An aggressive short-term financial policy relies on more short-term debt and less long-term debt

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1) An aggressive short-term financial policy relies on more short-term debt and less long-term debt. True or False?

2) A conservative short-term financial policy maintains a low ratio of current assets to sales. True or False?

3) Costs that increase as a firm acquires additional current assets are called ________ costs. (Multiple Choice)

A) carrying

B) shortage

C) order

D) safety

E) trading

4) Cash flows from _________ activities result from the purchase or sale of net fixed assets. (Multiple Choice)

A) operating

B) financing

C) investing

D) credit

E) policy

5) Which one of the following actions will increase net working capital (recall that NWC=Current Assets-Current Liabilities)? Assume the current ratio is greater than 1.0.

(Multiple Choice)

A) Paying a supplier for a previous purchase

B) Paying off a long-term debt

C) Paying a dividend to shareholders.

D) Selling inventory at a profit on credit

E) Purchasing inventory on credit

6) All of the following are “good” uses of free cash flows EXCEPT: (Multiple Choice)

A) pay interest on the debt.

B) repay debt.

C) pay dividends to stockholders.

D) pay board members.

E) buy short-term investments

7) For the following, state whether the corporate action would lead to an increase, decrease, or no change in a company’s cash flows:

“Preferred stock is issued.” (Mulitple Choice)

A) Increase

B) Decrease

C) No Change

8)For the following, state whether the corporate action would lead to an increase, decrease, or no change in a company’s cash flows:

“Inventory is bought on credit.” (Multiple Choice)

A) Increase

B) Decrease

C) No Change

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