Exam 16: Supply Chains and Working Capital Management

Since depreciation is a non-cash charge,it neither appears on nor has any effect on the cash budget.Thus,if the depreciation charge for the coming year doubled or halved,this would have no effect on the cash budget.

One of the effects of ceasing to take trade credit discounts is that the firm's accounts payable will rise,other things held constant.

Loans from commercial banks generally appear on balance sheets as notes payable.A bank's importance is actually greater than it appears from the dollar amounts shown on balance sheets because banks provide nonspontaneous funds to firms.

Taylor Textbooks Inc.buys on terms of 2/15,net 50 days.It does not take discounts,and it typically pays on time,50 days after the invoice date.Net purchases amount to $450,000 per year.On average,what is the dollar amount of costly trade credit (total credit − free credit)the firm receives during the year? (Assume a 365-day year,and note that purchases are net of discounts. )

Which of the following statements is most consistent with efficient inventory management? The firm has a

The maturity matching,or "self-liquidating," approach to financing involves obtaining the funds for permanent current assets with a combination of long-term capital and short-term capital that varies depending on the level of interest rates.When short-term rates are relatively high,short-term assets will be financed with long-term debt to reduce costs.

Which of the following statements is CORRECT?

Albrecht Inc.is a no-growth firm whose sales fluctuate seasonally,causing total assets to vary from $320,000 to $410,000,but fixed assets remain constant at $260,000.If the firm follows a maturity matching (or moderate)working capital financing policy,what is the most likely total of long-term debt plus equity capital?

Net working capital,defined as current assets minus the sum of payables and accruals,is equal to the current ratio minus the quick ratio.

Which of the following actions should Reece Windows take if it wants to reduce its cash conversion cycle?

If a firm busy on terms of 2/10 net 30,it should pay as early as possible during the discount period.

"Stretching" accounts payable is a widely accepted,entirely ethical,and costless financing technique.

If a firm has set up a revolving credit agreement with a bank,the risk to the firm of being unable to obtain funds when needed is lower than if it had an informal line of credit.

Which of the following statements is CORRECT?

The aging schedule is a commonly used method for monitoring receivables.

Whaley & Whaley has the following data.What is the firm's cash conversion cycle? Inventory conversion period = 41 days Average collection period = 31 days Payables deferral period = 38 days

Shorter-term cash budgets⎯say a daily cash budget for the next month⎯are generally used for actual cash control while longer-term cash budgets⎯say monthly cash budgets for the next year⎯are generally used for planning purposes.

If one of your firm's customers is "stretching" its accounts payable,this may be a nuisance but it does not represent a real financial cost to your firm as long as the customer periodically pays off its entire balance.

Other things held constant,which of the following would tend to reduce the cash conversion cycle?

An informal line of credit and a revolving credit agreement are similar except that the line of credit creates a legal obligation for the bank and thus is a more reliable source of funds for the borrower.