Exam 16: Working Capital Management

The rate of return on fixed assets is normally assumed to be the rate of return on current assets (especially cash and marketable securities).

Which of the following factors does not directly affect the firm's level of investment in working capital?

Renfro Industries balance sheet for December 31, 20x3 is as follows: What is Renfro's net working capital at the end of 20x3?

Cisco Systems wishes to analyze the joint impact of its working capital investment and financing policies on shareholder return.The company has $24 million in fixed assets.Cisco wishes to maintain a debt ratio of 40%.The company's tax rate is also 40%.The following information was developed for the two policies under consideration (dollars in millions): For the aggressive approach, Cisco's ROE is and for the conservative approach the ROE is .

What is the length of the cash conversion cycle for a firm with annual sales (all cash) of $280,000, an inventory conversion period of 35 days, and a payables deferral period of 25 days.

If a firm shows a profit on the quarterly income statement, then

Laserscope Inc.is trying to determine the best combination of short-term and long-term debt to employ in financing its assets.Laserscope will have $16 million in current assets and $20 million in fixed assets next year and expects operating income (EBIT) to be $4.1 million.The company's tax rate is 40% and its debt ratio is 50%.The firm's debt will be financed by one of the following policies: What is the return on shareholder's equity under each policy?

Laserscope has an inventory conversion period of 45 days, a receivables conversion period of 42 days, and a payables deferral period of 51 days.What is the length of its cash conversion cycle?

The length of the operating cycle for a firm is equal to the length of the

Of the accounts listed, the account(s) that is (are) NOT part of a firm's working capital is:

All other things being equal, a policy of financing its assets with a relatively proportion of short-term debt will tend to result in expected after-tax earnings for the firm.

If Swatch's inventory conversion period is 45 days, its payables deferral period is 35 days, and its receivables conversion period is 50 days, then its cash conversion cycle must be days.

When factoring accounts receivables, the factor is the:

What is financial forecasting?

Which of the following assets (if any) are not part of a firm's working capital investment?

Great Skot expects to have cash receipts in June of $532,160.Skot's cash disbursements in June are $581,720, including an interest payment on a bond issue of $32,000.If Skot wishes to maintain a cash balance of $40,000, how much will Skot have to borrow if it started the month with a cash balance of $52,000?

Borrowers (e.g., business firms) feel that there is more risk associated with short-term debt (as compared with long- term debt) because of the

Net working capital is defined as:

Barnes Company has highly seasonal sales and financing requirements.Barnes has made the following projections of its asset needs and net additions to retained earnings over the next year (in $ million). Net worth (equity) at the beginning of the year is $50 million.The company does not plan to sell any new equity during the coming year.Assume that Barnes follows a matching approach to finance its assets, i.e., long-term debt and equity are used to finance fixed and permanent current assets and short-term debt is used to finance fluctuating current assets.Determine the amount of long-term and short-term debt respectively outstanding at the end of the third quarter ($ million).

The aggressive approach to the financing of a firm's current assets uses a proportion of short-term debt and a proportion of long-term debt.