Exam 17: Cash,receivables,and Inventory Management

Manfred Manufacturing is involved in the production of machine parts.The company uses 600,000 pounds of steel annually.The current purchasing cost for steel is $3.20 per pound.The carrying cost for inventory is 10 percent of the purchase price.The cost of ordering steel is $800 per order.The company has decided to maintain a safety stock of 15,000 pounds.The delivery time per order is 6 days.The company works 365 days a year. a.Determine the optimal EOQ. b.How many orders will be placed annually? c.What is the average inventory? d.What is the inventory order point? (That is,at what level of inventory should a new order be placed?) e.What is the company's total inventory cost for the year?

Effective cash management involves the trade-off between the risk of insolvency (resulting in higher near cash balances)and the desire to earn higher returns (resulting in lower near cash balances).

If a firm extends 4/10,net 60-day terms of sale,what is the cost in terms of nominal APR? Assume a 360-day year.

Which of the following would be an example of the "transactions motive" for a firm holding cash balances?

Krause Precision Tools,Inc.will use an estimated 700,000 small processors in its manufacturing process next year.The carrying cost of processor inventory is $3.00 per unit and the cost of reordering processors is $100 per order.What is Krause's economic ordering quantity for small processors?

The Road Ready Riding,Inc.will use an estimated 24,000 wheel assemblies in its manufacturing process next year.The carrying cost of the wheel assembly inventory is $1.80 per wheel and the ordering cost per order is $50.What is Road Ready's economic ordering quantity of wheel assemblies?

How do interest rates affect the optimal order quantity Q*?

One of the attractive features of commercial paper is an active secondary market.

For many industries,accounts receivable comprise as much as 25 percent of total assets.

The estimated value of reducing float by one day is one day's interest on the freed-up sales.

In the EOQ model,carrying costs of inventory include

Considerations in the selection of a proper marketable-securities mix include all of the following EXCEPT

Zero balance accounts reduce disbursing float.

An aging schedule of accounts receivable aids the financial manager in determining

Which of the following is NOT an underlying assumption of the EOQ?

The Bike Store orders $2000 worth of supplies every 30 days.If they take advantage of the 3/10 net 30 discount offered by their supplier,how much would they save over the year? Assume a 360-day year.

The main purpose of using a payable-through draft system is to gain effective control over field payments.

According to the Altman model,multiple discriminant analysis indicates that those applicants with a Z score below 2.7 have a significant probability of filing for bankruptcy within a year.

Transit float is caused by

When a corporation designs an investment strategy for investing temporary excess cash balances in marketable securities,it must consider a variety of factors.Which of the following is the least important?