Chapter 8 Homework Questions 1. What is the difference between financial needs and financing requirements? 2. Differentiate between internal and external financing. Give several examples. 3. Discuss the concepts of business risk, financial risk, and instrument risk. 4. Identify the six C's of credit. 5. How can government agencies help businesses? Learning Exercises: EXERCISE 1: CASH INFLOW FROM WORKING CAPITAL ACCOUNTS How much additional cash could a company obtain from its working capital accounts if it can improve its inventory turnover by 0.2 times and average collection period by 5 days? The company's inventories are $500,000, and trade receivables are $250,000. The company's revenue is estimated at $1.8 million and cost of sales at $900,000. EXERCISE 2: TYPES OF RISKS There are three types of risk-related financing options: business risk, financial risk, and instrument risk. List each of the following under the appropriate risk concept: Bonds Leverage Insolvency More debt Business variations Mortgage Finance costs Economic environment Unsecured loans Common shares Conditional sales contracts High-tech businesses Capital structure Industry environment Uncertainty EXERCISE 3: FINANCIAL NEEDS AND FINANCING REQUIREMENTS A company needs $1.2 million to invest in different types of assets and operating expenses to launch a new line of products. With the following information, make a list of the company's financial needs and financing requirements. Marketing costs $55,000 Trade receivables $175,000 Depreciation 50,000 Equipment 500,000 Shareholders 200,000 Suppliers 250,000 Inventories 350,000 Profit for the year 100,000 Working capital loan 100,000 Equipment vendors 200,000 Research and development 120,000 Commercial bank 300,000