Exam 14: Working Capital Management and Policies

Which of the following is NOT a reason for holding cash?

CM Enterprises estimates that it takes, on average, 7 days for their customers' payments to reach them, 1 day for the payments to be processed and deposited by their bookkeeping department, and 3 more days for the check to clear once they're deposited. What is their collection float?

To trace cash flows through the firm's operations, we must measure this. It is the time necessary to acquire raw materials, turn them into finished goods, sell them, and receive payment for them.

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

Would it be worth it to incur a compensating balance of $15,000 in order to get a 2-percent-lower interest rate on a 1-year, pure discount loan of $1,000,000?

Stellar Shoes would like to maintain their cash account at a minimum level of $25,000, but expects 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 $100 per transaction. What will be their optimal upper cash limit?

Painting, Inc. has sales of $400,000 and cost of goods sold of $275,000. The firm had a beginning inventory of $42,000 and an ending inventory of $38,000. What is the length of the days' sales in inventory?

All of the following are examples of carrying costs except ______________.

If a firm has a cash cycle of 30 days and an operating cycle of 64 days, what is its average payment period?

If a firm has a cash cycle of 71 days and an operating cycle of 139 days, what is its average payment period?

"The net amount of current assets that the firm has to fund, above and beyond those that someone else funds for them" is referred to as ______________.

Daisy D Industries has a cash balance of $75,000; accounts payable of $140,000; inventory of $300,000; accounts receivable of $350,000; notes payable of $145,000; and accrued wages and taxes of $80,000. How much net working capital does the firm need to fund?

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

Which of the following is NOT one of the "five C's" of credit analysis?

If a firm is going to take a loan with a bank that has a compensating balance requirement, how does that affect the amount of money the firm must borrow?

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

If a firm has a cash cycle of 41 days and an operating cycle of 76 days, what is its average payment period?

Which of the following is a money-market security, issued by large banks and medium-to-large corporations, that matures in nine months or less?

All of the following are different techniques that can be used to help firms reduce collection float except ___________.

Reasons for holding cash: A firm may keep part of its capital tied up in cash for three primary reasons. List the reasons and explain each.