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Week 3 Discussion

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Discussion Questions

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? * * 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 profitability. *
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? * * Capital planning is the process of planning for the future or replacing equipment. When capital planning, it is important to take the value of money into consideration. Thus, will the product or equipment have a higher return? In addition, will the product or the project retain its value in the foreseeable future? Another reason why the internal rate of return is important, is because it tells the organization if the risk of the investment. 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

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