Exam 15: Managing Short-Term Assets

Reston Inc.'s annual sales normally equal $17,000,000. Ten (10) percent of Reston's sales are cash payments; the remaining 90 percent of sales are on credit, with 40 percent outstanding for 10 days, 30 percent outstanding for 20 days, 20 percent outstanding for 25 days, and 10 percent outstanding for 30 days. What is Reston's days sales outstanding (DSO)?

Which of the following statements about cash management systems is correct?

A firm that follows a restricted current asset investment policy generally has:

A firm should change its credit policy if the net present value (NPV) of the proposed credit policy is both positive and less than the NPV of its existing credit policy. 

Rainbow Inc.'s sales equal $200,000 each month. Rainbow generally permits credit purchases with terms of 3/10 net 30. Ten (10) percent of total sales are for cash, and the remaining 90 percent pay on credit. Of the credit sales, 20 percent are paid on Day 10 of the billing cycle, and the rest pay on Day 30 (in the following month). What is the amount of the discounts that Rainbow's customers normally take?

Which of the following statements about inventory management is correct?

______ is the process of evaluating a firm's credit policy to determine whether a shift in its customers' payment patterns has occurred. 

Which of the following statements concerning marketable securities is correct?

Which of the following statements about multinational working capital management is correct?

Fashion Clothier's economic ordering quantity (EOQ) for its dyes is 2,000 units. If the total demand is 100,000 units per period, the carrying cost per unit is 15 percent of the inventory value, the dyes purchase price is $10, and the fixed cost per order is $30, then Fashion's total inventory cost is_____. 

Which of the following statements regarding cash budgets is correct?

Given the following information, what is the economic ordering quantity (EOQ) for Shinebird Textiles? ​Ordering costs = $40 per order Carrying costs = 20% of purchase price Purchase price (cost) = $10 per unit Total sales for year = 1,000 units

All else equal, firms that hold greater proportions of their total assets as short-term assets are considered riskier than firms that hold greater proportions of their total assets as long-term assets. 

A ______ balance is a minimum checking account balance that a firm must maintain with a bank to help offset the costs and services, such as check clearing and cash management advice, that the bank offers with a loan. 

Zinc Corporation is developing its cash budget for this month. Each month, the firm manufactures and sells $15,000 of products, and it pays $10,000 for wages, taxes, cost of goods sold, and other operating expenses. Zinc has nothing in its checking account even though its target cash balance is $8,000. What amount will Zinc show on the "bottom line" of its cash budget for this month? That is, what will be Zinc's cash position?

Which of the following situations would most likely exist if a firm adheres to a moderate current asset investment policy?

Compared to other current asset investment policies, a restricted current asset investment policy prescribes that a firm should hold maximum levels of safety stocks for cash and inventories and should have a liberal credit policy. 

If a firm discovers that the days sales outstanding (DSO) of its credit customers is increasing, management should consider tightening the firm's credit policy. 

A(n) ______ system is an arrangement that permits a customer's bank to periodically transfer funds from its account to a selling firm's bank account to pay an amount owed to the selling firm. 

Tungsten Chemicals is considering changing its credit policy, so it conducted a net present value (NPV) analysis to compare the proposed credit policy with the existing credit policy. The results of the analysis shows that NPVProposed Policy - NPVExisting Policy = $20 per day. If Tungsten's required rate of return is 10 percent, what will be the change in the firm's value if the proposed credit policy is implemented? In you computations, use a 360-day year.