Chapter 14

14.2 Briefly define the following cash flow estimation concepts.

aIncremental cash flow

bCash flow versus accounting income

cSunk cost

dOpportunity cost

eNet working capital

fStrategic value

gInflation effects

14.5

Assume that you are the chief financial officer at Porter Memorial Hospital. The CEO has asked you to analyze two proposed capital investmentsProject X and Project Y. Each project requires a net investment outlay of $10,000, and the cost of capital for each project is 12 percent. The projects' expected net cash flows are:

Year	Project X	Project Y
0	($10,000)	$10,000)
1	6,500	3,000
2	3,000	3,000
3	3,000	3,000
4	1,000	3,000

a)Calculate each project's payback period, net present value (NPV), and internal rate of return (IRR).

b) Which project (or projects) is financially acceptable? Explain your answer.

Chapter 16

16.1 Describe three alternative current asset investment policies. Explain each policy's risk and return characteristics.

16.3 What is the goal of cash management?

Briefly describe float and the following associated cash management techniques:

Receipt acceleration

Disbursement control

16.2

Drugs R Us operates a mail order pharmaceutical business on the West Coast. The firm receives an average of $325,000 in payments per day. On average, it takes four days for the firm to receive payment, from the time customers mail their checks to the time the firm receives and processes them. A lockbox system that consists of ten local depository banks and a concentration bank in San Francisco would cost $6,500 per month. Under this system, customers checks would be received at the lockbox locations one day after they are mailed, and the daily total would be wired to the concentration bank at a cost of $9.75 each. Assume that the firm could earn 10 percent on marketable securities and that there are 260 working days and hence 260 transfers from each lockbox location per year. What is the total annual cost of operating the lockbox system? What is the dollar benefit of the system to Drugs R Us? Should the firm initiate the lockbox system?