A Firm That Follows an Aggressive Working Capital Financing Approach

question 93

True/False

A firm that follows an aggressive working capital financing approach uses primarily short-term credit and thus is more exposed to an unexpected increase in interest rates than is a firm that uses long-term capital and thus follows a conservative financing policy.

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Definitions:

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company.

LIFO

A method of inventory valuation called "Last-In, First-Out," where the most recently acquired items are the first to be expensed.

Tax Advantage

A tax advantage refers to the economic bonus that applies to certain investments or transactions that are favored by tax policy, allowing for a reduction in tax liabilities.

Lower of Cost

A principle that states inventory should be recorded at the lesser of its historical cost or the current market value, to ensure assets are not overstated.