Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Question
Chapter 6, Problem 6DQ
Summary Introduction
To explain:Â The significance of the long-term financing of temporary current assets that results in less risk and lower returns as compared to normal financing patterns.
Introduction:
Financing pattern:
The financing pattern represents the capital structure of the project organization and shows the composition of the components of finance.
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Why use short-term financing?
Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages.
The following statement identifies a possible characteristic of short-term financing.
A. Consider this case:
Short-term credit agreements are more restrictive than long-term credit agreements.
Identify whether the preceding statement is true or false.
This statement is false.
This statement is true.
B. Firms use a variety of short-term financing sources to support working capital. Use the descriptions in the following table to identify the short-term financing source.
Description
Short-Term Financing Source
Continually recurring…
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.
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.
Chapter 6 Solutions
Foundations of Financial Management
Ch. 6 - Prob. 1DQCh. 6 - Prob. 2DQCh. 6 - Prob. 3DQCh. 6 - Prob. 4DQCh. 6 - “The most appropriate financing pattern would be...Ch. 6 - Prob. 6DQCh. 6 - Prob. 7DQCh. 6 - Prob. 8DQCh. 6 - What are three theories for describing the shape...Ch. 6 - Since the mid-1960s, corporate liquidity has been...
Ch. 6 - Gary’s Pipe and Steel Company expects sales next...Ch. 6 - Prob. 2PCh. 6 - Tobin Supplies Company expects sales next year to...Ch. 6 - Antivirus Inc. expects its sales next year to be...Ch. 6 - Prob. 5PCh. 6 - Prob. 6PCh. 6 - Boatler Used Cadillac Co. requires $850,000 in...Ch. 6 - Biochemical Corp. requires $550,000 in financing...Ch. 6 - Sauer Food Company has decided to buy a new...Ch. 6 - Assume that Hogan Surgical Instruments Co. has...Ch. 6 - Assume that Atlas Sporting Goods Inc. has $840,000...Ch. 6 - Colter Steel has $4,200,000 in assets. Short-term...Ch. 6 - Prob. 13PCh. 6 - Guardian Inc. is trying to develop an asset...Ch. 6 - Lear Inc. has $840,000 in current assets, $370,000...Ch. 6 - Using the expectations hypothesis theory for the...Ch. 6 - Using the expectations hypothesis theory for the...Ch. 6 - Carmen’s Beauty Salon has estimated monthly...Ch. 6 - Prob. 19PCh. 6 - Eastern Auto Parts Inc. has 15 percent of its...Ch. 6 - Bombs Away Video Games Corporation has forecasted...Ch. 6 - Esquire Products Inc. expects the following...
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