Evaluate effective working capital management techniques, health and medicine homework help

Write a 750- to 1,050-word paper in which you:

  • Evaluate effective working capital management techniques.
  • Evaluate alternative capital projects.
  • Analyze risks associated with capital projects.
  • Analyze the decision-making factors in lease versus buy.
  • Analyze the effect of financing strategies on cost of capital.
  • Analyze benefits and risks of debt financing.

Format your paper according to APA guidelines.

Cite 3 peer-reviewed, scholarly, or similar references to support your paper

Expert Solution Preview

Introduction:

This paper will explore various topics related to financial management and analysis for medical college students. The paper will cover important financial management techniques such as effective working capital management and alternative capital projects. The paper will further analyze the risks associated with capital projects, the decision-making factors in lease versus buy, and the effect of financing strategies on the cost of capital. Finally, the paper will analyze the benefits and risks of debt financing.

Effective Working Capital Management Techniques:

Effective working capital management is essential for any business to maximize profits and minimize losses. To manage working capital, the business manager should be able to balance the inflow and outflow of cash. Some of the effective techniques to manage working capital include inventory management, account receivable management, and cash management. By managing inventory, the business can ensure that they have enough inventory to satisfy the customer’s needs without having too much inventory that may lead to excess holding costs. Account receivable management involves setting up payment terms and tracking payments to ensure timely collections. Efficient cash management involves managing cash inflows and outflows, including cash budgeting and forecasting.

Alternative Capital Projects:

The process of selecting between alternative capital projects involves evaluating the profitability of each alternative. To select the best alternative, the manager should calculate the Net Present Value (NPV) based on the present value of expected future cash flows and the initial cost of the project. The best project is the one with the highest NPV value as it provides the most significant financial benefit to the organization. Another method is the Internal Rate of Return (IRR), which is the rate at which the present value of cash inflows equal the present value of cash outflows. A project with an IRR greater than the cost of capital is considered an acceptable investment.

Risks Associated with Capital Projects:

Capital projects pose various risks that managers need to analyze before making investments. Some of the risks include market competition, inflation risks, and technical risks. Market competition risk arises when new competitors enter the market or when the demand for the product decreases. Inflation risk arises due to the increase in prices of inputs such as raw materials, labor, and equipment. Technical risks involve risks associated with new technology or equipment that may be prone to failure.

Lease versus Buy:

The decision to lease versus buy involves weighing the advantages and disadvantages of each option. Leasing allows the business to use the asset for a limited period without incurring the initial cost of purchasing the asset. On the other hand, buying may be more beneficial in the long run as the business can benefit from the appreciation of the asset’s value. Other factors to consider include the cash flow requirements, tax implications, and the terms of the lease agreement.

Effect of Financing Strategies on Cost of Capital:

The cost of capital is the cost of funds a business borrows from the lender or uses to finance capital projects. The financing strategy used by the organization has a significant effect on the cost of capital. If the organization uses debt financing, the cost of capital will be lower as the interest on debt is tax-deductible. However, debt financing comes with the risk of bankruptcy if the organization is unable to make the required payments. Equity financing involves raising capital by selling ownership stakes in the business. Equity financing comes with a higher cost of capital as investors expect a higher return on their investment.

Benefits and Risks of Debt Financing:

Debt financing has its advantages and disadvantages, and businesses need to evaluate these to make informed decisions. The benefits of debt financing include a lower cost of capital, tax advantages, and increased financial flexibility. However, debt financing also comes with risks, including bankruptcy risk, financial distress risk, and the possibility of being tied down by debt covenants. Additionally, debt financing can be challenging to acquire for start-up businesses.

Conclusion:

In conclusion, financial management is an essential aspect of business management that requires careful evaluation and analysis. Effective working capital management is key to maximizing profits and minimizing losses. Alternative capital projects should be carefully evaluated using NPV and IRR methods before making investment decisions. Capital projects pose various risks that managers need to consider before making investments. The decision to lease versus buy requires careful consideration of factors such as cash flow requirements, tax implications, and lease agreement terms. The financing strategy used by the organization has a significant effect on the cost of capital, and businesses need to evaluate the benefits and risks of debt financing.

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