Exam 14: Working Capital Management and Policies

A firm wants to reduce its cash conversion cycle. Which of the following actions will reduce its cash conversion cycle?

Drawing, Inc. has sales of $860,000 and cost of goods sold of $450,000. The firm had a beginning inventory of $50,000 and an ending inventory of $59,000. What is the length of the days' sales in inventory?

What is the difference between a lockbox system and concentration banking?

If a firm has a cash cycle of 25 days and an operating cycle of 57 days, what is its average payment period?

For most businesses, particularly smaller ones, the most common way to cover a short-term financing need is to apply at a bank for which of the following?

B&O Cos. has sales of $850,000 and cost of goods sold of $490,000. The firm had a beginning inventory of $69,000 and an ending inventory of $54,000. What is the length of the days' sales in inventory?

Would it be worth it to incur a compensating balance of $2,000 in order to get a 1.5-percent-lower interest rate on a 1-year, pure discount loan of $100,000?

HotFoot Shoes would like to maintain their cash account at a minimum level of $35,000, but expect the standard deviation in net daily cash flows to be $2,000; the effective annual rate on marketable securities to be 5 percent per year; and the trading cost per sale or purchase of marketable securities to be $210 per transaction. What will be their optimal cash return point?

If a firm has a cash cycle of 25 days and an operating cycle of 80 days, what is its payables turnover?

Elle Mae Industries has a cash balance of $50,000; accounts payable of $150,000; inventory of $190,000; accounts receivable of $250,000; notes payable of $210,000; and accrued wages and taxes of $40,000. How much net working capital does the firm need to fund?

MC Enterprises estimates that it takes, on average, 7 days for their customers' payments to reach them, 2 day for the payments to be processed and deposited by their bookkeeping department, and 3 more days for the checks to clear once they're deposited. What is their collection float?

Which of the following is the technique for reducing collection float by having funds sent to several geographically situated regional banks and then transferring to a main concentration account in another bank?

Suppose your firm is seeking a 3-year, amortizing $300,000 loan with annual payments and your bank is offering you the choice between a $305,000 loan with a $5,000 compensating balance and a $300,000 loan without a compensating balance. If the interest rate on the $300,000 loan is 8 percent, how low would the interest rate on the loan with the compensating balance have to be in order for you to choose it?

Rose Axels faces a smooth annual demand for cash of $8 million; incurs transaction costs of $200 every time they sell marketable securities; and can earn 3.8 percent on their marketable securities. What will be their optimal cash replenishment level?

Imagine a firm has a temporary surplus of cash meant to fund an expansion project in the next 9 months. Which of the following statements is correct?

Which of the following actions will cause a firm's net working capital to decrease?

Suppose that Jamie's Jams has annual sales of $900,000; cost of goods sold of $600,000; average inventories of $11,000; average accounts receivable of $50,000; and an average accounts payable balance of $30,000. Assuming that all of Jamie's sales are on credit, what will be the firm's cash cycle?

If a firm has a cash cycle of 39 days and an operating cycle of 88 days, what is its average payment period?

The operating cycle will increase with all of the following changes except ____________.

If a firm's inventory ratio increases, what will happen to the firm's cash cycle?