Exam 19: Working Capital Management

Which one of the following is NOT one of the three steps involved in establishing a credit policy?

If a firm wishes to invest cash that might be needed at short notice in the very near future, they would be most likely to invest in which of the following securities?

What are the costs of holding inventory?

ALT had $25 million in sales last year. Its cost of goods sold was $15 million and its average inventory balance was $3 million. The average days of inventory in the industry is 65 days. What would ALT's average inventory need to be so that it would meet the industry average?

Which of the following money market investments is a draft written by the borrower and guaranteed by the bank on which the draft is drawn? It is typically used in international trade transactions. The borrower is an importer who writes the draft in payment for goods.

Use the table for the question(s)below. Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2006. A simplified balance sheet for the firm appears below: Luther Industries Balance Sheet As of December 31, 2006 (millions of dollars) -Luther's Inventory days is closest to ________.

If a supplier is offering trade credit of 1/10 net 30, and a buyer chooses not to take the discount, when should they pay, assuming that they wish to stay on good terms with the supplier?

Jen Industries had sales of $32 million this year and an average accounts receivable of $0.8 million per day. On average, how long does it take to collect on its sales?

What is credit period?

Which of the following firms would be expected to need the most cash to conduct its daily operations?

What is a transactions balance?

SwenCorp had sales of $154 million this year and an average accounts receivable of $18 million per day. Its credit terms specify "2/14 net 40." On average, how long does it take to collect on its sales?

A firm offers its customers 1/10 net 40. What is the cost of trade credit to a customer who chooses to pay on day 40?

Which of the following is a component of disbursement float but not a component of collection float?

Which of the following money market investments is a short-term debt obligations of the U.S. government?

The amount of cash a firm needs to be able to pay its bills is sometimes referred to as a(n)________.

Commercial Supply Corp. bills its accounts on terms of 2/10 net 30. The firm's accounts receivable include $200,000 that has been outstanding for ten or fewer days, $126,000 outstanding for 11 to 30 days, $98,000 outstanding for 31 to 40 days, $12,000 outstanding for 41 to 50 days, $20,000 outstanding for 51 to 60 days, and $7,000 outstanding for more than 60 days. Is the aging schedule for Commercial Supply Corp. bottom heavy?

Working capital alters a firm's value by affecting its free cash flow.

Which of the following money market investments is a short-term, unsecured debt obligation issued by a large corporation? The minimum denomination is $25,000, but most have a face value of $100,000 or more.

What are the advantages of holding inventory?