Author Question: Larger the difference between an asset's worst outcome from its best outcome, the higher the risk of ... (Read 117 times)

Zulu123 · **on:** Jul 10, 2018

Larger the difference between an asset's worst outcome from its best outcome, the higher the risk of an asset.

Indicate whether the statement is true or false

Question 2

Provide definitions for capital budgeting, capital structure, and working capital management. Give an example of a capital budgeting type decision and then do the same for capital structure and working capital management.

What will be an ideal response?

efwsefaw · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

TRUE

Answer to Question 2

Answer: Capital budgeting is the process of choosing which long-term assets a firm should purchase to best meet the goal of maximizing shareholders' wealth. A firm might need to choose among several processes to produce a product for sale. The manager needs to choose the process that will be most valuable for the company.
Capital structure is choosing the optimal mix of long-term debt and equity to minimize the cost of capital. Here, a manager looking to finance a capital budgeting project might have to choose between a mixture of internal financing and external debt and equity.
Working capital management is the day-to-day management of short-term assets and liabilities, for example, what level of inventory to carry or what credit terms to extend to potential customers.
Explanation: This question is very open ended in that there are many different examples a student can provide for each of the three categories.