FINMAN WORKING CAPITAL

Net Working Capital is a firm's

• Current Assets

• Current Liabilities

• Current Assets less current liabilities

• total assets less total liabilities

Working Capital is important for all the following reasons except that is:

• consists of a large portion of a firm's total assets

• affects a firm's liquidity and profitabililty

• consumes a small portion of the financial manager's time

• consists of those assets that are most manageable

The optimallevel of working capital depends on all of the following factors except the

• kind of firm

• stability of dividends

• variability of cash flows

• length of cash cycle

Which of the following assumptions does not under lie risk-return tradeoffs in managing working capital?

• Fixed Assets remain constant

• current assets are less profitable than fixed assets

• the yield curve is downward sloping

• short-term financing is less expensive than long-term financing

A firm following a flexible working capital strategy would

• hold substantial amounts of liquid assets

• minimize the amount of short-term financing

• finance fluctuating assets with long-term financing

• minimize the amount of funds in liquid assets

Restricted working capital management strategies involve

• low risk, low return

• low-risk, high return

• high risk, high return

• moderate risk-moderate return

According to the compromise approach, working capital should be financed with

• spontaneously generated funds

• short-term financing

• short-term and long-term financing

• long-term financing

The probability of technical insolvency is reduced by

• financing permanent assets with short-term debt

• financing fluctuating assets with long-term debt

• maintaining a high level of liquid assets

• both financing fluctuating assets with long term debt and maintaining a high level of liquid assets

Which of the following actions would increase risk

• Increase the level of working capital

• change the composition of working capital to include more liquid assets

• increase the amount of short-term borrowing

• increase the amount of equity financing

The matching principle says to

• match current assets with current liabilities and match fixed assets with long-term debt and equity

• match temporary current assets with current liabilities and match permanent current assets with long-term debt and equity

• match sales receipts with debt-service payment

• match cash inflows with cash outflows