Chapter 14: questions 1, 2, 3, 4, 5, 6, 7 and 8 on page 418 of the text. (3hours)

1. Is it possible for a firm to have negative net working capital? How? (LG14-1)

2. Would it be possible for a decision to deny credit to your customers to be value maximizing? How? (LG14-1)

3. Which of the following will result in an increase in net working capital? (LG14-2)

a. An increase in cash.

b. A decrease in accounts payable.

c. An increase in notes payable.

d. A decrease in accounts receivable.

e. An increase in inventory.

4. Would it be possible for a firm to have a negative cash cycle? How? (LG14-3)

5. If a firm’s inventory turnover ratio increases, what will happen to the firm’s operating cycle? (LG14-3)

6. If a firm’s inventory turnover ratio increases, what will happen to the firm’s cash cycle? (LG14-3)

7. Everything else held constant, will an increase in the amount of inventory on hand increase or decrease the firm’s profitability? (LG14-4)

8. Would a firm ever use short-term debt to finance permanent current assets? Why or why not? (LG14-5)