Exam 16: Current Asset Management

Martin Inc.is considering a lockbox system that will increase its check processing cost by $.20 per check.The company estimates an average check size of $900 and expects any funds freed up by the new lockbox system can be invested in an account that earns 4% per year before taxes.What reduction in collection time is necessary for the lockbox to be beneficial to Martin Inc.?

The Bike Store orders $2000 worth of supplies every 30 days.If they take advantage of the 3/10 net 30 discount offered by their supplier,how much would they save over the year? Assume a 360-day year.

You purchase $10,000 worth of supplies every 90 days and never take the trade discount of 2/10 net 30.How much could you save each (360-day)year if you took the discount?

All of the following are false except:

Money market mutual funds are diversified portfolios of short-term,high-grade debt instruments.

Centralized control over disbursements is assisted by which of the following cash management techniques?

A negotiable certificate of deposit is a marketable receipt for funds deposited in a bank for a period of one to 18 months.

The purpose of carrying inventory is to

The Granite Rock Manufacturing Company is considering the use of a lock-box collection system.Granite's average check receipt is $1,350.The company invests excess cash in money market certificates and receives an average of 3.5% annual interest.The lock-box system will speed up Granite's collections by 2.5 days.What is the maximum per check processing cost that Granite Rock Manufacturing Company should be willing to pay for the lock-box system?

Howton Mining expects to have credit sales of $8,000,000 this year.First National Bank is offering Howton Mining a lock-box system for $1,200 per month.Howton Mining estimates that the new lock-box system will reduce float by 4.5 days.What rate of return must Howton Mining earn on its marketable securities to make it worthwhile for the company to institute this lock-box system? Use a 365-day year.

Manfred Manufacturing is involved in the production of machine parts.The company uses 600,000 pounds of steel annually.The current purchasing cost for steel is $3.20 per pound.The carrying cost for inventory is 10 percent of the purchase price.The cost of ordering steel is $800 per order.The company has decided to maintain a safety stock of 15,000 pounds.The delivery time per order is 6 days.The company works 365 days a year. a.Determine the optimal EOQ. b.How many orders will be placed annually? c.What is the average inventory? d.What is the inventory order point? (That is,at what level of inventory should a new order be placed? ) e.What is the company's total inventory costs for the year?

The objective of managing cash inflows is to decrease the float while the objective of managing cash outflows is to increase the float.

The financial manager is concerned with

The industry in which a firm operates has relatively little effect on the relative amounts of transaction cash held.

A lockbox system can reduce all of the following elements of float except:

A corporation that is short on cash will take a trade discount of 2/10 net 30 only if the corporation's cost of funds is less than 2%.

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?

Of the following EOQ model assumptions,the most limiting is

Money market funds

A firm's credit and collection policies usually include