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Pop Co is switching from using mainly long?term fixed rate finance to fund its working
capital to using mainly short?term variable rate finance.
Indicate, by clicking in the relevant boxes, whether each of the following items will
increase, decrease or see no change with this change in working capital financing policy.
Ratio Increase Decrease No change
Finance costs
Re?financing risk
Interest rate risk
Overcapitalisation risk
Sir in this question the answer states that the overcapitalisation risk will have no change..but sir if we change from long term to short term finance…we are reducing the working capital and overcapitalisation risk should decrease?I refer you to my earlier correspondence with you.
You can’t keep doing this
Pop Co is switching from using mainly long-term fixed rate finance to fund its working capital to using mainly short-term variable rate finance.
Which of the following statements about the change in Pop Co’s working capital financing policy is true?
A. Finance costs will increase
B. Re-financing risk will increase
C. Interest rate risk will decrease
D. Overcapitalisation risk will decreaseB
Pop Co is moving to an aggressive funding strategy which will increase refinancing risk.From Sept 2016 exam
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