Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Chapter 6, Problem 13PS

Working capital Each of the following statements is true. Use an example to explain why they are consistent.

  1. a. When a company introduces a new product, or expands production of an existing product, investment in net working capital is usually an important cash outflow.
  2. b. Forecasting changes in net working capital is not necessary if the timing of all cash inflows and outflows is carefully specified.
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Consider the following statements concerning the payback method of investment appraisal: 1. It completely ignores the timing of future cash flows. 2. It requires managers to determine an appropriate payback period. Which of these statements is/are correct? A. 1 only B. Neither 1 nor 2 C. 1 and 2 D. 2 only
The following are goals‘andobjectives in working-capitalmanagement. Which is the LEASTACCURATE?  a. Payables management includes the analysis of the business's use of trade payables and short-term non-trade payables but not long-term non-trade payables.b. Availability of money marketable securities support the cash management function by providing a return on excess cash.c. Receivable management involves setting the credit term but not the implementation of how receivables are collected.d. Inventory management allows the entity to determine the best level of this asset while balancing the risk of over- and under- stocking.
Consider the following statement: "The estimation of the Free Cash Flow to the Firm (FCF) considers investment decisions but ignores financing decisions." Is this statement true or false? Explain your answer.
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