Showing pages : 1 of 39
This preview has blurred sections. Sign up to view the full version! View Full Document
MANAGEMENT ADVISORY SERVICES WORKING CAPITAL FINANCE WORKING CAPITAL POLICY . Which of the following statements is incorrect about working capital policy? (M) a. A company may hold a relatively large amount of cash if it anticipates uncertain sales levels in the coming year. b. 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. c. The cash budget is useful in determining future financing needs. d . Holding minimal levels of inventory can reduce inventory carrying costs and cannot lead to any adverse effects on profitability. e. Managing working capital levels is important to the financial staff since it influences financing decisions and overall profitability of the firm. Brigham Conservative Working Capital Policy *. Compared to other firms in the industry, a company that maintains a conservative working capital policy will tend to have a (D) a. Greater percentage of short-term financing. b. Greater risk of needing to sell current assets to repay debt. c . Higher ratio of current assets to fixed assets. d. Higher total asset turnover. RPCPA 0595 1 . 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. Decrease in the operating cycle. c. Decrease in the quick ratio. d . Increase in the ratio of current assets to noncurrent assets. CMA 1290 1-23 2 . As a company becomes more conservative in its working capital policy, it would tend to have a(n) A. Decrease in its acid-test ratio. B. Increase in the ratio of current liabilities to noncurrent liabilities. C. Increase in the ratio of current assets to units of output. D. Increase in funds invested in common stock and a decrease in funds invested in marketable securities. CMA 1296 1-8 . Ski Lifts Inc. is a highly seasonal business. The following summary balance sheet provides data for peak and off-peak seasons (in thousands of dollars): Peak Off-peak Cash $ 50 $ 30 Marketable securities 0 20 Accounts receivable 40 20 Inventories 100 50 Net fixed assets 500 500 Total assets $690 $620 Spontaneous liabilities $ 30 $ 10 Short-term debt 50 0 Long-term debt 300 300 Common equity 310 310 Total claims $690 $620 From this data we may conclude that (M) a. Ski Lifts has a working capital financing policy of exactly matching asset and liability maturities. b. Ski Lifts’ working capital financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt. c . Ski Lifts follows a relatively conservative approach to working capital financing; that is, some of its short-term needs are met by permanent capital. d. Without income statement data, we cannot determine the aggressiveness or conservatism of the company’s working capital financing policy. Brigham Aggressive Working Capital Policy *. A firm following an aggressive working capital strategy would (M) a. Hold substantial amount of fixed assets.
This is the end of the preview. Sign up to access the rest of the document.