Exam 14: Working Capital Management and Policies

Which of the following is NOT one of the Baumol Model's unrealistic assumptions?

Suppose that Mack Industries has annual sales of $10 million, cost of goods sold of $6.5 million, average inventories of $1 million, and average accounts receivable of $600,000. Assuming that all of Mack's sales are on credit, what will be the firm's operating cycle?

If a firm needs to keep minimum cash balance on hand and faces both cash inflows and outflows, which cash management strategy would be most appropriate for the firm to use?

Which of the following current asset financing policies reflects the firm financing the seasonally-adjusted average level of asset demand with long-term debt and equity enabling it to use both short-term financing and short-term investing as needed?

Which of these is an entity who will buy accounts receivable before they are due on a discounted basis, with the spread between the discounted price and the receivable's face value providing them with the expected compensation for both the time value of money and for the expected level of defaults amongst the accounts receivable?

Suppose that Tucker Industries has annual sales of $5 million, cost of goods sold of $2.78 million, average inventories of $1,125,000, and average accounts receivable of $500,000. Assuming that all of Tucker's sales are on credit, what will be the firm's operating cycle?

Suppose that Freddie's Fries has annual sales of $500,000; cost of goods sold of $375,000; average inventories of $9,000; average accounts receivable of $25,000; and an average accounts payable balance of $20,000. Assuming that all of Freddie's sales are on credit, what will be the firm's cash cycle?

Everything else held constant, will an increase in the amount of inventory on hand increase or decrease the firm's profitability?

Hollywood Shoes would like to maintain their cash account at a minimum level of $50,000, but expects the standard deviation in net daily cash flows to be $4,000; the effective annual rate on marketable securities to be 6 percent per year; and the trading cost per sale or purchase of marketable securities to be $100 per transaction. What will be their optimal upper cash limit?

If a firm has a cash cycle of 18 days and an operating cycle of 29 days, what is its payables turnover?

Would it be worth it to incur a compensating balance of $10,000 in order to get a 1-percent-lower interest rate on a 1-year, pure discount loan of $500,000?

All of the following will result in an increase in net working capital except _________.

List and explain the "five C's" of credit analysis.

Would a firm ever use short-term debt to finance permanent current assets? Why or why not?

Scribble, Inc. has sales of $80,000 and cost of goods sold of $64,000. The firm had a beginning inventory of $10,000 and an ending inventory of $12,000. What is the length of the days' sales in inventory?

Hollywood Shoes would like to maintain their cash account at a minimum level of $50,000, but expects the standard deviation in net daily cash flows to be $4,000; the effective annual rate on marketable securities to be 6 percent per year; and the trading cost per sale or purchase of marketable securities to be $100 per transaction. What will be their optimal cash return point?

Betty Boop has saved enough money to go back to grad school. She is planning to put the money in a money market account where it will earn 2.5%. If she anticipates slowly drawing the money out over the course of her time in grad school at a constant rate of $29,000 per year, but is charged a commission of $7.95 every time she sells shares, how much should she take out of the mutual fund at a time?

Suppose that Farrah's Hair Care has annual sales of $100,000, cost of goods sold of $65,000, average inventories of $2,000, and average accounts receivable of $5,000. Assuming that all of Farrah's sales are on credit, what will be the firm's operating cycle?

Rose Resources faces a smooth annual demand for cash of $10 million; incurs transaction costs of $325 every time they sell marketable securities; and can earn 3.9 percent on their marketable securities. What will be their optimal cash replenishment level?

Which of the following approach for determining the target cash balance assumes that the distribution of daily net cash flows is normally distributed, and allows for both cash inflows and outflows?