An Aggressive Working Capital policy has the following characteristics: A. Low current assets and high current liabilities and a high current ratio B. High long-term loans, low investment in inventory and high debt ratio C. High levels of investment in inventory and debtors and a high current ratio. D. Low levels of investment in inventory and debtors and a low current ratio.

An Aggressive Working Capital policy has the following characteristics: A. Low current assets and high current liabilities and a high current ratio B. High long-term loans, low investment in inventory and high debt ratio C. High levels of investment in inventory and debtors and a high current ratio. D. Low levels of investment in inventory and debtors and a low current ratio.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 10QTD

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“Efficient working Capital management leads to improve the operating performance of the business concern and it helps to meet the short-term liquidity” Do you agree with the above statement? Explain. What are the types of working capital policies? Explain and compare of working capital financing policies in criteria of (1) Approach (2) Risk level (3) Profitability (4) Interest costs, and (5) Liquidity management.
Profitability in working capital management varies directly with ________. a the inability to borrow b risk c liquidity
When establishing their optimal capital structure, firms should strive to minimize the amount of debt financing used minimize the weighted average cost of capital none of the choices maximize the marginal cost of capital
A good current and quick ratio are a guarantee of excellent working capital management strategies. Is this a valid assumption? Why or why not?
Why is the acid test ratio a more rigorous test of short-term solvency than the current ratio? A. The quick ratio eliminates prepaid expenses for the denominator.B. The quick ratio eliminates prepaid expenses for the numerator.C. The quick ratio eliminates inventories from the numerator.D. The quick ratio considers only cash and marketable investments as current assets.E. The quick ratio eliminates revenue from the numerator.
1. Explain the profitability-risk trade-off of alternative levels of working capital balances. 2. Explain the profitability-risk trade-off of alternative methods of financing a given working capital investment. 3. Discuss the profitability versus risk trade-offs associated with alternative levels of working capital investment. 4. A. which of the following working capital financing policies subjects the firm to a greater risk?i. Financing permanent current assets with short-term debtii. Financing fluctuating current assets with long-term debtB. Which policy will produce the higher expected profitability?
Profitability index. It is a ratio that provides information about the present value of net cash flows to the net investment. It provides a measure of the relative present value return for each dollar of initial investment. Discuss its usefulness. Should managers rely upon it? Consider its usefulness in a capital rationing situation (capital investment under conditions of financial restraint).
A firm will have a financing _________ whenever projected assets are greater than projected liabilities and equity. This is best remedied with _________. Deficit; line of credit Deficit; special dividend Surplus; line of credit Surplus; special dividend
A firm that is increasing its capital structure leverage and increasing profitability will likely experience a (an) a. increasing value-to-book ratio b. decreasing return on assets c. volatile price-earnings ratio d. None of these answer choices are correct.
Which of the following statements relating to working capital financing is not correct? A. A conservative policy uses long-term debt to finance non-current assets. B. Short-term debt is cheaper than long-term debt. C. An aggressive policy uses long-term debt to finance fluctuating current assets. D. Long-term debt is less risky that short-term debt.
What capital budgeting rule is a simple but imperfect attempt to solve the capital rationing problem? a The profitability index b The accounting rate of return c The payback rule d The internal rate of return e The net present value rule
Identify the incorrect statement in connection to working capital management: A. Conservative financing policies use short-term funds to finance only part of fluctuating current assets. B. Long-term funds are more expensive and more risky than short-term funds . C. The objectives of working capital management are profitability and liquidity. D. Permanent current assets should be financed from long-term sources if a moderate policy is adopted.