Exam 14: Working Capital Management and Policies

JohnBoy Industries has a cash balance of $59,000; accounts payable of $139,000; inventory of $115,000; accounts receivable of $220,000; notes payable of $175,000; and accrued wages and taxes of $23,000. How much net working capital does the firm need to fund?

Team Sports Industries has a cash balance of $60,000; accounts payable of $40,000; inventory of $100,000; accounts receivable of $110,000; notes payable of $80,000; and accrued wages and taxes of $10,000. How much net working capital does the firm need to fund?

Suppose your firm is seeking a 5-year, amortizing $900,000 loan with annual payments and your bank is offering you the choice between a $950,000 loan with a $50,000 compensating balance and a $900,000 loan without a compensating balance. If the interest rate on the $900,000 loan is 9.5 percent, how low would the interest rate on the loan with the compensating balance have to be in order for you to choose it?

Which of the following resemble checks, but differ in that they are payable by the firm issuing them rather than payable by a bank?

Reese's Resources faces a smooth annual demand for cash of $15 million; incurs transaction costs of $125 every time they sell marketable securities, and can earn 4.5 percent on their marketable securities. What will be their optimal cash replenishment level?

Safety stock is referred to as the ________________.

Suppose your firm is seeking a 7-year, amortizing $100,000 loan with annual payments and your bank is offering you the choice between a $110,000 loan with a $10,000 compensating balance and a $100,000 loan without a compensating balance. If the interest rate on the $100,000 loan is 7 percent, how low would the interest rate on the loan with the compensating balance have to be in order for you to choose it?

If a firm has a cash cycle of 38 days and an operating cycle of 82 days, what is its payables turnover?

If a firm has a cash cycle of 47 days and an operating cycle of 92 days, what is its average payment period?

Which of the following is NOT a fundamental factor ignored by the target cash balance models?

What effect does increasing the standard deviation in daily cash flows have on the cash return point in the Miller-Orr model?

Dandee Lions, Inc. has a cash balance of $105,000; accounts payable of $290,000; inventory of $213,000; accounts receivable of $310,000; notes payable of $95,000; and accrued wages and taxes of $65,000. How much net working capital does the firm need to fund?

If a firm starts selling its accounts receivable to a factor, how will the firm's cash cycle change?

PNB Cos. has sales of $250,000 and cost of goods sold of $120,000. The firm had a beginning inventory of $19,000 and an ending inventory of $13,000. What is the length of the days' sales in inventory?

The optimal cash replenishment level will increase with all of the following changes except ____.

Would it be worth it to incur a compensating balance of $9,000 in order to get a .70-percent-lower interest rate on a 1-year, pure discount loan of $250,000?

Suppose that LilyMac Photography has annual sales of $218,000, cost of goods sold of $123,000, average inventories of $1,250, and average accounts receivable of $22,000. Assuming that all of LilyMac's sales are on credit, what will be the firm's operating cycle?

Which of the following is a checking account that the firm sets up so that the bank agrees to automatically transfer funds from an interest-bearing account to pay off any checks presented?

Suppose that Darlene's Donuts has annual sales of $200,000; cost of goods sold of $90,000; average inventories of $4,000; average accounts receivable of $10,000; and an average accounts payable balance of $7,000. Assuming that all of Darlene's sales are on credit, what will be the firm's cash cycle?

What must the rate be less than to be worth it to incur a compensating balance of $20,000 in order to get a 2-percent-lower interest rate on a 1-year, pure discount loan of $200,000?