Exam 19: Working Capital Management

Your firm purchases goods from its supplier with a discount of 1%,and a discount period of 15 days.If the effective annual cost of forgoing the discount is 15.8%,what is the length of the credit period?

Which of the following are the "5 Cs of Credit"?

What is the effective annual cost of credit terms of 1/10 net 30,if the firm stretches the accounts payable to 45 days?

A situation in which a firm runs out of inventory is called a(n)

What are the advantages of holding inventory?

Vega Music's projected net income and free cash flows are given above in thousands of dollars.Vega expects their net income and increases in net working capital to increase by 5% per year.If Vega were able to reduce its annual increase in working capital by 10% without affecting any other part of the business adversely,what would be the effect of this reduction on Vega's value,given a cost of capital of 13%?

Collection float is the amount of time it takes for a firm to be able to use funds after a customer has paid for its goods.

A firm's practice of ignoring a payment due period and paying later is called

A firm's credit terms specify "1/10 net 30" and the accounts receivable days outstanding is 32 days.Which of the following can be concluded on the basis of this information?

Which of the following would decrease a firm's cash conversion cycle?

Macrae Products,a manufacturer of building products,buys raw gypsum on credit on May 16.It processes this gypsum to make dry plaster powder on May 20 and pays cash for the raw gypsum on May 30.On June 7 it sells the dry plaster powder to a chain of hardware stores,and on June 21 receives cash payment for this sale.What is the length of the cash cycle in this case?

What is trade credit?

What is the meaning of the term 2/10 net 30?

Gencom International has inventory days of 22,and accounts payable days of 37.If its cash conversion cycle is 28 days,what is Gencom's accounts receivable days?

Which of the following money market investments is essentially a loan arrangement wherein a securities dealer is the "borrower" and the investor is the "lender"? The investor buys securities from the securities dealer,with an agreement to sell the securities back to the dealer at a later date for a specified higher price.

A firm offers its customers 2/14 net 28.What is the cost of trade credit to a customer who chooses to pay on day 28?

Commercial Supply Corp.bills its accounts on terms of 2/10 net 30.The firm's accounts receivable include $200,000 that has been outstanding for ten or fewer days,$126,000 outstanding for 11 to 30 days,$98,000 outstanding for 31 to 40 days,$12,000 outstanding for 41 to 50 days,$20,000 outstanding for 51 to 60 days,and $7000 outstanding for more than 60 days.Is the aging schedule for Commercial Supply Corp.bottom heavy?

Your firm purchases goods from its supplier with a discount of 2%,and a discount period of 10 days.If the effective annual cost of forgoing the discount is 44.59%,what is the length of the credit period?

A firm decides to stretch its accounts payable,resulting in an effective annual cost of credit of 20.24%,under terms of 2/10 net 20.When is the firm paying its accounts payable?

Working capital management involves the management of all of a firm's assets and liabilities.