Why do companies hold working capital? Why do firms need to minimize their working capital balances?
What will be an ideal response?
Companies hold working capital to facilitate day-to-day transactions and to cover the firm against unexpected demands for cash. A firm does not want to run out of cash on hand. Failure to have sufficient cash to pay workers or suppliers can lead, at a minimum, to expensive emergency borrowings or, in the worst case, to an embarrassing loss of reputation that may cause suppliers and lenders to cut off future lines of credit. However, financial officers seek to minimize the firm's working capital balances because the rate of return on working capital is extremely low. Financial officers prefer to capture higher rates of return, if possible, by investing surplus funds in some other form than cash. Thus, they need to balance the firm's needs for cash against the opportunity cost of holding the firm's financial assets in such low-yielding forms.
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Regarding relevant nonfinancial information, which of the following statements is incorrect?
A) Nonfinancial, or qualitative, factors play a role in managers' decisions and, as a result, can be relevant. B) Relevant qualitative information has the same characteristics as relevant financial information. C) Managers must always consider the potential quantitative and qualitative effects of their decisions. D) Qualitative factors can be ignored because these factors are difficult to measure.
Why do most sales and marketing managers believe company salespeople are more likely to produce a higher volume of total sales than agents?
A. Company salespeople concentrate entirely on the firm's products B. They are better trained C. They tend to be more aggressive since their future depends on the company's success D. Customers prefer to deal directly with a supplier E. All of the above