Exam 17: Cash,receivables,and Inventory Management

You have a choice between investing in a corporate bond or a municipal bond.The corporate bond has an annual yield of 10 percent,while the municipal bond has an annual yield of 7 percent.At what tax rate would you be indifferent between buying the corporate bond or the municipal bond?

Which of the following are short-term,unsecured promissory notes sold by large businesses?

Accounts receivable variables under control of the financial manager include the terms of credit sales and the quality of credit customers.

Mountain Snow Sports,Inc.is trying to determine the optimal order quantity for snow boards for the next twelve months.Annual sales are expected to be 1,000,000 units at a retail price of $400 each.The cost of carrying snow boards is $80 per year.Studies show that it costs Mountain Snow $250 to prepare and receive an order.What is the EOQ?

Given that short-term interest rates typically fluctuate less than long-term rates,interest rate risk is least for

Near-cash assets consist of marketable securities and accounts receivable.

A treasury bill is a near-cash asset.

Brett's,Inc.has received a proposal from its bank to establish a lock-box system to accelerate the receipt of $600 million annually on 900,000 checks.By its own analysis Brett's,Inc.believes such a system would decrease total float by 3.5 days.If Brett's,Inc.can earn 7 percent before taxes on the released funds,what is the maximum that Brett's,Inc.should be willing to pay the bank per check for the service? Use a 365-day year.

Which of the following would be an example of the "transactions motive" for a firm holding cash balances?

What are the most important types of current assets? List your answer in order of declining liquidity.

The goal of cash management is to hold the minimum amount of cash necessary to meet the firm's obligations in a timely manner.

If the variables in the EOQ inventory model are defined as: S = total units demanded during the planning period,O = ordering costs per order,C = carrying costs per unit and Q = inventory order size in units,then the average level of inventory which a company should have during the planning period is

For many industries accounts receivable comprise as much as 25 percent of total assets.

The economic order quantity (EOQ)model is well accepted.However,there are weaknesses associated with several of its assumptions.What are these weaknesses?

In the EOQ model the optimal ordering quantity is the quantity for which the sum of the costs of ordering and carrying inventory is minimized.

The financial manager is concerned with

Safety stock may be included into the EOQ model to alleviate problems caused by violation of the assumptions of constant demand and instantaneous delivery.

Krause Precision Tools,Inc.will use an estimated 700,000 small processors in its manufacturing process next year.The carrying cost of processor inventory is $3.00 per unit and the cost of reordering processors is $100 per order.What is Krause's economic ordering quantity for small processors?

Brett's,Inc.expects to have $35 million in credit sales during the coming year.In spite of a national distributing system,all remittances are sent to the home office.A proposed system can eliminate 3 days of float,releasing funds which,when invested,will earn 6.5 percent.What annual savings can Brett's,Inc.expect if the system is implemented? Use a 365-day year.