Working Capital

Professor: Noel Camacho Mercado Name: ___________________________

Assignment: Working Capital

Course: Integrative Seminar of Finance

Multiple Choice (40 points)

_____ 1) When evaluating a capital budgeting project, the change in net working capital must be considered as part of

A) the operating cash inflows.

B) the initial investment.

C) the incremental operating cash inflows.

D) the operating cash outflows.

_____ 2) The change in net working capital when evaluating a capital budgeting decision is

A) the change in current liabilities minus the change in current assets.

B) the increase in current assets.

C) the increase in current liabilities.

D) the change in current assets minus the change in current liabilities.

_____ 3) An important cash inflow in the analysis of initial cash flows for a replacement project is

A) taxes.

B) the cost of the new asset.

C) installation cost.

D) the sale value of the old asset.

_____ 4) In evaluating the initial investment for a capital budgeting project,

A) an increase in net working capital is considered a cash inflow.

B) a decrease in net working capital is considered a cash outflow.

C) an increase in net working capital is considered a cash outflow.

D) net working capital does not have to be considered.

_____ 5) The basic variables that must be considered in determining the initial investment associated with a capital expenditure are all of the following EXCEPT

A) incremental annual savings produced by the new asset.

B) cost of the new asset.

C) proceeds from the sale of the existing asset.

D) taxes on the sale of an existing asset.

_____ 6) A corporation is considering expanding operations to meet growing demand. With the capital expansion, the current accounts are expected to change. Management expects cash to increase by $20,000, accounts receivable by $40,000, and inventories by $60,000. At the same time accounts payable will increase by $50,000, accruals by $10,000, and long-term debt by $100,000. The change in net working capital is

A) an increase of $120,000.

B) a decrease of $40,000. 2

C) a decrease of $120,000.

D) an increase of $60,000.

_____ 7) A corporation is considering expanding operations to meet growing demand. With the capital expansion the current accounts are expected to change. Management expects cash to increase by $10,000, accounts receivable by $20,000, and inventories by $30,000. At the same time accounts payable will increase by $40,000, accruals by $30,000, and long-term debt by $80,000. The change in net working capital is

A) an increase of $10,000.

B) a decrease of $10,000.

C) a decrease of $90,000.

D) an increase of $80,000.

_____ 8) If accounts receivable increase by $1,000,000, inventory decreases by $500,000, and accounts payable increase by $500,000, net working capital would

A) decrease by $500,000.

B) increase by $1,500,000.

C) increase by $2,000,000.

D) experience no change.

_____ 9) All of the following would be used in the computation of an investment's initial investment EXCEPT

A) the annual after tax inflow expected from the investment.

B) the initial purchase price of the investment.

C) the resale value of an old asset being replaced.

D) the tax on the sale of an old asset being replaced.

_____ 10) The book value of an asset is equal to the

A) fair market value minus the accounting value.

B) original purchase price minus annual depreciation expense.

C) original purchase price minus accumulated depreciation.

D) depreciated value plus recaptured depreciation.

_____

...