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Working capital and financial decisions - Multiple Choice

Which of the following techniques allows explicit consideration of more than one possible outcome?
a. Expected value
b. Least-squares regression
c. Present value
d. Operating leverage

An aggressive working capital policy would have which of the following characteristics?
a. A high ratio of short-term debt to long-term sources of funds.
b. A high ratio of long-term debt to fixed assets.
c. A low ratio of short-term debt to total debt.
d. A short average collection period.

Risk exposure due to heavy short-term borrowing can be compensated for by
a. carrying more receivables to increase cash flow.
b. carrying longer term, more profitable current assets.
c. carrying illiquid assets.
d. carrying highly liquid assets.

During tight money periods
a. the relationship between short and long-term rates remains unchanged.
b. short-term rates are equal to long-term rates.
c. short-term rates are higher than long-term rates.
d. long-term rates are higher than short-term rates.

Dale Jones Corporation expects net income next year to be $600,000. Inventory and accounts receivable will have to be increased by $300,000 to accomodate this sales level. Dale Jones will pay dividends of $400,000. How much external financing will Dale Jones need assuming no organically generated increase in liabilities?
a. $300,000
b. $200,000
c. $100,000
d. No external financing required.

Solution Preview

1. a Expected Value

Expected value: The sum of all possible values for a random variable, each value multiplied by its probability of occurrence

2. a. A high ratio of short term debt to long term sources of funds.

Aggressive (Restrictive) working capital policy refers to a situation where the firm holds ...

Solution Summary

Solution contains the answers to five multipy choice questions on the topic of working capital and financial decisions. Other topics covered are Expected Value, Ratio of short term and long term debt to short term and long term assets, and agressive/restrictive working capital policy.