Finance 300 CH17

Financing permanent working capital need with long term financing tends to match financing with uses of funds and reduces the chances of illiquid but long term financing has two disadvantages

Equity financing has higher cost than debt, long term debt usually has a high interest rate than short term

Which of the following financing approaches is the most aggressive financing approach

Financing temporary current assets, permanent current assets, some fixed long term assets with short term debt

Working capital is the amount of

cash and near cash assets

Working capital includes all but which of the following

Accounts payable

Which of the following best defines the maturity matching principle associated with financing working capital needs

Match the maturity source of funds with that of the uses of funds

A base level of inventory, cash , marketable securities, prepaid expenses and accounts receivable is best described as

Permanent current assets

The level of net working capital is effected by all but which of the following

Retained earnings

Some level of gross working capital is "permanent" in that

There is always a minimum level of current assets at any given point in time

The assets associated with short term operating activities such as cash, accounts receivable and inventory are also called

Working Capital

Net working capital equals

current assets-current liabilities

Which of the following statements about net working capital is true

high level pf net working capital is associated with relatively low levels of short term financing

an aggressive working capital financing policy would likely have

high proportion of assets financed by short term financing

The trade off of holding cash versus higher returning fixed assets is called

liquidity versus profitability trade off

An aggressive working capital policy would have which of the following rates

low current ratio and higher average ROE

The business should select the level of working capital or current assets that

maximizes the value of the firm

An optimal level of current assets is reached when

optimal levels of cash, inventory and amounts receivable are reached

Working capital assets are generally

short term

With respect to debt financing, which of the following statement is most accurate from perspective of the firm seeking funds

short term loans are more risky and usually less expensive than long term loans

Which of the following statements about temporary current assets is true

temporary current assets reflect a seasonal increase in inventory, accounts receivable, and other current asset accounts

A firm that uses short term financing to finance most of it assets all else equal is

using the aggressive approach