BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -Working capital affects both the liquidity as well as profitability of a business. As the amount of working capital increases, the liquidity of the business increases. However, since current assets offer low return, with the increase in working capital the profitability of the business falls.

Detailed explanation-2: -Explanation: Business decisions relating to working capital and short-term financing are alluded to as working capital management. These policies usually target dealing with the current assets like cash and cash equivalents, debt holders, and inventories.

Detailed explanation-3: -Capital budgeting is important because it creates accountability and measurability. Any business that seeks to invest its resources in a project without understanding the risks and returns involved would be held as irresponsible by its owners or shareholders.

Detailed explanation-4: -Capital budgeting decisions also increase the future risk of a firm. If the decisions increase average earnings but create frequent fluctuations in earnings, it will be riskier in terms of long-term profitability. The firms, therefore, need to consider the risk associated with capital budgeting decisions.

Detailed explanation-5: -It does not include sunk costs.