Review Questions:

$1.$ Differentiate Gross Working Capital $($GWC$)$ from Net Working Capital $($NWC$).$ How

are the two concepts applied in the corporate finance?

$2.$ Discuss how managing working capital contributes to a company's liquidity and

financial health.

$3.$ Why is excess inventory not healthy for a company?

$4.$ Describe two inventory control techniques a company can implement to optimize

working capital.

$5.$ How can a manufacturing firm improve its cash flow and liquidity through supplier

negotiations?

$6.$ What are the risks associated with an aggressive financing policy?

$7.$ Calculate the WACC given the following: Equity $($E$)=$ $$500,000,$ Debt $($D$)=$

$$200,000,$ Cost of Equity $($Re$)=10\%,$ Cost of Debt $($Rd$)=5\%,$ Corporate Tax Rate

$($Tc$)=30\%.$

$8.$ List five qualities of an effective financial policy.

$9.$ Given the following data, calculate the Earnings Per Share $($EPS$)$ for each option:

i$.$ EBIT: $$8,000,000$

ii$.$ Option $1$: No interest, no preferred dividends, $40,000$ equity shares

iii. Option $2$: Interest: $$2,000,000,15,000$ equity shares

iv$.$ Option $3$: Preferred dividends: $$2,000,000,15,000$ equity shares

$10.$ Explain the concept of leverage risk.

$11.$ Define portfolio theory and list its key assumptions.

$12.$ Given the following data, calculate the portfolio risk:

i$.$ Portfolio weights: $50\%$ Stock A$,50\%$ Stock B

ii$.$ Variance of Stock A: $0\mathrm{.}04$

iii. Variance of Stock B: $0\mathrm{.}01$

iv$.$ Covariance between Stock A and Stock B: $0\mathrm{.}02$

$13.$ Describe the impact of foreign exchange risk on a company's profitability.

$14.$ Define the time value of money $($TVM$).$

$15.$ Calculate the future value $($FV$)$ of $$10,000$ invested for $5$ years at an annual interest

rate of $6\%.$

$16.$ What is the present value $($PV$)$ of $$15,000$ to be received $10$ years from now if the

discount rate is $8\%?$