Which of the Following Regarding Current Asset fiNancing Is Correct

question 318

Multiple Choice

Which of the following regarding current asset financing is correct?

• A) In an ideal world, net working capital would be zero.
• B) A flexible policy always implies a short-term cash surplus.
• C) A restrictive policy uses short-term borrowing for permanent asset requirements.
• D) In a compromise policy, short-term borrowing is used, at least partially, in place of maintaining a liquidity reserve.
• E) Most firms do not have seasonal variations in total asset requirements and, as a result, do not need a current assets management policy.

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Definitions:

Sales Discount

A sales discount is a reduction in the price of goods or services offered by a seller to a buyer, typically to encourage early payment or bulk purchases.

Perpetual Inventory

An inventory system that updates item records continuously as transactions occur.

2/10, n/30

A common credit term indicating that a buyer can take a 2% discount on the invoice price if payment is made within 10 days; otherwise, the net amount is due in 30 days.

FOB Destination

A shipping term indicating that the seller bears freight charges and remains responsible for the goods until they are delivered to the buyer's location.