Compared to other firms in the industry, a company that maintains a conservative working capital policy will tend to have a Select the correct response: Greater percentage of short-term financing. Higher total asset turnover. Higher ratio of current assets to fixed assets Greater risk of needing to sell current assets to repay debt.

Compared to other firms in the industry, a company that maintains a conservative working capital policy will tend to have a Select the correct response: Greater percentage of short-term financing. Higher total asset turnover. Higher ratio of current assets to fixed assets Greater risk of needing to sell current assets to repay debt.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 2P

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Item 1 of 25 Which of the following statements is incorrect about working capital policy? Select the correct response: Credit policy has an impact on working capital since it has the potential to influence sales levels and the speed with which cash is collected. Managing working capital levels is important to the financial staff since it influences financing decisions and overall profitability of the firm. Holding minimal levels of inventory can reduce inventory carrying costs and cannot lead to any adverse effects on profitability. O A company may hold a relatively large amount of cash if it anticipates uncertain sales levels in the coming year. The cash budget is useful in determining future financing needs.
9. Which of the following strategy enables a manager to report a higher current ratio? Select one: a. Pay off accounts payable prior to year-end b. Purchase more fixed assets c. Purchase more fixed income securities d. Invest more in long term debt
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20. Some investment projects require that a company expand its working capital to service the greater volume of business that will be generated. Under the net present value method, how should the investment of working capital be treated? Select one: a. An initial cash outflow for which no discounting is necessary. b. Both an initial cash outflow for which no discounting is necessary and a future cash inflow for which discounting is necessary. c. Irrelevant to the net present value analysis. d. A future cash inflow for which discounting is necessary.
Several factors affect a firm’s need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firm’s need for external capital—that is, its AFN (additional funds needed). Check all that apply. The firm increases its dividend payout ratio. The firm switches its supplier for the majority of its raw materials. The new supplier offers less favorable credit terms and thus reduces the trade credit available to the firm, resulting in a reduction in accounts payable. The firm improves its production system and increases its profit margin. Accounts payable and accrued liabilities represent obligations that the firm must pay off. Assuming everything else holds constant, if they increase, the firm’s AFN will_________ .
Explain the graph in the context of working capital management. Risks vs. Costs Trade-Off (Conservative Approach) Firm can reduce risks associated with short-term borrowing by using a larger proportion of long-term financing. Short-term financing Currènt assets Long-term financing Fixed assets TIME DOLLAR AMOUNT
Which of the following statements is correct?a. An increase in a firm’s inventories will call for additional financing unless theincrease is offset by an equal or larger decrease in some other asset account.b. A high quick ratio is always a good indication of a well-managed liquidityposition.c. A relatively low return on assets (ROA) is always an indicator of managerialincompetence.d. A high degree of operating leverage lowers the risk by stabilizing the firm’searnings stream
Investors and financial analysts wanting to evaluate the operation efficiency of a firm's managers would probably look primarily at the firm's A. Leverage/debt ratios. market value ratios. 11. B. asset management ratios. D. liquidity ratios. C. 12. in a non-interest bearing account, this will tend to lower the firm's A. profit margin. B. return on equity. C. debt ratio. Other things held constant, if a firm holds cash balances in excess of their optimal level D. current ratio.
Financial slack is the amount of unused access to debt markets or bank financing. Which theory of capital structure would place the highest value on maintaining financial slack for a firm that is not in financial distress? Question 10 options: a) Trade-off theory b) Debt financing as a managerial constraint c) Pecking order theory d) Modigliani & Miller irrelevance theory
Managing companies to a Target Optimal Capital Ratio requires which of the following for managers to think through debt has the cheapest cost of capital, but adding too much will increase cost of debt and cost of equity cost of debt requires confidence in achieving certain credit ratings, resulting in better debt cost confidence cost of equity requires estimates on risk, returns and growth expectations on tax rates being relatively stable all of the above
The optimal capital structure: Multiple Choice will be the same for all companies within the same industry. will remain constant over time unless the company changes its primary operations. will vary over time as taxes and market conditions change. places more emphasis on operations than on financing. is unaffected by changes in the financial markets.
The optimal capital structure for firms in stable industries can reasonably contain ________________ than firms in volatile industries. Select one: A. more debt B. less debt C. an equal amount of debt D. There is no relationship between the cyclical nature of an industry and optimal capital structure