Chapter 18

Net Working Capital (NWC) is defined as:

• Cash – Accounts Payable

• Inventory + A/R

• Current Assets – Current Liabilities

• Total Assets – Total Liabilities

Which of the following increases cash?

• Buying inventory

• Paying down a loan

• Collecting receivables

• Increasing fixed assets

The operating cycle is:

• Inventory Period + Payables Period

• Receivables Period + Payables Period

• Inventory Period + Receivables Period

• Inventory Period – Receivables Period

The cash cycle equals:

• Operating Cycle – Receivables

• Inventory Period + Receivables Period

• Operating Cycle – Payables Period

• Receivables – Inventory

Which would most likely have a negative cash cycle?

• A bakery

• A SaaS subscription business

• A furniture manufacturer

• A custom print shop

Which policy keeps more current assets and uses more long-term financing?

• Restrictive

• Conservative

• Aggressive

• Matching

A firm chooses to match financing duration to asset life. What policy is this?

• Aggressive

• Conservative

• Matching

• Defensive

What is a compensating balance?

• Fee paid on unused credit

• Cash left in the bank as part of a loan agreement

• Interest payment on debt

• Discount offered for early payment

Which is not part of the cash budget?

• Capital expenditures

• Depreciation

• Payments to suppliers

• Sales collections

What happens if a company has a large cash deficit in the budget?

• It pays dividends

• It needs short-term financing

• It increases inventory

• It lowers capital spending