This is to inform that Graded Discussion Board (GDB) No. 02 will be opened on 12th February, 2015 for discussion and last date for posting your discussion will be 16thFebruary, 2015.
Topic/Area for Discussion
“Working Capital Management”
For acquiring the relevant knowledge, do not rely only on handouts but also watch the course video lectures and read additional material available online or in any other mode.
It is generally assumed in conservative working capital policy that the risk associated with the amount of current assets decreases with an increased level of current assets. Discuss whether this assumption is always correct for all levels of current assets? Would the risk still be decreased in case of excessively high level of current assets? Support your comments with logical arguments.
(Note: Your discussion should not exceed 200-300 words. No calculations are needed; you are only supposed to discuss to-the-point.)
FIN 622 GDB Solution...????
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then come to the point that is risk associated with the amount of current assets decreases with an increased level of current assets.
CONSERVATIVE WORKING CAPITAL POLICY;
– high level of investment in current assets
– support any level of sales and production
– high liquidity level
– Avoid short-term financing to reduce risk, but decreases the potential for maximum value
creation because of the high cost of long-term debt and equity financing.
– Borrowing long-term is considered less risky than borrowing short-term.
– This approach involves the use of long-term debt and equity to finance all long-term fixed
assets and permanent assets, in addition to some part of temporary current assets.
– The firm has a large amount of net working capital. It is a relatively low-risk position.
– The safety of conservative approach has a cost.
– Long-term financing is generally more expensive than short-term financing.