Financial Management - Study Mode

[#536] Required increasing in current assets and an increasing in current liabilities is subtracted to calculate
Correct Answer

(A) change in net working capital

Explanation

Solution: Net working capital is the aggregate amount of all current assets and current liabilities. It is used to measure the short-term liquidity of a business, and can also be used to obtain a general impression of the ability of company management to utilize assets in an efficient manner.

[#537] Cash flows that could be generated from an owned asset by company but not use in project are classified as
Correct Answer

(C) opportunity costs

Explanation

Solution: Cash flows that could be generated from an owned asset by company but not use in project are classified as opportunity costs. Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another.

[#538] In capital budgeting, cost of capital is used as discount rate and is based on pre-determines
Correct Answer

(B) cost of debt and equity

Explanation

Solution: In capital budgeting, cost of capital is used as discount rate and is based on pre-determines cost of debt and equity. Cost of debt refers to the effective rate a company pays on its current debt. The cost of equity is the return a company requires to decide if an investment meets capital return requirements.

[#539] Economists consider effects of started project on other parts of company or on environment of company is called
Correct Answer

(A) externalities

Explanation

Solution: Economists consider effects of started project on other parts of company or on environment of company is called externalities. An externality is an economic term referring to a cost or benefit incurred or received by a third party. However, the third party has no control over the creation of that cost or benefit. An externality can be both positive or negative and can stem from either the production or consumption of a good or service.

[#540] Situation in which company replaces existing assets with new assets is classified as
Correct Answer

(A) replacement projects

Explanation

Solution: Situation in which company replaces existing assets with new assets is classified as replacement projects. A replacement project is an undertaking in which the company eliminates a project at the end of its life and substitutes another investment.