We are asked that:. (A)What does working capital management encompass? What functional decisions are involved, and what underlying principle or trade-off influences the decision process?

(B)If the firm adopts a hedging (maturity matching) approach to financing, how would it finance its current assets?

(C)Some firms finance their permanent working capital with short-term liabilities(commercial paper and short-term notes). Explain the impact of this decision on the profitability and risk of these firms.

(D). Suppose that a firm finances its seasonal (temporary) current assets with long-term funds.What is the impact of this decision on the profitability and risk of this firm?

(E)Risk associated with the amount of current assets is generally assumed to decrease with increased levels of current assets. Is this assumption always correct for all levels of current assets - in particular, for an excessively high level of current assets relative to the firm's needs? Explain.

(F)At times, long-term interest rates are lower than short-term rates, yet the discussion in the chapter suggests that long-term financing is more expensive. If long-term rates are lower,should the firm finance itself entirely with long-term debt?

(E)How does shortening the maturity composition of outstanding debt increase the firm's risk? Why does increasing the liquidity of the firm's assets reduce the risk?

(F)What are the costs of maintaining too large a level of working capital? Too small a level of working capital?

(G)How is a margin of safety provided for in working capital management?