Exam 14: Working Capital Management and Policies

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

A production strategy that attempts to improve a firm's return on investment by reducing in-process inventory and associated carrying costs as much as possible is which of the following?

If a firm has a cash cycle of 20 days and an operating cycle of 60 days, what is its payables turnover?

Suppose your firm is seeking a seven-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?

If the firm wants to identify the percentage of accounts receivable that are over 90 days old, the firm should prepare:

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

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

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?

CM Enterprises estimates that it takes, on average, seven days for their customers' payments to reach them, one day for the payments to be processed and deposited by their bookkeeping department, and three 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 which of the following? (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?

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?

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

Why do firms offer customers discounts for paying early?

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?

The optimal cash replenishment level will increase with all of the following changes EXCEPT:

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?

Suppose that Sam Industries has annual sales of $2 million, cost of goods sold of $950,000, average inventories of $45,000, and average accounts receivable of $90,000. Assuming that all of Sam's sales are on credit, what will be the firm's 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 upper cash limit?

Would it be worth it to incur a compensating balance of $9,000 in order to get a 0.70 percent lower interest rate on a 1-year, pure discount loan of $250,000?