In Evaluating the Initial Investment for a Capital Budgeting Project

question 40

Multiple Choice

In evaluating the initial investment for a capital budgeting project,

• A) net working capital does not have to be considered.
• B) a decrease in net working capital is considered a cash outflow.
• C) an increase in net working capital is considered a cash outflow.
• D) an increase in net working capital is considered a cash inflow.

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Definitions:

Dividends Received

Income received from shares in a company, typically distributed from profits to shareholders as decided by the board of directors.

Short-Term Investment

Assets that are expected to be converted into cash, sold, or consumed within one year or within the business's operating cycle.

Readily Marketable

Assets that can be sold quickly and with minimal impact on their price due to their appeal to a wide range of buyers.

Operating Cycle

The average time that it takes to purchase inventory, sell it on account, and then collect cash from customers.