TOPIC 3 - TRUE AND FALSE

Working capital, sometimes called gross working capital is defined as current assets minus current liabilities

• TRUE

• FALSE

The most comprehensive picture of a firm's liquidity is obtained by examining its cash budget, which forecast a firm's cash inflows and outflows, thus focuses on what really counts, the firm's ability to generate sufficient cash inflows to meet its required cash outflows.

• TRUE

• FALSE

Day sales outstanding is the average length of time required to convert the firm's receivable into cash

• TRUE

• FALSE

The restricted current asset investment policy offers the lowest expected return coupled with the lowest risk.

• TRUE

• FALSE

Compensating balances are held to enable the firm to take advantage of bargain purchases

• TRUE

• FALSE

The just in time (JIT) system requires the component parts to be perfect and coordinates a manufacturer's production with suppliers' production so that raw materials arrive from suppliers just as they are needed in the production process.

• TRUE

• FALSE

Financing with short term credit usually results in higher interest cost

• TRUE

• FALSE

Lengthening the credit period as well as expanding sales and purchases generates additional financing

• TRUE

• FALSE

Accrued liabilities are "free" in the sense that no interest must be paid on these funds.

• TRUE

• FALSE

Self-liquidating approach matches assets and liability maturities, defined as using permanent financing to finance permanent current assets and fixed assets, and use short term financing to cover temporary assets.

• TRUE

• FALSE