Exam 15: Working Capital and Current Assets Management

Table 15.6 A breakdown of Teffan, Inc.'s outstanding accounts receivable dated June 30, 2014 on the basis of the month in which the credit sale was initially made follows. The firm extends 30-day credit terms. -An increase in accounts receivable turnover for a firm due to an increase in collection efforts will ________.

The higher yields on Eurodollar deposits compared with nearly all other marketable securities, governmental or nongovernmental, with similar maturities are attributable to (1) the fact that the depository banks are generally less closely regulated than U.S. banks and are therefore more risky, and (2) some foreign exchange risk may be present.

The ________ uses no, or very little, safety stock.

Federal agency issues are low-risk securities issued by government agencies but not guaranteed by the U.S. Treasury.

A banker's acceptance is a low-risk security because at least two, and sometimes three, parties may be liable for its payment at maturity.

The most stringent step in the collection process is ________.

The increase in bad debts associated with tightening credit standards raises bad debt expenses and has a negative impact on profits.

________ float results from the delay between the time when a customer deducts a payment from the checking account ledger and the time when the vendor actually receives the funds in a spendable form.

A computerized inventory system that simulates needed materials requirements for the finished product, and then compares production needs to available inventory balances to determine when orders should be placed is the ________.

Which of the following is true of an aggressive funding strategy of a firm?

The Steel Works, Inc. is required to carry a minimum of 40 days' raw steel, which is 250 tons. It takes 15 days between order and delivery. At what level of steel would Steel Works reorder?

If the cash discount period is increased, a firm's investment in accounts receivable is expected to ________.

A firm can reduce its cash conversion cycle by ________.

The risk of an investment in a Eurodollar deposit is partially due to ________.

An increase in the current liabilities to total assets ratio will result in ________.

Safety stocks are extra inventories that can be drawn down when actual lead times and/or usage rates are greater than expected.

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. -If the firm was to shift $2,000 of current liabilities to long-term funds, the firm's net working capital would ________, the annual cost of financing would ________, and the risk of insolvency would ________, respectively. (See Table 15.2)

Table 15.1 Irish Air Services has determined several factors relative to its asset and financing mix. (a) The firm earns 10 percent annually on its current assets. (b) The firm earns 20 percent annually on its fixed assets. (c) The firm pays 13 percent annually on current liabilities. (d) The firm pays 17 percent annually on long-term funds. (e) The firm's monthly current, fixed, and total asset requirements for the previous year are summarized in the table below: -The firm's annual financing costs of the aggressive financing strategy are ________. (See Table 15.1)

If a firm's credit period is increased, the sales volume can be expected to ________, the investment in accounts receivable can be expected to ________, and the bad debt expenses can be expected to ________.

The ability to purchase production inputs on credit allows a firm to partially offset the length of time resources are tied up in the operating cycle.