Question 1

Short-term marketable securities are held for two separate and distinct purposes: (1)to provide liquidity as a substitute for cash and (2)as a non-operating investment.Marketable securities held while awaiting reinvestment are not available for liquidity purposes.

Accepted Answer

False

Question 2

Refer to the data for Hardwig Inc.If the firm adopts a restricted policy,how much lower would its interest expense be than under the relaxed policy?

Accepted Answer

D

Question 3

Although short-term interest rates have historically averaged less than long-term rates,the heavy use of short-term debt is considered to be an aggressive current operating asset financing strategy because of the inherent risks of using short-term financing.

Accepted Answer

True

Question 4

The maturity matching,or "self-liquidating," approach to financing involves obtaining the funds for permanent current assets with a combination of long-term capital and short-term capital that varies depending on the level of interest rates.When short-term rates are relatively high,short-term assets will be financed with long-term debt to reduce costs.

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The answer of The maturity matching,or "self-liquidating," approach to financing...

Question 5

Which of the following is NOT a situation that might lead a firm to increase its holdings of short-term marketable securities?

Accepted Answer

The answer of Which of the following is NOT a...

Question 6

Net operating working capital is defined as operating current assets minus operating current liabilities..

Accepted Answer

The answer of Net operating working capital is defined as...

Question 7

Refer to the data for Hardwig,Inc.What's the difference in the projected ROEs under the restricted and relaxed policies?

Accepted Answer

The answer of Refer to the data for Hardwig,Inc.What's the...

Question 8

Buchholz Corporation follows a moderate current asset investment policy,but it is now considering a change,perhaps to a restricted or maybe to a relaxed policy.The firm's annual sales are $400,000;its fixed assets are $100,000;its target capital structure calls for 50% debt and 50% equity;its EBIT is $35,000;the interest rate on its debt is 10%;and its tax rate is 40%.With a restricted policy,current assets will be 15% of sales,while under a relaxed policy they will be 25% of sales.What is the difference in the projected ROEs between the restricted and relaxed policies?

Accepted Answer

The answer of Buchholz Corporation follows a moderate current asset...

Question 9

Refer to the data for Hardwig,Inc.Assume now that the company believes that if it adopts a restricted policy,its sales will fall by 15% and EBIT will fall by 10%,but its total assets turnover,debt ratio,interest rate,and tax rate will all remain the same.In this situation,what's the difference between the projected ROEs under the restricted and relaxed policies?

Accepted Answer

The answer of Refer to the data for Hardwig,Inc.Assume now...

Question 10

Net working capital,defined as current assets minus the sum of payables and accruals,is equal to the current ratio minus the quick ratio.

Accepted Answer

The answer of Net working capital,defined as current assets minus...

Question 11

Net working capital is defined as current assets divided by current liabilities.

Accepted Answer

The answer of Net working capital is defined as current...

Question 12

A firm that follows an aggressive current asset financing approach uses primarily short-term credit and thus is more exposed to an unexpected increase in interest rates than is a firm that uses long-term capital and thus follows a conservative financing policy.

Accepted Answer

The answer of A firm that follows an aggressive current...

Question 13

A conservative current operating asset financing approach will result in permanent current assets and some seasonal current assets being financed using long-term securities.

Accepted Answer

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Question 14

The relative profitability of a firm that employs an aggressive current asset financing policy will improve if the yield curve changes from upward sloping to downward sloping.

Accepted Answer

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Question 15

Uncertainty about the exact lives of assets prevents precise maturity matching in an ex post (i.e. ,after the fact)sense even though it is possible to match maturities on an ex ante (expected)basis.

Accepted Answer

The answer of Uncertainty about the exact lives of assets...

Question 16

Determining a firm's optimal investment in working capital and deciding how that investment should be financed are critical to working capital management.

Accepted Answer

The answer of Determining a firm's optimal investment in working...

Question 17

The concept of permanent current operating assets reflects the fact that some components of current assets do not shrink to zero even when a business is at its seasonal or cyclical low.Thus,permanent current operating assets represent a minimum level of current assets that must be financed.

Accepted Answer

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Question 18

Which of the following will cause an increase in net working capital,other things held constant?

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Question 19

Albrecht Inc.is a no-growth firm whose sales fluctuate seasonally,causing total assets to vary from $320,000 to $410,000,but fixed assets remain constant at $260,000.If the firm follows a maturity matching (or moderate)working capital financing policy,what is the most likely total of long-term debt plus equity capital?

Accepted Answer

The answer of Albrecht Inc.is a no-growth firm whose sales...

Question 20

An increase in any current asset must be accompanied by an equal increase in some current liability.

Accepted Answer

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Quiz 16: Supply Chains and Working Capital Management