A Firm's Working Capital Position Is Important from an Internal

question 74

Multiple Choice

A firm's working capital position is important from an internal and external standpoint. Which of the following is not true?

• A) It measures a firm's risk.
• B) Provisions for a minimum working capital position are often included in restrictive covenants.
• C) A firm's policy often affects its ability to obtain debt.
• D) A working capital position determines its level of common stock sales.

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Definitions:

Cumulative Preferred Stock

Preferred stock where dividends accumulate if not paid as scheduled, needing to be fulfilled before common stock dividends.

Common Stock

A type of security that represents ownership in a corporation, giving shareholders voting rights and a claim on profits in the form of dividends.

Dividend

A disbursement from a corporation to its stockholders, often derived from earnings.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, often with dividend priority.