You are the chief financial officer (CFO) of Morb lights, a manufacturer of lighting components for cars. The board of directors have decided that there is a need to divert investments towards LED-based lighting solutions instead of traditional light bulbs. You are currently evaluating two alternative projects. The first is to integrat new technology in the existing factory, where the cash flows for the first 4 years will be below average as the production will be affected due to refitting of with the required, from year 5, it will increase to above-average levels once full capacity is achieved. The second project is to take over an existing small business with the required production facility. This is expected to increase cash flows to above-average levels immediately for the next 4 years, but decrease to lower-averag How do you choose from the two available options? Given the strategy of the firm, what other factors need to be taken into consideration for this decision? How do you choose from the two available options? (Select the best answer below.) A. The firm can earn a return on funds it receives; therefore, the receipt of funds is preferred later rather than sooner. The second project will generate a below-average return from year 5 , while the first project will generate above-average returns in the same period. B. The firm can earn a return on funds it receives; therefore, the project that earns the larger overall earnings is the best choice. C. The firm can earn a return on funds it receives; therefore, the receipt of funds is preferred sooner rather than later. The second project will generate an above-average return in the first 4 years, while the first project will generate below-average returns in the same period. D. The firm cannot earn a return on funds it receives; therefore, the receipt of funds, whether sooner or later, will not affect the choice. Accrual income versus cash flow for a period The Motor Corporation sold vehicles for $500,000 to one specific dealer during the year. At the financial year end, the dealer still owed The Motor Corporation $350,000. The cost of the vehicles sold was $400,000, and this cost was incurred and paid by The Motor Corporation. a. Determine the firm's net profit for the past year using the accrual basis of accounting. b. Determine the firm's net cash flow for the past year using the cash basis of accounting. c. The accountant and financial manager need to present the results to the CEO of The Motor Corporation. What will be their message regarding the performance of the corporation? a. Determine the firm's net profit for the past year using the accrual basis of accounting. (Use a minus sign for a loss.)
