MINDTAP Chapter Review 15-Working Capital Management Due on Dec 7 at 11:59 PM PS

Question

MINDTAP Chapter Review 15-Working Capital Management Due on Dec 7 at 11:59 PM PST Attempts: Keep the Highest:/3 Aa Aa 2. Current asset investment policies On the surface, it seems that a firm would want to hold high levels of current assets to ensure its liquidity and its ability to meet all of its short-term obligations. However, current assets are not very productive and generate very low returns when held. Therefore, a firm must strike a balance and hold those types and quantity of current assets that work best for it. In the following table, identify which current asset investment policy is most likely to work best for each firm. Current Asset Investment Policy Moderate Relaxed Restricted Universal Assemblers Inc. uses a current asset investment policy that resuits in the relatively longest cash conversion cycle St. McStanky Beer Co. tries to hold optimal levels of current assets (including cash, marketable securities accounts receivable, and inventory). such that it balances the potential costs of running through its assets with the cost of holding balances in those assets. Gadgetmakers Inc. uses a current asset investment policy that is intended to provide the highest expected return on investment. This policy's problem is that it also has the greatest risk

Explanation / Answer

1.RELAXED
2.MODERATE
3.RESTRICTED

TYPE OF CURRENT INVT POLICY

1.RESTRICTIVE -MAINTAIN LOW LEVEL OF CURRENTASSET AS COMPARE TO SALES LEVEL.ACCOUNT RECEIVABLE ARE KEPT LOW AND LESS FLEXIBLE. FEWER FUND IN CURRENT ASSET AND MAKE LARGE INVESTMENT AND EARNING HIGH RETURNS.

2.RELAXED
MAINTAIN HIGHER LEVEL OF CURRENT ASSET.KEEP ACCOUNT RECIEVABLE HIGH.WITH LARGER INVESTMENT IN C.A AS COMPARE TO OTHER INVESTMENT WHICH LEAD LOW RETURN ON THOSE INVESTMENT.

3.MODERATE ARE BETWEEN THESE TWO . IN THIS WORKING CAPITAL FRAME FOR EACH COMPONENT OF WORKING CAPITAL.I.E. CASH,ACCOUNT RECEIVABLE.

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