Exam 14: Working Capital Management and Policies

Carrying costs are associated with having current assets and fall into two general categories. List those two categories.

Suppose your firm is seeking a 7-year, amortizing $400,000 loan with annual payments and your bank is offering you the choice between a $410,000 loan with a $10,000 compensating balance and a $400,000 loan without a compensating balance. If the interest rate on the $400,000 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 will increase the operating cycle?

Happy Feet would like to maintain their cash account at a minimum level of $75,000, but expects the standard deviation in net daily cash flows to be $5,000; the effective annual rate on marketable securities to be 7 percent per year; and the trading cost per sale or purchase of marketable securities to be $150 per transaction. What will be their optimal cash return point?

In Japan, many consumers pay their bills by electronic deduction from their checking accounts instead of using paper checks. What effect do you think this has on the collection float of Japanese firms versus that of American firms?

Which of these is the period of time after a check has been written, but not yet cleared and deposited?

Would it be worth it to incur a compensating balance of $4,000 in order to get a 1.5-percent-lower interest rate on a 1-year, pure discount loan of $300,000?

Rose N More Resources faces a smooth annual demand for cash of $50 million; incurs transaction costs of $350 every time they sell marketable securities, and can earn 5.2 percent on their marketable securities. What will be their optimal cash replenishment level?

Which of the following is the best description of the operating cycle?

When a firm is determining which current asset policy would work best for them, what factors must they consider?

Which of these is the requirement of the firm to keep a certain percentage of the borrowed money deposited in the firm's bank accounts, whereby the bank agrees to lend money to the firm?

The financing policy that will result in investing in marketable securities when asset requirements are low is referred to as ______________.

Which of the following describes the place over which the bank-to-bank transfers are conducted within the United States?

If demand for a firm's products suddenly slows down so that inventory increases while sales decrease, how will the firm's needs for net working capital react?

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

B&B Cos. has sales of $732,000 and cost of goods sold of $323,000. The firm had a beginning inventory of $48,000 and an ending inventory of $39,000. What is the length of the days' sales in inventory?

Detail the major differences between the three inventory loan types.

Which of the following is NOT an example of an inventory loan?

Which of these is a short-term loan secured by a company's assets?

If demand for a firm's products suddenly increases so that inventory decreases while sales increase, how will the firm's needs for net working capital react?