SOPHIA PRINCIPLES OF FINANCE MILESTONE 4 Questions and correct Answers

SOPHIA PRINCIPLES OF FINANCE MILESTONE 4 Questions and correct Answers 1 What is one disadvantage of NPV as a capital budget method? It can be misleading if inputs like cash flow turn out to be wrong. It is rarely used, so there is disagreement as to what an adequate NPV is. It cannot be used to compare investments with different upfront costs. It does not deliver an overall picture of the gain or loss of implementing a project. CONCEPT Net Present Value 2 Select a reason why a company would want to go public. To increase direct oversight from investors To decrease administrative costs To consolidate control of the company in the hands of management To have access to cheaper capital than a private company would CONCEPT Comparing Public and Private Financing 3 A company with a 120-day operating cycle determines its cash conversion cycle using the following data: Receivable days: 35 Inventory days: 95 Payable days: 45 What is the company's cash conversion cycle? 105 75 25 165 CONCEPT Cash Conversion Cycle 4 Which of the following is a goal of working capital management? To ensure liquidity and increase cash holding costs To balance adequate cash flow against maximal returns To lengthen the span of time between payment of accounts payable and collection of accounts receivable To minimize free working capital and maximize opportunity costs CONCEPT Working Capital Financing 5 What does the residual dividend model mean for investors?