Week 3 FIN
1. What is capital planning? Why is the internal rate of return important to an organization? Why is net present value important to a project? How do you select from multiple projects presented to your organization?
2. What is a lease? Why would you choose to lease instead of buy a capital item? What steps would you follow to decide whether to lease or buy a computer system?
3. How do you define working capital? What may happen if an organization neglected to manage its working capital? What techniques do you recommend for your organization? Why?
4. How does the payback method provide an indication of the risk of an investment proposal? (11)
5. Where do firms learn about new investment ideas, and what is the role of the financial analyst in determining what projects the firm should undertake? (11)
6. Should overhead expense ever be considered when evaluating investment cash flows? (12)
7. What is the risk–return tradeoff that arises when a firm manages its working capital? (18)
8. How does a firm’s use of short-term debt as opposed to long-term debt subject the firm to a greater risk of illiquidity? (18)
9. Discuss how free cash flow differs from a firm’s operating cash flow. (12)