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1) Each of given statements is true. Describe why they are reliable.

a) When the company introduces the new product, or expands production of the existing product, investment in net working capital is regularly the significant cash outflow.

b) Forecasting changes in net working capital is not essential if timing of all cash inflows and outflows is carefully specified.

2) Some people believe strongly, even keenly, that ranking projects on IRR is OK if each project's cash flows can be reinvested at project's IRR. They also say that NPV rule "suppose that cash flows are reinvested at opportunity cost of capital." Believe carefully about these statements. Are they true? Are they helpful?

3) Reply to the given comments:

a) "I like the IRR rule. I can utilize it to rank projects without having to identify a discount rate."

b) "I like payback rule. As long as minimum payback period is short, rule makes certain that company takes no borderline projects. That reduces risk."

5) What do you mean by the "horizon value" of the business? How can it be evaluated?

6) Under what circumstances does 'r', stock's market capitalization rate, equal its earnings-price ratio EPS1/P0?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914385

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