Week 3 Discussion Question Fin370

Week Three Discussion Questions

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?

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* Working capital is the conversion of raw materials into finished goods, and the amount of day-to-day operating liquidity. If an organization neglects to manage its working capital there will be more liabilities over assets. The techniques I would recommend would be NPV, Payback period, ARR, IRR.

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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?

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* Capital planning is when a firm analyzes the available assets and projected costs in order to determine where to invest the resources. Companies generally review their capital budgets on annual bases in order to prepare an investment plan for the following year. The internal rate of return is important to an organization because it tells you exactly how hard your money is working and it is not misleading like many other measures of rate of return. The NPV method is used to determine the worthiness of future projects. This is done by estimating initial costs, future cash inflows, and future cash outflows related to the project. I select projects with added value to the organization with high visibility.

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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?

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* A lease is an agreement stating how much a user will pay to the owner for the use of something, like a property item. Corporate tax breaks and since you never own it you do not have to pay tax on it is the reason companies lease instead of purchasing. One would need to calculate the net present value of purchasing if the present value is...