Explain how rapidly expanding sales can drain the cash resources of a firm.

Explain how rapidly expanding sales can drain the cash resources of a firm.

-What is the significance to working capital management of matching sales and production?

-A firm that uses short-term financing methods for a portion of permanent current assets is assuming more risk but expects higher returns than a firm with a normal financing plan. Explain.

-Since the mid-1960s, corporate liquidity has been declining. What reasons can you give for this trend?

-Austin Electronics expects sales next year to be $900,000 if the economy is strong, $650,000 if the economy is steady, and $375,000 if the economy is weak. The firm believes there is a 15 percent probability the economy will be strong, a 60 percent probability of a steady economy, and a 25 percent probability of a weak economy.

What is the expected level of sales for next year?

-Axle Supply Co. expects sales next year to be $300,000. Inventory and accounts receivable will increase by $60,000 to accommodate this sales level. The company has a steady profit margin of 10 percent with a 30 percent dividend payout. How much external financing will the firm have to seek? Assume there is no increase in liabilities other than that which will occur with the external financing.