14 x11 Financial Management B

14 x11 Financial - FinancialManagement(B. B WORKING CAPITAL MANAGEMENT D Increase the amount of equity financing Conservative 2 As a company

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Financial Management (B. Working Capital Management) B. WORKING CAPITAL MANAGEMENT THEORIES: Working capital management 1. Working capital management involves investment and financing decisions related to: A. plant and equipment and current liabilities. B. current assets and capital structure. C. current assets and current liabilities. D. sales and credit. 17. The goal of managing working capital, such as inventory, should be to minimize the: A. costs of carrying inventory B. opportunity cost of capital C. aggregate of carrying and shortage costs D. amount of spoilage or pilferage Working capital financing policy Aggressive 5. Zap Company follows an aggressive financing policy in its working capital management while Zing Corporation follows a conservative financing policy. Which one of the following statements is correct? A. Zap has low ratio of short-term debt to total debt while Zing has a high ratio of short-term debt to total debt. B. Zap has a low current ratio while Zing has a high current ratio. C. Zap has less liquidity risk while Zing has more liquidity risk. D. Zap finances short-term assets with long-term debt while Zing finances short-term assets with short-term debt. 6. Which of the following would increase risk? A. Raise the level of working capital. B. Decrease the amount of inventory by formulating an effective inventory policy. C. Increase the amount of short-term borrowing. D. Increase the amount of equity financing. Conservative 2. As a company becomes more conservative with respect to working capital policy, it would tend to have a(n) A. Increase in the ratio of current liabilities to noncurrent liabilities. B. Increase in the operating cycle. C. Decrease in the operating cycle. D. Increase in the ratio of current assets to current liabilities. Moderate 3. Short-term financing plans with high liquidity have: A. high return and high risk B. moderate return and moderate risk C. low profit and low risk D. none of the above 4. Temporary working capital supports A. the cash needs of the company. C. acquisition of capital equipment. B. payment of long term debt. D. seasonal peaks. Cash Management Motives for holding cash 7. The transaction motive for holding cash is for: A. a safety cushion C. compensating balance requirements B. daily operating requirements D. none of the above Float 8. The difference between the cash balance on the firm's books and the balance shown on the bank statement is called: A, the compensating balance C. a safety cushion B. float D. none of the above Cash conversion cycle 124
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Financial Management (B. Working Capital Management) 9. The length of time between payment for inventory and the collection of cash is referred to as: A. payables deferral period C. operating cycle B. receivables conversion period D. cash conversion cycle 10. As a firm's cash conversion cycle increases, the firm: A. becomes less profitable B. increases its investment in working capital C. reduces its accounts payable period D. incurs more shortage costs 11. The longer the firm's accounts payable period, the:
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This note was uploaded on 11/22/2010 for the course CAC BSA taught by Professor Kairus during the Spring '10 term at Korea University.

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14 x11 Financial - FinancialManagement(B. B WORKING CAPITAL MANAGEMENT D Increase the amount of equity financing Conservative 2 As a company

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