A Firm That Wishes to Minimize Risk When Investing Idle

question 47

Multiple Choice

A firm that wishes to minimize risk when investing idle cash would be least likely to buy

• A)commercial paper.
• B)long-term corporate bonds.
• C)certificates of deposit.
• D)Treasury bills of the U.S.government.

Calculate and understand the significance of the cash payback method in capital budgeting.

Understand the concept of payback period and how it is calculated.

Know the differences between net present value and average rate of return methods of capital investment analysis.

Recognize the purpose and method of calculating average rate of return.

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Definitions:

Capitalize Interest

The process of adding interest costs to the balance sheet for the construction of long-term assets, instead of expensing them in the period they are incurred.

Economic Benefit Approach

A method used in accounting and taxation to evaluate transactions based on the economic value received as opposed to the legal form of the transaction.

Economic Worth

The value of an asset, company, or service determined through market dynamics, financial performance, and future earnings potential.

Financial Statements

Reports detailing the financial performance of a company, including balance sheet, income statement, cash flow statement, and statement of shareholders' equity.