Exam 15: Working Capital and Current Assets Management

The yields on Treasury bills are generally higher than those on any other marketable securities due to their virtually risk-free nature.

________ is a procedure resulting in a number reflecting an applicant's credit strength, derived as a weighted average of the scores obtained on a variety of key financial and credit characteristics.

The goal of working capital management is to ________.

A ________ is a short-term, unsecured promissory note issued by a corporation with a very high credit standing.

Under conservative funding strategy, short-term financing is used only to finance an emergency, an unexpected outflow of funds, and the variable portion of a firm's current assets.

Credit selection involves application of techniques for determining which customers should receive credit.

Other factors remaining constant, an increase in the average payment period will ________.

The economic order quantity (EOQ) is the order quantity which minimizes ________.

The average investment of a firm in accounts receivable is equal to the firm's total variable cost of annual sales divided by its average collection period.

Current liabilities can be viewed as ________.

The difference between the number of days resources are tied up in the operating cycle and the number of days a firm can use spontaneous financing before payment is made is the ________.

________ are funds denominated in U.S. dollars and deposited in banks located outside the United States.

In the ABC system of inventory management, the two-bin method or system could be utilized to control C items.

A major decision confronting a business firm when purchasing marketable securities involves a trade-off between the opportunity to earn a return on idle funds during the holding period and the brokerage costs associated with the purchase and sale of marketable securities.

Table 15.5 Caren's Canoes is considering relaxing its credit standards to encourage more sales. As a result, sales are expected to increase 15 percent from 300 canoes per year to 345 canoes per year. The average collection period is expected to increase to 40 days from 30 days and bad debts are expected to double the current 1 percent level. The price per canoe is $850, the variable cost per canoe is $650 and the average cost per unit at the 300 unit level is $700. The firm's required return on investment is 20 percent. (Assume a 360-day year) -What is the firm's additional profit contribution from sales under the proposed relaxation of credit standards? (See Table 15.5)

A firm has a cash conversion cycle of 120 days, an average collection period of 25 days, and an average payment period of 50 days. The firm's average age of inventory is ________ days.