Minimum required rate of return
NPV: take the investment if correct answers NPV is positive
NPV advantages over payback correct answers -The future CF that will be paid and received are
discounted back to the present so a decision can be made on the investment based on an
objective criteria
-The interest rates used are determined by, and based on, the expectations specific to the
company
IRR pros correct answers -Considers TVM
, -Matches the PV of the cost of our investment directly to the present value of the future benefits
to be received
IRR factors correct answers -FV
-PV
-interest rate per period
-Number of compounding periods per year multiplied by the number of years
Why CF rather than NI? correct answers -Cash flow is a measure of whether a company has
enough capital to sustain itself
-A business can be profitable and still go out business because it runs out of cash
-CF is more concrete
-NI can be affected by accounting measures
Working Capital Management correct answers The art of controlling current assets and current
liabilities in such a way that a firm will:
-maintain adequate cash and inventory levels
-maximize the return on assets
-minimize the size of the payments needed to settle its liabilities
Best practices for everyday operations correct answers -Depositing cash and checks as soon as
possible
-Invoicing and collecting from customers on a timely basis
-Paying bills when they're due and not before
-Making strategic decisions regarding how much cash to keep on hand vs cash not needed and
therefore available for investment
Common options with offering credit correct answers -A business issues its own credit card
-A business offers its customers trade credit, potentially featuring a variety of time frames and
other terms associated with repayment
-A business offers credit to its customers via its own credit card or via trade credit and then more
or less immediately factors these accounts recieveable to another firm at a discount in order to
turn the AR into cash quickly
Credit policy guidelines correct answers -To whom they will grant credit
-The terms of the credit granted
-How they'll monitor credit and deal with delinquent accounts
Common credit terms correct answers -Indicate that no interest change will apply to amounts
paid in full within a stated number of days for payment, usually 30 days, after an applicable
purchase
-State the interest rate or late fee that will apply after the stated number of days
-State a minimum portion owed that must be repaid each month
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