Which of the following statements are true? A. An increase in inventory is a use of...

Which of the following statements are true?

A. An increase in inventory is a use of cash that may require a short term financing arrangement, like a bank line of credit.

B. Retained earnings are not a source of funding for capital projects.

C. The Additional Funds Needed (AFN) amount is estimated based on assumptions about the increase in total assets (increase in working capital and capital investment) less the forecasted increases in liabilities (vendor financing) and the amount of current earnings retained in business (not paid out as dividends).

D. The Cash Conversion Cycle is impacted by management's policy decisions regarding credit terms for customers, optimal inventory levels and relationships (credit) with suppliers/vendors.

E. A, C and D

F. All of the above.

Solutions

Expert Solution

The following statements are true in the above question :

A. An increase in inventory is a use of cash that may require a short term financing arrangement, like a bank line of credit.

D. The Cash Conversion Cycle is impacted by management's policy decisions regarding credit terms for customers, optimal inventory levels and relationships (credit) with suppliers/vendors.

Hence, the currect answer is option E i.e A, C and D.

B is false because retained earnings are the long term source of cash which is internally generated by the company and it can be used for funding the capital projects.

jeff jeffy answered 8 months ago

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