Exam 15: Working Capital and Current Assets Management

In the ABC system of inventory management, the ________ method could be utilized to control C items.

The yield on commercial paper is generally higher than the yield on ________.

The basic strategies that should be employed by a business firm in managing cash includes ________.

Agatha Concrete Company has been offered by its bank to manage its cash at a cost of $35,000 per year. Under the proposed cash management, the firm can reduce the cash required on hand by $180,000. Since the bank is also doing a lot of record keeping, the firm's administrative cost would decrease by $2,000 per month. What recommendation would you give the firm with respect to the proposed cash management assuming the firm's opportunity cost is 12 percent?

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 net result of implementing the proposed plan? (See Table 15.5)

Danny's Distributing, Inc. has completed an analysis of check-clearing times of five key suppliers. On a weekly basis, the firm has a $50,000 check disbursed to each of these suppliers, totaling $250,000. In examining the check-clearing times of each supplier, the firm revealed: Given this information, what recommendation would you give the firm with respect to paying its suppliers weekly? Explain.

The turnover of accounts receivable can be calculated by dividing 365 days by average collection period.

As credit standards are tightened, sales are expected to ________ and the investment in accounts receivable is expected to ________.

Which of the following is true of cash discount?

The yields on negotiable certificates of deposit are typically above those on U.S. Treasury issues and comparable to the yields on commercial paper with similar maturities.

2/15 net 45 translates as ________.

A firm which uses the aggressive financing strategy plans to purchase a major fixed asset financed with a loan. The most likely consequence of this action is ________.

Which of the following is true of net working capital?

A decrease in collection efforts will result in an increase in sales volume, an increase in the investment in accounts receivable, an increase in bad debt expenses, and a decrease in collection expenditures.

A customer sends payment to a post office box which is emptied by a firm's bank daily. The bank then processes the payments and notifies the firm of the day's collections. This collection technique is known as ________.

When a firm initiates or increases a cash discount, sales are expected to ________, the investment in accounts receivable is expected to ________, the bad debt expense is expected to ________, and the profit per unit is expected to ________.

If a firm uses an aggressive financing strategy, ________.

Which of the following is one of the five C's of credit?

A lockbox system is used to reduce collection float by shortening all three basic float components (i.e., mail, processing, and clearing).

For minimizing the cash conversion cycle, a firm should ________.