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Why do firms need to invest in net working capital

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Question 1: Show the effect of the following transactions on cash, net working capital, and the current ratio. Assume that the current ratio exceeds 1.0 to begin.

The firm borrows $1,000 short-term and pays $500 in accounts payable.

The firm factors $1,000 in receivables at a 5% discount.

The firm issues $1,000 in long-term bonds, using the proceeds to pay $800 in payables and purchase $200 in marketable securities.

Question 2: Calculate the simple interest on a bank loan of $200,000 for a month, with a quoted rate of 6% simple interest. At the end of the month how much would you need to repay?

Question 3: Why do firms need to invest in net working capital?

Question 4: How does long-term financing policy affect short-term financing requirements?

Reference no: EM132591779

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