Exam 14: Working Capital Management and Policies

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?

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?

Why would a firm ever use short-term debt to finance permanent current assets?

Operating cycle is measured as:

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

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?

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 checks to clear once they're deposited. What is their collection float?

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

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?

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

Why do firms offer customers discounts for paying early?

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?

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?

JohnBoy Industries has a cash balance of $59,000; accounts payable of $139,000; inventory of $115,000; accounts receivable of $220,000; notes payable of $175,000; and accrued wages and taxes of $23,000. How much net working capital does the firm need to fund?

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?

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

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?

Would it be worth it to incur a compensating balance of $2,000 in order to get a 1.5-percent-lower interest rate on a 1-year, pure discount loan of $100,000?

Suppose that Dunn Industries has annual sales of $2.5 million, cost of goods sold of $1,850,000, average inventories of $1,900,000, and average accounts receivable of $660,000. Assuming that all of Dunn's sales are on credit, what will be the firm's operating cycle?

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?