Exam 16: Current Asset Management

A local lamp store expects to sell 2000 lamps in the coming year.It costs the store $1.00 in carrying costs for each lamp and $10.00 for each order placed. a.What is the economic order quantity for the lamps? b.How many orders will be placed each year? c.If the store wants a one-week safety stock and it takes one week to receive an order after it has been placed,what should the inventory level be when a new order is placed? Assume a 50-week year.

Current assets in order of liquidity are cash,marketable securities,inventory,and accounts receivable.

Available yields on financial securities depend on their financial risk,interest rate risk,liquidity,and taxability.

A zero balance account permits divisions to disburse funds while maintaining centralized control of several bank accounts.

Banker's acceptances have the following characteristics except:

The Steady Fork Company will use an estimated 24,000 wheel assemblies in its manufacturing process next year.The carrying cost of the wheel assembly inventory is $1.80 per wheel and the ordering cost per order is $50.What is Steady Fork's economic ordering quantity of wheel assemblies?

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

Which of the following affects the precautionary motive for holding cash?

The EOQ model assumes constant demand and constant unit price.

The purpose of work-in-process inventory is to ensure that machine failures and work stoppages in one operation do not affect other operations.

Effective cash management involves the tradeoff between the risk of insolvency (resulting in higher near cash balances)and the desire to earn higher returns (resulting in lower near cash balances).

Efficient collection of accounts receivable helps to determine both the profitability and the liquidity of the firm.

Determine the effective annualized cost of forgoing the trade discount on terms 1/20 net 45.

Which of the following has the least interest rate risk?

Carrying inventory reduces the costs associated with periodic bad debt losses.

Jay's Lumber Supplies earns 2.5 percent on its investment in marketable securities.A draft disbursing system has been proposed that will increase disbursement float by 4 days.Purchases next year are expected to total $18 million.Individual payments average $1,000.Use a 365-day year. a.If the draft system is adopted,what amount of funds can the firm expect to release during the year? b.If each issue draft costs the firm $0.30,should the draft system be adopted? c.Should the firm consider any other factors?

Wagner Curios estimates that it will sell 30,000 porcelain figurines next year.Because porcelain figurines are so easily damaged,the average per unit carrying cost of the figurines is $25.The per order cost of ordering is $800.Assume that Wagner wants a safety stock of 75 figurines.If Wagner reorders the figurines based on the economic order quantity,what is Wagner's average inventory of porcelain figurines?

Lock-box arrangements yield benefits for all companies regardless of the size of sales or customer remittance checks.

Alexis Jewelry 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 Alexis Jewelry expect if the system is implemented? Use a 365-day year.

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