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Q3 – The correct answer is D (dividend policy) and I chose C (interest rate management). I don’t understand why, as working capital is linked to profitability (and liquidity of course) which can bring profits and (if decided) pay dividends. Wouldn’t working capital management have a big impact on Dividend policy?
Q28 – The correct asnwer is D (Payback period ignores timing of cash flows within the payback period). Shouldn’t it be that it ignores the timing of cash flows AFTER the payback period (thus false)? After all, this is one of its weaknesses, isn’t?
Q3 – Working capital management is concerned with things like collecting in receivables efficiently. Dividend policy is concerned with whether to have a policy of aiming for high dividends (and therefore little growth ) or high retention (and therefore higher growth).
The cash available may have an impact on the level of dividends that can be paid, but that has less affect on the long-term policy.Q28 – Although the payback period does ignore flows after the payback period regardless of the timing of them (which obviously isn’t one of the options available), it does ignore the timing of the flows within the payback period. If (for example) the payback period is 3 years then it makes no difference whether the cash flow in the first year is higher and the second year lower, or vice versa – the payback period would stay the same as long as the total of those first 2 years was the same.
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