Exam 14: Working Capital Management and Policies

Suppose your firm is seeking a 7-year, amortizing $100,000 loan with annual payments and your bank is offering you the choice between a $110,000 loan with a $10,000 compensating balance and a $100,000 loan without a compensating balance. If the interest rate on the $100,000 loan is 7 percent, how low would the interest rate on the loan with the compensating balance have to be in order for you to choose it?

Suppose that Dunn Industries has annual sales of $2.5 million, cost of goods sold of $1,850,000, average inventories of $1,900,000, and average accounts receivable of $660,000. Assuming that all of Dunn's sales are on credit, what will be the firm's operating cycle?

All of the following are examples of carrying costs EXCEPT

Which of the following is the best description of the operating cycle?

Rose Resources faces a smooth annual demand for cash of $10 million, incurs transaction costs of $325 every time they sell marketable securities, and can earn 3.9 percent on their marketable securities. What will be their optimal cash replenishment level?

If a firm has a cash cycle of 38 days and an operating cycle of 82 days, what is its payables turnover?

If a firm has a cash cycle of 30 days and an operating cycle of 64 days, what is its average payment period?

KJ Enterprises estimates that it takes, on average, three days for their customers' payments to reach them, one day for the payments to be processed and deposited by their bookkeeping department, and two more days for the checks to clear once they're deposited. What is their collection float?

"The net amount of current assets that the firm has to fund, above and beyond those that someone else funds for them" is referred to as

Which of the following is NOT one of the Baumol model's unrealistic assumptions?

If a firm's inventory ratio increases, what will happen to the firm's operating cycle?

Team Sports Industries has a cash balance of $60,000; accounts payable of $40,000; inventory of $100,000; accounts receivable of $110,000; notes payable of $80,000; and accrued wages and taxes of $10,000. How much net working capital does the firm need to fund?

If demand for a firm's products suddenly increases so that inventory decreases while sales increase, how will the firm's needs for net working capital react?

Suppose that Freddy's Fries has annual sales of $500,000, cost of goods sold of $375,000, average inventories of $9,000, and average accounts receivable of $25,000. Assuming that all of Freddy's sales are on credit, what will be the firm's operating cycle?

Suppose that LilyMac Photography has annual sales of $218,000, cost of goods sold of $123,000, average inventories of $1,250, and average accounts receivable of $22,000. Assuming that all of LilyMac's sales are on credit, what will be the firm's operating cycle?

Elle Mae Industries has a cash balance of $50,000, accounts payable of $150,000; inventory of $190,000; accounts receivable of $250,000; notes payable of $210,000; and accrued wages and taxes of $40,000. How much net working capital does the firm need to fund?

CM Enterprises estimates that it takes, on average, seven days for their customers' payments to reach them, one day for the payments to be processed and deposited by their bookkeeping department, and three more days for the check to clear once they're deposited. What is their collection float?

If a firm has a cash cycle of 39 days and an operating cycle of 88 days, what is its average payment period?

Which of the following is NOT one of the five basic elements of the kaizen approach of productivity improvement?

A production strategy that attempts to improve a firm's return on investment by reducing in-process inventory and associated carrying costs as much as possible is which of the following?