Ch. 17 Working Capital Policy
All else constant, which of the following would decrease net working capital?
A $450,000 increase in accounts payable
Which approach best describes the method of working capital financing being used?
Aggressive approach
Moderate Working Capital Financing Approach
An approach in which a firm finances temporary current assets with short-term funds + permanent current assets + fixed assets with long-term funds
Working Capital
Another name for the current assets on a firm's balance sheet
Which of the following would be the most conservative financing approach?
Assets are financed with all equity
A moderate approach would most likely:
Finance temporary current assets with short-term debt while permanent current assets + fixed assets are financed with long-term debt + equity
Which of the following financing approaches is the most conservative financing approach?
Financing all assets with equity
The trade-off of holding cash versus a high returning fixed asset is called:
Liquidity versus profitability trade-off
The level of net working capital is affected by all but which of the following:
Retained earnings
Net Working Capital
The amount of current assets minus the amount of current liabilities of an economic unit
Conservative Working Capital Financing Approach
The use of long-term debt + equity to finance all long-term fixed assets + permanent current assets, in addition to some part of temporary current assets
Aggressive Working Capital Financing Approach
The use of short-term funds to finance all temporary current assets, possibly all or some permanent current assets, + perhaps some fixed assets
The maximum amount of net working capital possible is achieved using which of the following financing approaches:
Ultra-conservative approach
Which of the following would decrease net working capital?
Paying out cash to retire bonds outstanding
A base level of inventory, cash, marketable securities, prepaid expenses, + accounts receivable is best described as:
Permanent current assets
