Please carefully check Forum 1 and 2 for all questions

Forum 1: Short Term Financial Decision: Working Capital and Current Asset Management

1. Why is working capital management one of the most important and time-consuming activities of
the financial manager? What is net working capital?
2. What is the relationship between the predictability of a firm’s cash inflows and its required level
of net working capital? How are net working capital, liquidity, and risk of insolvency related?
3. What are the benefits, costs, and risks of an aggressive funding strategy and of a conservative
funding strategy? Under which strategy is the borrowing often in excess of the actual need?
4. Briefly describe the following techniques for managing inventory: (1) ABC system, economic
order quantity (EOQ) model, (2) just-in-time (JIT) system
5. What is the role of the five C’s of credit in the credit selection activity?
6. What are the firm’s objectives with regard to collection float and to payment float?
7. What are the three main advantages of cash concentration?

Forum 2: Short Term Financial Decision: Current Liabilities Management

TRUE or FALSE (give a short explanation)

 Spontaneous unsecured financing has a specific interest cost associated with it that can be at a
fixed or floating rate.
 Accounts payable results from transactions in which merchandise is purchased but no formal
note is signed to show the purchaser's liability to the seller.
 Accounts payable are spontaneous secured sources of short-term financing that arise from the
normal operations of a firm.
 In credit terms, EOM (End-of-Month) indicates that the accounts payable must be paid by the
end of the month in which the merchandise has been purchased.
 The cost of giving up a cash discount is the implied rate of interest paid in order to delay
payment of an account payable for an additional number of days.
 In giving up a cash discount, the amount of the discount that is given up is the interest being
paid by a firm to keep its money by delaying payment for a number of days.
 If a firm anticipates stretching accounts payable, its cost of giving up a cash discount is reduced.
 Spontaneous liabilities such as accounts payable and notes payable represent a source of
financing that arise from the normal course of business.
 Accruals are liabilities for services received for which payment has yet to be made.
 The prime rate is a rate of interest charged on business loans by the nation's leading banks to
creditworthy business borrowers.

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