Question 1

What is the credit period?

Accepted Answer

The credit period is the total

Question 2

The amount of cash a firm holds to counter the uncertainty surrounding its future cash needs is known as a(n)

Accepted Answer

A)  speculative balance. 
B)  compensating balance. 
C)  operating balance. 
D)  precautionary balance. 
E)  transactions balance. 
A)  speculative balance. 
B)  compensating balance. 
C)  operating balance. 
D)  precautionary balance. 
E)  transactions balance.

Question 3

Franklin Industries has a current net working capital of $1 million.It expects that this will grow at a rate of 3% annually forever.What growth rate in working capital would the firm require in order to achieve a $2 million increase in firm value,given that it has a cost of capital of 7%?

Accepted Answer

A)  2% 
B)  2.7% 
C)  3.3% 
D)  1.4% 
E)  4% 
A)  2% 
B)  2.7% 
C)  3.3% 
D)  1.4% 
E)  4%

Question 4

What is meant by the term 1.5/14 net 30?

Accepted Answer

A)  If the invoice is paid within 14 days a discount of 1.5 percent can be taken, otherwise the invoice is due in 30 days. 
B)  If the invoice is paid within 30 days a discount of 14 percent can be taken, otherwise the invoice is due 14 days after that days. 
C)  If the invoice is paid within 1.5 days a discount of 14 percent can be taken, otherwise the invoice is due in 30 days. 
D)  If the invoice is paid right away, a discount of 14 percent can be taken, otherwise a discount of 1.5 percent can be taken if paid within the next 30 days. 
E)  If the invoice is paid 1.5 days a discount of 30 percent can be taken, otherwise the invoice is due in 14 days. 
A)  If the invoice is paid within 14 days a discount of 1.5 percent can be taken, otherwise the invoice is due in 30 days. 
B)  If the invoice is paid within 30 days a discount of 14 percent can be taken, otherwise the invoice is due 14 days after that days. 
C)  If the invoice is paid within 1.5 days a discount of 14 percent can be taken, otherwise the invoice is due in 30 days. 
D)  If the invoice is paid right away, a discount of 14 percent can be taken, otherwise a discount of 1.5 percent can be taken if paid within the next 30 days. 
E)  If the invoice is paid 1.5 days a discount of 30 percent can be taken, otherwise the invoice is due in 14 days.

Question 5

If a supplier is offering trade credit of 1/10 net 30,and a buyer chooses not to take the discount,when should they pay,assuming that they wish to stay on good terms with the supplier?

Accepted Answer

A)  anytime before day 10 
B)  on day 10 
C)  on day 30 
D)  any time after day 30 
E)  any time between day 10 and day 30 
A)  anytime before day 10 
B)  on day 10 
C)  on day 30 
D)  any time after day 30 
E)  any time between day 10 and day 30

Question 6

Genovese Fine Foods,a manufacturer of foodstuffs,buys durum wheat flour on credit on June 1.It processes this flour to make pasta on June 6 and pays cash for the flour on June 15.On June 22 it sells the pasta to a chain of supermarkets,and on July 3 receives cash payment for this sale.What is the length of the cash cycle in this case?

Accepted Answer

A)  8 days 
B)  12 days 
C)  18 days 
D)  28 days 
E)  33 days 
A)  8 days 
B)  12 days 
C)  18 days 
D)  28 days 
E)  33 days

Question 7

A firm offers its customers 1/7 net 21.What is the cost of trade credit to a customer who chooses to pay on day 21?

Accepted Answer

A)  7% 
B)  19% 
C)  21% 
D)  30% 
E)  69% 
A)  7% 
B)  19% 
C)  21% 
D)  30% 
E)  69%

Question 8

Cooper Copper,a manufacturer of copper piping,buys copper on credit on March 10.It processes this copper to make pipes on March 25 and pays cash for the copper on April 9.On April 14 it sells the pipes to a construction company,and on May 14 receives cash payment for this sale.What is the length of the operating cycle in this case?

Accepted Answer

A)  15 days 
B)  20 days 
C)  65 days 
D)  30 days 
E)  35 days 
A)  15 days 
B)  20 days 
C)  65 days 
D)  30 days 
E)  35 days

Question 9

Your firm purchases goods from its supplier with a discount of 2%,and a credit period of 30 days.If the effective annual cost of forgoing the discount is 63.49%,what is the length of the discount period?

Accepted Answer

A)  15 days 
B)  25 days 
C)  35 days 
D)  40 days 
E)  50 days 
A)  15 days 
B)  25 days 
C)  35 days 
D)  40 days 
E)  50 days

Question 10

Monroe Electronics' projected net income and free cash flows are given above in thousands of dollars.Monroe expects their net income and increases in net working capital to increase by 4% per year.and has a cost of capital of 8%.Monroe wishes to achieve a 5% increase in firm value.If the rest of the business remains unchanged,what reduction in working capital increases would Monroe require in order to achieve this goal?

Accepted Answer

A)  $2,000 
B)  $4,200 
C)  $5,800 
D)  $10,000 
E)  $8,000 
A)  $2,000 
B)  $4,200 
C)  $5,800 
D)  $10,000 
E)  $8,000

Question 11

A firm that chooses a low-risk,restrictive credit policy will tend to have a larger investment in receivables.

Accepted Answer

A) True 
 B)False

Question 12

Jen Industries had sales of $32 million this year and an average accounts receivable of $0.8 million per day.On average,how long does it take to collect on its sales?

Accepted Answer

A)  9 days 
B)  11 days 
C)  12 days 
D)  19 days 
E)  40 days 
A)  9 days 
B)  11 days 
C)  12 days 
D)  19 days 
E)  40 days

Question 13

What is a firm's cash cycle?

Accepted Answer

A firm's cash cycle is the len

Question 14

A firm currently sells its product with a 2% discount to customers who pay by cash or credit card when they purchase one of the firm's products; otherwise,the full price is due within 30 days.Forty percent of customers take advantage of the discount.The firm plans to drop the discount so the new terms will simply be net 30.In doing so it expects to sell 100 fewer units per month and all customers to pay at day 30.The firm currently sells 1000 units per month at a cost per unit of $45 and a selling price per unit of $80.If the firm's required return is 2%,what is the net present value (NPV)of making this change?

Accepted Answer

A)  -$169,860 
B)  -$122,420 
C)  $64,490 
D)  $172,320 
E)  $184,730 
A)  -$169,860 
B)  -$122,420 
C)  $64,490 
D)  $172,320 
E)  $184,730

Question 15

The amount of cash a firm needs to be able to pay its bills is sometimes referred to as a(n)

Accepted Answer

A)  operating balance. 
B)  compensating balance. 
C)  transactions balance. 
D)  precautionary balance. 
E)  payments balance. 
A)  operating balance. 
B)  compensating balance. 
C)  transactions balance. 
D)  precautionary balance. 
E)  payments balance.

Question 16

Cromwell Incorporated has the information shown above on its annual Income Statement and Balance Sheet (all numbers shown are in thousands).What is Cromwell's cash conversion cycle?

Accepted Answer

A)  -41.8 days 
B)  -36.1 days 
C)  24.3 days 
D)  111.6 days 
E)  131.3 days 
A)  -41.8 days 
B)  -36.1 days 
C)  24.3 days 
D)  111.6 days 
E)  131.3 days

Question 17

Which of the following firms would be expected to need the most cash to conduct its daily operations?

Accepted Answer

A)  a retail grocery store that sells on a cash only basis 
B)  an electronics manufacturer that only assemble its goods once they have been paid for 
C)  an airline that has many of its fares pre-paid by cash or credit card 
D)  an aircraft manufacturer with large inventory and long development and sales cycles 
E)  a clothing retailer that accepts both cash and credit payments 
A)  a retail grocery store that sells on a cash only basis 
B)  an electronics manufacturer that only assemble its goods once they have been paid for 
C)  an airline that has many of its fares pre-paid by cash or credit card 
D)  an aircraft manufacturer with large inventory and long development and sales cycles 
E)  a clothing retailer that accepts both cash and credit payments

Question 18

The amount of cash a firm is required to hold in its bank account to pay for services the bank performs is known as the:

Accepted Answer

A)  speculative balance. 
B)  compensating balance. 
C)  operating balance. 
D)  precautionary balance. 
E)  transactions balance. 
A)  speculative balance. 
B)  compensating balance. 
C)  operating balance. 
D)  precautionary balance. 
E)  transactions balance.

Question 19

Which of the following is a firm's operating cycle?

Accepted Answer

A)  the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product 
B)  the average length of time between when a firm pays cash to purchase its initial inventory and when it receives cash from the sale of the product produced from that inventory 
C)  the average length of time between when a firm originally purchases its inventory and when it sells the product produced from that inventory 
D)  the average length of time between when a firm originally purchases its inventory and when it pays cash for that inventory 
E)  the average length of time between when a firm receives cash for its current inventory and uses that cash to purchase new inventory 
A)  the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product 
B)  the average length of time between when a firm pays cash to purchase its initial inventory and when it receives cash from the sale of the product produced from that inventory 
C)  the average length of time between when a firm originally purchases its inventory and when it sells the product produced from that inventory 
D)  the average length of time between when a firm originally purchases its inventory and when it pays cash for that inventory 
E)  the average length of time between when a firm receives cash for its current inventory and uses that cash to purchase new inventory

Question 20

What are the costs of holding inventory?

Accepted Answer

The costs for holdin

Exam 19: Working Capital Management

What is the credit period?

The amount of cash a firm holds to counter the uncertainty surrounding its future cash needs is known as a(n)

Franklin Industries has a current net working capital of $1 million.It expects that this will grow at a rate of 3% annually forever.What growth rate in working capital would the firm require in order to achieve a $2 million increase in firm value,given that it has a cost of capital of 7%?

What is meant by the term 1.5/14 net 30?

If a supplier is offering trade credit of 1/10 net 30,and a buyer chooses not to take the discount,when should they pay,assuming that they wish to stay on good terms with the supplier?

A firm offers its customers 1/7 net 21.What is the cost of trade credit to a customer who chooses to pay on day 21?

Your firm purchases goods from its supplier with a discount of 2%,and a credit period of 30 days.If the effective annual cost of forgoing the discount is 63.49%,what is the length of the discount period?

A firm that chooses a low-risk,restrictive credit policy will tend to have a larger investment in receivables.

Jen Industries had sales of $32 million this year and an average accounts receivable of $0.8 million per day.On average,how long does it take to collect on its sales?

What is a firm's cash cycle?

The amount of cash a firm needs to be able to pay its bills is sometimes referred to as a(n)

Cromwell Incorporated has the information shown above on its annual Income Statement and Balance Sheet (all numbers shown are in thousands).What is Cromwell's cash conversion cycle?

Which of the following firms would be expected to need the most cash to conduct its daily operations?

The amount of cash a firm is required to hold in its bank account to pay for services the bank performs is known as the:

Which of the following is a firm's operating cycle?

What are the costs of holding inventory?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Short Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters