**1 Definitions and Importance of Working Capitals**

a)What is liquidity?

b)Give two examples of working capital. Briefly explain each and then compare the liquidity with each other.

c)Why is it important to hold some liquid and some illiquid assets?

**2 Identify and discuss ONE ratio used to evaluate capital and cash performance.**

**3 Find the following values for a lump sum assuming annual compounding:**

a)The future value of $500 invested at 8 percent for one year

b)The future value of $500 invested at 8 percent for three years

c)The present value of $500 to be received in one year when the opportunity cost rate is 8 percent

d)The present value of $500 to be received in three years when the opportunity cost rate is 8 percent

**4 Repeat Question 3 above, but assume the quarterly compounding conditions:**

a)The future value of $500 invested at 8 percent for one year

b)The future value of $500 invested at 8 percent for three years

c)The present value of $500 to be received in one year when the opportunity cost rate is 8 percent

d)The present value of $500 to be received in three years when the opportunity cost rate is 8 percent

**5 Evaluating Accounts Receivable Performance:**

a)Define average collection period (ACP).

b)Is a smaller or larger ACP better?