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Principles of Working Capital Management Quiz

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Principles of Working Capital Management Quiz

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Questions and Answers

What is a key concept highlighted in the text?

Investing in long-term assets

Investing in current assets (correct)

Investing in fixed assets

Investing in intangible assets

What does the text emphasize about managing current assets and liabilities?

Necessity of managing long-term assets

Necessity of managing only current liabilities

Necessity of managing only current assets

Necessity of managing both current assets and current liabilities (correct)

What is the focus of the text regarding asset investment and financing?

Proper mix of equity and debt financing for current assets

Exclusively long-term financing for current assets

Proper mix of short-term and long-term financing for current assets (correct)

Exclusively short-term financing for current assets

What is a difference highlighted in the management of fixed assets and current assets?

Current assets can be adjusted with sales fluctuations in the short run (D) Signup and view all the answers

How does the text describe the impact of large holding of current assets on overall profitability?

Reduces the overall profitability (B) Signup and view all the answers

Explain the concept of operating cycle and the need for investing in current assets.

The operating cycle refers to the time it takes for a company to convert its current assets into cash. Investing in current assets is necessary to ensure smooth operations and meet short-term obligations. Signup and view all the answers

What is the necessity of managing current assets and current liabilities?

Managing current assets and liabilities is essential to maintain liquidity, optimize working capital, and ensure the company's ability to meet its short-term financial obligations. Signup and view all the answers

What is the proper mix of short-term and long-term financing for current assets?

The proper mix involves balancing the use of short-term and long-term financing to fund current assets, taking into account cost, risk, and flexibility. Signup and view all the answers

What are the differences in managing fixed assets and current assets highlighted in the text?

The differences include the importance of time in managing fixed assets, the impact of large holding of current assets on overall profitability, and the adjustability of current assets with sales fluctuations in the short run. Signup and view all the answers

What role do expected sales play in determining the levels of fixed and current assets?

Expected sales influence the levels of fixed and current assets, but only current assets can be adjusted with sales fluctuations in the short run, making it crucial to manage current assets effectively. Signup and view all the answers