Chapter Questions
Explain how rapidly expanding sales can drain the cash resources of a firm.
Discuss the relative volatility of short- and long-term interest rates.
What is the significance to working capital management of matching sales and production?
How is a cash budget used to help manage current assets?
"The most appropriate financing pattern would be one in which asset buildup and length of financing terms are perfectly matched." Discuss the difficulty involved in achieving this financing pattern.
By using long-term financing to finance part of temporary current assets, a firm may have less risk but lower returns than a firm with a normal financing plan. Explain the significance of this statement.
A firm that uses short-term financing methods for a portion of permanent current assets is assuming more risk but expects higher returns than a firm with a normal financing plan. Explain.
What does the term structure of interest rates indicate?
What are three theories for describing the shape of the term structure of interest rates (the yield curve)? Briefly describe each theory.
Since the mid-1960s, corporate liquidity has been declining. What reasons can you give for this trend?