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Preferred method of ranking capital projects; working capital management, hold cash

#1. What is the preferred method of ranking different capital projects? Why is it preferred?

#2. What are the elements of working Capital management? What might you do as a manager to control each element?

#3. Why would firms wish to hold cash and/or marketable securities?

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Preferred method of ranking different capital projects

Among the capital budgeting tools utilized in ranking capital projects, the Net Present Value (NPV) method is the most preferred. This method provides the following benefits in relation to decision making:

1. It utilizes free cash flows instead of merely accounting profits. Free cash flow is a cash flow in excess of funds required to finance capital projects that have positive net present values (Keown, 2004).

2. The method considers the time value of money. This is based on the principle that a $1 dollar received today has a higher value than a dollar received n years from now. As such, NPV requires that future ...

Solution Summary

In this 477 word response, which includes references, the topics of preferred methods of ranking different capital projects, the elements of working capital management, and why firms wish to hold cash and marketable securities is discussed.