Provide definitions for capital budgeting, capital structure, and working capital management. Give an example of a capital budgeting type decision and then do the same for capital structure and working capital management
What will be an ideal response?
Answer: Capital budgeting is the process of choosing which long-term assets a firm should purchase to best meet the goal of maximizing shareholders' wealth. A firm might need to choose among several processes to produce a product for sale. The manager needs to choose the process that will be most valuable for the company.
Capital structure is choosing the optimal mix of long-term debt and equity to minimize the cost of capital. Here, a manager looking to finance a capital budgeting project might have to choose between a mixture of internal financing and external debt and equity.
Working capital management is the day-to-day management of short-term assets and liabilities, for example, what level of inventory to carry or what credit terms to extend to potential customers.
Explanation: This question is very open ended in that there are many different examples a student can provide for each of the three categories.
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