Finance 300 CH17

Working capital is the amount of cash and near cash assets
Net working capital equals current assets-current liabilities
The level of net working capital is effected by all but which of the following Retained earnings
A base level of inventory, cash , marketable securities, prepaid expenses and accounts receivable is best described as Permanent current assets
The trade off of holding cash versus higher returning fixed assets is called liquidity versus profitability trade off
Working capital includes all but which of the following Accounts payable
A firm that uses short term financing to finance most of it assets all else equal is using the aggressive approach
An optimal level of current assets is reached when optimal levels of cash, inventory and amounts receivable are reached
With respect to debt financing, which of the following statement is most accurate from perspective of the firm seeking funds short term loans are more risky and usually less expensive than long term loans
Which of the following financing approaches is the most aggressive financing approach Financing temporary current assets, permanent current assets, some fixed long term assets with short term debt
The assets associated with short term operating activities such as cash, accounts receivable and inventory are also called Working Capital
Working capital assets are generally short term
Some level of gross working capital is “permanent” in that There is always a minimum level of current assets at any given point in time
Which of the following best defines the maturity matching principle associated with financing working capital needs Match the maturity source of funds with that of the uses of funds
Financing permanent working capital need with long term financing tends to match financing with uses of funds and reduces the chances of illiquid but long term financing has two disadvantages Equity financing has higher cost than debt, long term debt usually has a high interest rate than short term
An aggressive working capital policy would have which of the following rates low current ratio and higher average ROE
an aggressive working capital financing policy would likely have high proportion of assets financed by short term financing
Which of the following statements about net working capital is true high level pf net working capital is associated with relatively low levels of short term financing
Which of the following statements about temporary current assets is true temporary current assets reflect a seasonal increase in inventory, accounts receivable, and other current asset accounts
The business should select the level of working capital or current assets that maximizes the value of the firm

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