Exam 21: Working Capital Management

Use the information to answer the following question(s). SureDrip Irrigation Systems Inc. is supplied with plastic chips for their plastic injection molding manufacturing process. Their supplier, Sun Chemical, Inc. offers financing terms of a 2% discount if the accounts payable are paid in 10 days or less with the full balance due in 45 days. Short-term financing available to SureDrip is available at an annual rate of 9.6%. SureDrip has just purchased $400,000 of plastic chips from Sun Chemical. -Refer to Instruction 21.1. Should SureDrip take the discount offered by Sun Chemical?

Political risk may motivate parent firms to require foreign subsidiaries to remit all locally generated funds above that required to internally finance growth in sales and planned capital expansions.

TABLE 21.1 Use the information to answer following question(s). Polaris Corporation Balance Sheet December 31, 20xx -Refer to Table 21.1. NWC currently makes up what percentage of total firm value for Polaris?

What is a free-trade zone? Identify three techniques and provide examples of how firms and countries can benefit from having free trade zones.

A precautionary cash balance

Polaris Corporation (US)has bid a price on a project for a Korean firm, but the Korean firm has not yet placed an order. This portion of the operating cycle is best described as the

An organizational structure employed by an MNE to reduce its use of bank lending for the support of operations is

Amundsen of Norway receives raw materials from their corporate parent in the U.S. with payment terms of net 60 days. Most of their sales are to firms in Norway where normal payment terms are net 30 days. This causes a problem for the subsidiary with working capital management because

An Edge Act corporation is a subsidiary of a U.S. bank located outside of the U.S. and incorporated to engage in international banking and financing operations.

TABLE 21.1 Use the information to answer following question(s). Polaris Corporation Balance Sheet December 31, 20xx -Refer to Table 21.1. If Polaris increases inventory by $10,000 and A/P also by $10,000, the net change in NWC is ________.

Even though dividends are cash payments, firms typically must consider both cash flow and net income when making dividend distribution decisions.

Which of the following is NOT a precautionary motive for holding cash?

TABLE 21.1 Use the information to answer following question(s). Polaris Corporation Balance Sheet December 31, 20xx -Refer to Table 21.1. The NWC for Polaris is ________.

The period in the cash cycle where the customer places the order, and the firm determines what materials for manufacture are NOT in inventory is called the ________ period.

The cash conversion cycle

One possible definition of net working capital (NWC)provided by your authors is

________ is the process that cancels via offset all, or part, of the debt owed by one entity to another related entity.

Use the information to answer the following question(s). SureDrip Irrigation Systems Inc. is supplied with plastic chips for their plastic injection molding manufacturing process. Their supplier, Sun Chemical, Inc. offers financing terms of a 2% discount if the accounts payable are paid in 10 days or less with the full balance due in 45 days. Short-term financing available to SureDrip is available at an annual rate of 9.6%. SureDrip has just purchased $400,000 of plastic chips from Sun Chemical. -Refer to Instruction 21.1. What is the amount of money SureDrip will save on accounts payable if they accept the discount?

The proper order of events for the operating cycle is

A centralized depository benefits the firm primarily by