Exam 14: Working Capital Management and Policies

Which of the following is defined as costs associated with not having sufficient cash, inventory, or accounts receivable?

Which of the following approaches 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?

MC Enterprises estimates that it takes, on average, seven days for their customers' payments to reach them, two days for the payments to be processed and deposited by their bookkeeping department, and three more days for the checks to clear once they're deposited. What is their collection float?

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?

All of the following will result in an increase in net working capital EXCEPT:

Suppose your firm is seeking a 3-year, amortizing $300,000 loan with annual payments and your bank is offering you the choice between a $305,000 loan with a $5,000 compensating balance and a $300,000 loan without a compensating balance. If the interest rate on the $300,000 loan is 8 percent, how low would the interest rate on the loan with the compensating balance have to be in order for you to choose it?

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?

Which of the following actions will cause a firm's net working capital to decrease?

If a firm has a cash cycle of 8days and an operating cycle of 39 days, what is its average payment period?

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?

A firm wants to reduce its cash cycle. Which of the following actions will reduce its cash cycle?

If a firm has a cash cycle of 25 days and an operating cycle of 80 days, what is its average payment period?

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?

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

BK Industries has sales of $500,000 and cost of goods sold of $230,000. The firm had a beginning inventory of $10,000 and an ending inventory of $15,000. What is the length of the days' sales in inventory?

If a firm has a cash cycle of 39 days and an operating cycle of 88 days, what is its average payment period?

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?

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?

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?

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?