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?
* The equation for working capital is assets minus liabilities. Anything below 1 indicates negative working capital. If a company neglects maintaining their working capital, they run the risk of being in debt or even going bankrupt. Some techniques organizations due to ensure they have a good amount of working capital is ensuring they are paid on time (accounts receivable). In addition, it is also important they are paying their creditors on time. Last, it is important to invest any excess cash to maximize ...view middle of the document...
Net present value is taken into consideration when investing because it predicts the future of the cash flow from the equipment and investment. If the NPV is positive, then the project is usually accepted. However, if the NPV is low than the risk may be higher. Organizations select certain projects based on different proposals that are correlated to the amount and method the organization will use to finance the project. The goal is to invest the least amount of money and receive the higher return.
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?
* A lease is when one party agrees to pay another party for the use of equipment or property. A company would decide to lease an item, versus purchasing the good depending on working capital. If a company has a lot of working capital, then they may choose to lease an item. Another benefit to leasing is that it makes it easier to upgrade or change to a different product. However, purchasing an item has its benefits as well. One benefit is owning the product and not having to pay on the product each month. In addition, purchasing a product can also be a tax incentive.
Mayo, H. B. (2012). Basic Finance: An introduction to financial institutions, investments,and management (10th ed.). Mason, OH: South-Western.
Titman, S., Keown, A. J., & Martin, J. D. (2011). Financial Managment: Principles and Applications (11th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.