Assignment for the third week of managerial finance
The management of short-term needs for an organization is done through a number of working capital practices. These include activities like tracking and controlling the inventory level, accounts receivable and accounts payable. In order to meet operating costs without incurring excessive debt, it is also important to have a good cash flow.
By measuring the return on investment over time, capital budgeting methods help companies evaluate possible investments. These include methods such as net present value (NPV) which calculates the discounted future cash flows generated by an investment minus its cost; internal rate of return (IRR) which measures the expected return on investment based on its projected cash inflows; payback period which determines how long it will take to recoup initial expenditures; and profitability index which compares total present value of a project’s future benefits with its cost. These tools are used by corporations to evaluate the risks and rewards of any ventures or investments. This helps them make an informed decision about how to allocate resources to maximize their profits.