MGT 201 Financial Management - 1

The owner of a sole proprietorship generally has unlimited liability. This means that the owner is personally responsible for all debts and liabilities of the business. Unlike a limited partner in a partnership or a shareholder in a corporation, the owner of a sole proprietorship does not have the protection of limited liability, which limits their personal liability to the amount of their investment in the business. In a sole proprietorship, the owner's personal assets can be used to satisfy business debts and obligations.

The focal point of financial management in a firm should be the creation of value for shareholders. This means that the firm should prioritize actions and decisions that increase the value of the company's stock and returns for its shareholders. By focusing on creating value for shareholders, the firm can ensure long-term sustainability and growth, attracting more investors and maintaining a positive reputation in the market. This involves effective capital allocation, strategic planning, risk management, and maximizing the firm's profitability and cash flow.

An annuity due is always worth more than a comparable annuity because it has an additional payment at the beginning of each period, while a regular annuity has payments at the end of each period. The additional payment in an annuity due allows for more time for the money to earn interest, resulting in a higher value compared to a regular annuity.

If the interest rate were to suddenly decrease, the present value of the future amount would rise. This is because a lower interest rate would make the future amount more valuable in today's terms. With a lower interest rate, the discount rate used to calculate the present value would be lower, resulting in a higher present value.

All of the given options make the calculation of NPV difficult. Estimated cash flows are crucial in determining the net present value, as they represent the expected future cash inflows and outflows. The discount rate is also a key factor as it determines the present value of future cash flows. Lastly, the anticipated life of the business affects the time period over which the cash flows are discounted, which can significantly impact the NPV calculation. Therefore, all three options contribute to the complexity of calculating NPV.

The average tax rate is calculated by dividing the total tax liability by the taxable income. This rate represents the proportion of income that is paid in taxes. By dividing the total tax liability by the taxable income, we can determine the average tax rate for a given period.

When interest rates go up, the present value of a stream of fixed cash flows goes down. This is because higher interest rates increase the discount rate used to calculate the present value of future cash flows. As a result, the value of each cash flow decreases, leading to a decrease in the overall present value of the stream of cash flows.

Since ROI=8% on $300,000 of assets, then net profit is Rs.24,000 (8% ×

Rs.300,000). Using the net profit and given that the NPM=5%, sales equals

Rs.480,000 (Rs.24,000 / 5%).

The market price of a share of common stock is determined by individuals buying and selling the stock. The price is influenced by supply and demand in the market, as buyers and sellers negotiate and agree on a fair price for the stock. The board of directors, the stock exchange, and the president of the company do not directly determine the market price, although their actions and decisions may indirectly impact it.

Discounted cash flow methods consider both the timing and magnitude of expected cash flows when evaluating and selecting an investment project. By discounting the future cash flows to their present value, these methods provide a more objective basis for decision-making. This approach recognizes that the timing of cash flows can significantly impact the project's profitability, as well as the magnitude of the cash flows. Therefore, considering both factors allows for a more comprehensive analysis of the investment's potential.

If we were to increase ABC company's cost of equity assumption, we would expect the present value of all future cash flows to decrease. This is because an increase in the cost of equity assumption would result in a higher discount rate being applied to the future cash flows, reducing their present value. As a result, the overall value of the cash flows would decrease.

In proper capital budgeting analysis, we evaluate incremental operating cash flows. This means that we focus on the cash flows directly related to the operations of the project or investment being considered. These cash flows include revenues, expenses, and taxes associated with the day-to-day operations of the business. By evaluating the operating cash flows, we can determine the profitability and viability of the project or investment.

A funds flow analysis is a method used to examine the sources and uses of funds within a company. It involves analyzing the movement of funds over a specific period of time, tracking how funds are generated and where they are being allocated. This analysis helps to understand the financial health of a company, identify any cash flow issues, and make informed decisions about resource allocation. Therefore, a funds flow analysis is an essential part of examining the sources and uses of funds.

Internal rate of return (IRR) is a capital budgeting technique that calculates the discount rate at which the present value of future net cash flows from an investment project is equal to the project's initial cash outflow. In other words, IRR is the rate of return that makes the net present value of the project zero. It is used to assess the profitability and feasibility of an investment project.

The cash flow received from sales revenue and other income during the life of the project would be categorized as operating activity. Operating activities refer to the day-to-day business operations that generate revenue for the company. Sales revenue is a direct result of the company's core operations, and therefore falls under the operating activity category.

Borrowing short term to finance additional fixed assets would not improve the current ratio. The current ratio is a measure of a company's ability to pay its short-term liabilities with its short-term assets. By borrowing short term to finance additional fixed assets, the company would increase its liabilities without a corresponding increase in assets that can be easily converted to cash in the short term. This would result in a decrease in the current ratio, as the company's ability to meet its short-term obligations would be reduced.

Rs.20,000[ e(.08 × 20) ] = Rs.20,000(4.9530324) = Rs.99,061.

$311 million. The The cash flow stream would look like this: 125.00 x 0.9090 =
113.63; 125.00 x 0.8264 = 103.30; 125.00 x 0.7513 = 93.91. The sum of the three is
$310.84, or $311 million.

Cash budgets are not prepared from past balance sheets, income statements, income tax, or depreciation data. Cash budgets are forward-looking financial plans that project the inflows and outflows of cash for a specific period of time. They are typically based on sales forecasts, production plans, and other operational data. Therefore, none of the given options are correct.

Multiple internal rate of return (MIRR) would be used for a project that has non-normal cash flows. MIRR is a technique that takes into account the timing and magnitude of cash flows, and it assumes that cash flows are reinvested at a specific rate of return. This technique is used when there are multiple changes in the direction of cash flows, such as alternating periods of positive and negative cash flows. MIRR helps to provide a more accurate measure of the project's profitability by considering both the inflows and outflows of cash over the project's lifespan.