1. 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? Working capital is all short-term assets; cash, accounts receivable, and any inventory on hand (Titman, Keown, & Martin, 2011). Essentially it is all the current assets used in operating the business. If improperly managed paying short-term liabilities is problematic. One must ensure incoming revenue from sales is properly distributed toward raw materials, taxes, and any other expenses incurred. To properly manage this a business should maintain cash balance sheets that properly forecast and track expenses and revenues. This should encompass deferral payments and receipts to ensure accurate management. References Mayo, H.B. (2012). Basic Finance: An introduction to financial institutions, investments, and management (10th ed.). Mason, OH: South-Western.

2. 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 an organization uses to budget resources for long-term plans (Titman, Keown, & Martin, 2011). This plan contains the budgeting for machinery, research, production, or any other type of major capital expenditure. The internal rate of return (IRR) is how one finds whether an investment produces the proper cash flow compared to its cost. The return on the investment must meet a certain criteria in order to be profitable. If it is not met the investment is losing money and should not be considered. Along side the IRR the net present value (NPV) identifies the value of the investments cash flow minus the cost of the investment (Titman et al., 2011). The NPV helps understand the value that is created by the investment. When selecting a project its important to take the IRR and NPV into consideration with regards to the capital plan. One investment or project may return less initially but hold other key points that lend to the desired end result. References Titman, S., Keown, A. J., & Martin, J. D. (2011). Financial management: Principles and applications (11th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall. 3. 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 simply a rental agreement for the use of an asset rather than purchasing it. An organization may want to lease an asset rather than purchase it if the life of the asset is equal to the cost of the asset. This may save money with certain disposal and sales costs when the asset is no longer usable. The decision to lease over purchase should take several criteria into account. The cost to purchase the required asset verses the cost of the overall lease is the first item to consider. One also should consider any disposal costs. These could even include the cost of taxes and sales of

equipment that is no longer needed. Extra taxes one must pay for the ownership of real estate is also a factor. Even the consideration of a possible future expansion could impact the decision whether to lease or purchase property. When buying a new computer one must first find the cost of the computer system and compare that cost to the overall lease cost. This should also encompass any warranties associated with each option as well as possibly maintenance costs. Also consider how obsolescence may affect the purchase. Will the computer be obsolete by the time the cost of a leased system catches up?