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1. The Role of Managerial Finance:
Merideth Harper has invested $25,000 in Southwest Development Company. The firm has
recently declared bankruptcy and has $60,000 in unpaid debts.
a) Under Sole proprietorship, the owner receives all profits and sustains all losses. Here, the
Owner has unlimited liability. Therefore, he is responsible for all the unpaid debts. His total
wealth can be taken to satisfy the debts.
b) If the Company is a 50-50 partnership company, then
In Partnership, all partners have unlimited liability and each partner is legally liable for the
unpaid debts according to the partnership. Here, the two partners are equally liable for the unpaid
debts. Each partner is legally liable for $30,000 of the unpaid debts.
c) In Corporations, owners have limited liability which guarantees that they cannot lose more
than what they have invested. Here, the invested amount is calculated as a percentage of the total
investment. Since the total investment is not given, the person cannot lose more than what he has
a. Total cash inflows = Interest received + salary = 450+4500 = 4950
Total cash outflows = 1000+500+800+355+280+1200+222 = 4357
b. Net cash flow is the difference between cash inflows and outflows. It ca be represented as
Net cash flow = cash inflows- cash outflows
Net cash flow for the month of August = Cash inflow – cash outflow = 4950 – 4357 = 593
C. There is no shortage. In case of shortage, Jane can borrow money from bank at the interest
rate of 6%
D. There is a surplus of $593. In case of surplus, Jane can invest in short term investments, on
which bank provides interest rate of 5%
Marginal means additional. Marginal cost benefit analysis is used to evaluating the project.
Instead of considering total cost and total benefit like conventional system in this approach only
marginal cost and benefit analyzed.
It means if a project is provide net marginal benefit then it may be an acceptable project.
Calculation of Marginal cost, Marginal benefit and net benefit.
Present Value of
Existing Benefit (a)
Present Value of
Proposed benefit (b)
Marginal Benefit ( if
robotics replaced) (b-a)
Existing Cost ( c)
Marginal cost if project
accepted (d )
Marginal Cost (d-c)
Cash Flow from ale of
( Marginal benefit –
Marginal cost +
through sale of existing
Marginal Benefit-$ 160,000
Marginal Cost- $ 220,000
Net benefit - $ 10,000
Conclusion- As replacement showing net positive figure hence new robotics should be installed
after sale of existing robotics.
Beside analysis of financial data non-financial factors also play a crucial role for decision
making in new projects. Significant social and environmental impacts need to be evaluated for
For evaluation of social impact following issues need to be considered.
Law and order
For evaluation of environmental ...
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