A) Net working capital is defined as operating current assets minus the difference between current liabilities and notes payable,and any increase in the current ratio automatically indicates that net working capital has increased.
B) Although short-term interest rates have historically averaged less than long-term rates,the heavy use of short-term debt is considered to be an aggressive strategy because of the inherent risks associated with using short-term financing.
C) If a company follows a policy of "matching maturities",this means that it matches its use of common stock with its use of long-term debt as opposed to short-term debt.
D) Net working capital is defined as operating current assets minus the difference between current liabilities and notes payable,and any decrease in the current ratio automatically indicates that net working capital has decreased.
E) If a company follows a policy of "matching maturities",this means that it matches its use of short-term debt with its use of long-term debt.
G) A) and B)
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A) Under normal conditions,a firm's expected ROE would probably be higher if it financed with short-term rather than with long-term debt,but using short-term debt would probably increase the firm's risk.
B) Conservative firms generally use no short-term debt and thus have zero current liabilities.
C) A short-term loan can usually be obtained more quickly than a long-term loan,but the cost of short-term debt is normally higher than that of long-term debt.
D) If a firm that can borrow from its bank at a 6% interest rate buys materials on terms of 2/10,net 30,and if it must pay by Day 30 or else be cut off,then we would expect to see zero accounts payable on its balance sheet.
E) If one of your firm's customers is "stretching" its accounts payable,this may be a nuisance but it will not have an adverse financial impact on your firm if the customer periodically pays off its entire balance.
G) D) and E)
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B) False
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B) False
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