What Is the Net Effect on a Firm's Working Capital

question 96

Multiple Choice

What is the net effect on a firm's working capital if a new project requires: $30,000 increase in inventory, $10,000 increase in accounts receivable, $25,000 increase in machinery, and a $20,000 increase in accounts payable?

• A)- $5,000
• B)+ $10,000
• C)+ $20,000
• D)+ $45,000

Comprehend the significance of the internal rate of return (IRR) and how it serves as a decision criterion in capital budgeting.

Grasp the importance and calculation method of the payback period for investment decisions.

Recognize the role and limitations of accounting rate of return (ARR) in investment choices.

Identify different capital budgeting evaluation methods and their applications.

---

Definitions:

Overvalued

A term used to describe a situation in which a security or asset is trading at a price that exceeds its intrinsic value.

Undervalued

A description of an asset or currency whose price is believed to be lower than its intrinsic value.

Mutual Fund Managers

Professionals responsible for managing the investment portfolio of a mutual fund, making decisions about which securities to buy, hold, or sell.

Future Value

The value of a current asset at a specific date in the future based on an assumed rate of growth.