Exam 14: Working Capital Management and Policies

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?

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?

Suppose your firm is seeking a 7-year, amortizing $100,000 loan with annual payments and your bank is offering you the choice between a $110,000 loan with a $10,000 compensating balance and a $100,000 loan without a compensating balance. If the interest rate on the $100,000 loan is 7 percent, how low would the interest rate on the loan with the compensating balance have to be in order for you to choose it?

Which of the following is the best description of the operating cycle?

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?

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?

Which of these is defined as the excess amounts of a current asset kept on hand to meet unexpected shocks in demand?

Safety stock is referred to as the:

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

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

All of the following are examples of carrying costs EXCEPT:

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

All of the following are different techniques that can be used to help firms reduce collection float EXCEPT:

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?

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

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?

Which of the following is NOT an example of an inventory loan?

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?

When the firm finances the seasonally adjusted average level of asset demand with long-term debt and equity, the firm is said to follow a:

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