Question

If a firm has a relatively aggressive current asset financing policy vis-á-vis other firms in its...

If a firm has a relatively aggressive current asset financing policy vis-á-vis other firms in its industry, then its current ratio will probably be relatively high. Is this true? Why or why not?

Homework Answers

Answer #1

I have answered the question below using excel and have attached the image below.

Please up vote for the same and thanks!!!

Do reach out in the comments for any queries

Answer:

False,

An agressive current asset financing policy is used when a minimal investment in current assets with short-term credit. The requirement here is to decrease the time needed to produce products. This policy happens when there is little cash on hand which implies lowe current ratio

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
What are the current asset financing strategies that firms adopt? Firms manage a variety of current...
What are the current asset financing strategies that firms adopt? Firms manage a variety of current assets. Permanent current assets are needed for the firm to maintain its business, and they will be carried even through downturns in business cycles. Temporary current assets fluctuate seasonally or with business cycles. Each firm must devise a financing strategy that best fits its business situation and best manages its risk. Long-term capital finances all permanent current assets and some temporary financing needs. Which...
Guardian Inc. is trying to develop an asset-financing plan. The firm has $480,000 in temporary current...
Guardian Inc. is trying to develop an asset-financing plan. The firm has $480,000 in temporary current assets and $380,000 in permanent current assets. Guardian also has $580,000 in fixed assets. Assume a tax rate of 40 percent. a. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 60 percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current interest...
Why is the following statement true?"Other things being the same, firms with relatively stable sales are...
Why is the following statement true?"Other things being the same, firms with relatively stable sales are able to carry relatively high debt ratios"
Medical Equipment of Orlando Inc. trying to develop an asset-financing plan. The firm has $2,800,000 in...
Medical Equipment of Orlando Inc. trying to develop an asset-financing plan. The firm has $2,800,000 in temporary current assets and $1,200,000 in permanent current assets. The company also has $6,000,000 in fixed assets. Part A Construct two alternative financing plans for Medical of Orlando Inc. One of the plans should be conservative, with 80 percent of assets financed by long-term sources and the rest financed by short-term sources. The other plan should be aggressive, with only 20 percent of assets...
A firm only uses debt and common stock to finance its operation. Its capital structure is...
A firm only uses debt and common stock to finance its operation. Its capital structure is 30% debt and 70% Equity. It reports NI of $1.5 million and interest expense of $300,000. A firm's tax rate is 25%. Given ROA of 12%, what is its BEP? 18.40% 15.56% 25.55% 17.78% (this is incorrect) Which of the following statements is/are INCORRECT? High current ratio may also indicate the firm has too much cash and A/R and these liquid assets generally provide...
Suppose a firm follows a moderate current asset investment policy, but it is now considering a...
Suppose a firm follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed policy. The firm's annual sales are €400,000; its fixed assets (FA) are €100,000; its target capital structure calls for 50% debt and 50% equity; its EBIT is €35,000; the interest rate on its debt is 10%; and its tax rate is 40%. With a restricted policy, current assets (CA) will be 15% of sales,...
Click here to read the eBook: Current Assets Investment Policies CURRENT ASSETS INVESTMENT POLICY Rentz Corporation...
Click here to read the eBook: Current Assets Investment Policies CURRENT ASSETS INVESTMENT POLICY Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $4 million as a result of an asset expansion presently being undertaken. Fixed assets total $2 million, and the firm plans to maintain a 50% debt-to-assets ratio. Rentz's interest rate is currently 8% on both short-term and long-term debt (which the firm uses in its...
A policy has been implemented to control pollution from two firms. The marginal cost of abatement...
A policy has been implemented to control pollution from two firms. The marginal cost of abatement for firm 1 is $5/ton at its choice of emissions. The marginal cost of abatement for firm 2 is $3/ton at its choice of emissions. What is true about this policy? This policy is optimal This policy is inefficient because both firms should increase their abatement The policy is inefficient because firm 1 should increase its abatement and firm 2 should decrease its abatement...
The granit Company has a target current ratio of 3 but has experinced some difficulties financing...
The granit Company has a target current ratio of 3 but has experinced some difficulties financing its expanding sales in the past few months. The firm has a current ratio of 5 with current assets of $5 million. If Granit expands its receivables and inventories using its short term line of credit, how much additional short term funding can it borrow before its target current ratio is reached?
Firm A has a beta of 1.5. Firm B has a beta of 1. Both firms...
Firm A has a beta of 1.5. Firm B has a beta of 1. Both firms A and B are in the same industry, i.e. have similar assets. Which of the following could be a reason why Firm A has a higher beta than Firm B’s? Firm A has more cyclical revenues than Firm B Firm A has high financial leverage compared to Firm B Firm A has low financial leverage compared to Firm B I only II only I...