Exam 15: Working Capital and Current Assets Management

Since Treasury bills are issued in bearer form, they are considered to be virtually risk-free.

One aspect of risk associated with the aggressive strategy's maximum use of short-term financing is the fact that changing short-term interest rates can result in significantly higher borrowing.

A negative cash conversion cycle (CCC) means the average payment period (APP) exceeds the operating cycle (OC).

The ________ of a firm is the amount of time that elapses from the point when the firm inputs material and labor into the production process to the point when cash is collected from the sale of the finished product that contains these production inputs.

Joe Manufacturing uses 2,400 units of a product per year on a continuous basis. The product carrying costs are $60 per year and ordering costs are $250 per order. It takes 20 days to receive a shipment after an order is placed and the firm requires a safety stock of 8 days of usage in inventory. (a) Calculate the economic order quantity (round up to the nearest whole unit.) (b) Calculate the total cost per year to order and carry this item. (c) Its supplier has notified Joe that if Joe increases its order quantity by 58 units they will give it a discount. Calculate the dollar discount that the suppliers will have to give Joe Manufacturing to result in a net benefit to the company.

As firms are unable to match cash inflows to outflows with certainty, most of them need current liabilities.

Improvements to cash management include ________.

Jia's Apple Farm uses 12,600 baskets a year for apple shipment. Determine the optimum order quantity of baskets assuming the order costs per order is $600 and it costs $2 to carry a unit of basket in inventory per period.

A ________ is a telegraphic communication that, via bookkeeping entries, removes funds from the payer's bank and deposits them in an account of the payee's bank.

________ are obligations of the U.S. Treasury with common maturities of one to seven years.

A credit applicant's ________ is his or her financial strength as reflected by his or her ownership position.

Table 15.2 The company earns 5 percent on current assets and 15 percent on fixed assets. The firm's current liabilities cost 7 percent to maintain and the average annual cost of long-term funds is 20 percent. -The firm would like to increase its current ratio. This goal would be accomplished most profitably by ________. (See Table 15.2)

If a firm relaxes its credit standards, the volume of accounts receivable increases and so does the firm's carrying cost.

The aggressive funding strategy is a strategy by which a firm finances its current assets with short-term funds and its fixed assets with long-term funds.

A firm's credit standards are the minimum requirements for extending credit to a customer.

A credit applicant's ________ reflects his or her record of meeting past obligations.

In the EOQ model, ________ costs are the fixed clerical cost of writing a purchase order, processing the paper work, and verifying the invoice.

The reorder point is the point at which a firm receives orders.

A firm purchased raw materials on account and paid for them within 30 days. The raw materials were used in manufacturing a finished good sold on account 100 days after the raw materials were purchased. The customer paid for the finished good 60 days later. The firm's cash conversion cycle is ________ days.

An increase in the average payment period will ________ the operating cycle and ________ the cash conversion cycle.