Which of the Following Represents a Common Reason for Increases

question 39

Multiple Choice

Which of the following represents a common reason for increases in net working capital with new projects?

• A)inventory can now be held at lower levels
• B)accounts receivable are often not paid on time
• C)inventory increases more than accounts payable increase
• D)accounts payable must be increased

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Definitions:

Sunk Costs

Costs that have already been incurred and cannot be recovered, and thus should not factor into the decision-making process for future investments.

Internal Rate of Return (IRR)

A metric used in capital budgeting to estimate the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows equal to zero.

Net Present Value (NPV)

A method used in capital budgeting to assess the profitability of an investment or project by calculating the difference between the present value of cash inflows and outflows.

Capital Cost Allowance (CCA)

A yearly deduction or depreciation on the cost of certain assets that can be claimed for tax purposes in Canada.