The weighted average cost of capital is the minimum required return that must be earned on additional investment if firm value is to remain unchanged. Sales captured from the firm's competitors can be relevant to the capital-budgeting decision. Working capital for a project includes investment in fixed assets. Accounts receivable are an asset that reflects sales made on credit. Because they operate within a highly uncertain environment, utilities hold a large percentage of their total assets in cash. The hedging principle involves matching the cash flow from an asset with the cash flow requirements of the financing used. Whenever the IRR on a project equals that project's required rate of return, the NPV equals zero. As the volume of production increases, the fixed cost per unit of the product decreases.
The present value of an annuity increases as the discount rate increases. The key ingredient in a firm's financial planning is the sales forecast. Sales occurring in the secondary markets increase the total stock of financial assets that exist in the economy. The current ratio and the acid test ratio are both measures of financial leverage. Financial management is concerned with the maintenance and creation of wealth.
