Exam 14: Working Capital and Policies

Which of the following approach for determining the target cash balance assumes that the distribution of daily net cash flows is normally distributed,and allows for both cash inflows and outflows?

If a firm has a cash cycle of 25 days and an operating cycle of 57 days,what is its average payment period?

Rose Resources faces a smooth annual demand for cash of $10 million; incurs transaction costs of $325 every time they sell marketable securities; and can earn 3.9 percent on their marketable securities.What will be their optimal cash replenishment level?

Suppose that Tucker Industries has annual sales of $5 million,cost of goods sold of $2.78 million,average inventories of $1,125,000,and average accounts receivable of $500,000.Assuming that all of Tucker's sales are on credit,what will be the firm's operating cycle?

Suppose that Freddie's Fries has annual sales of $500,000; cost of goods sold of $375,000; average inventories of $9,000; average accounts receivable of $25,000; and an average accounts payable balance of $20,000.Assuming that all of Freddie's sales are on credit,what will be the firm's cash cycle?

Which of the following is a short-term promissory note issued by a corporation,bearing the unconditional guarantee of a major bank?

Suppose your firm is seeking a 3-year,amortizing $300,000 loan with annual payments and your bank is offering you the choice between a $305,000 loan with a $5,000 compensating balance and a $300,000 loan without a compensating balance.If the interest rate on the $300,000 loan is 8 percent,how low would the interest rate on the loan with the compensating balance have to be in order for you to choose it?

Which of the following actions will cause a firm's net working capital to decrease?

Stellar Shoes would like to maintain their cash account at a minimum level of $25,000,but expects the standard deviation in net daily cash flows to be $2,000; the effective annual rate on marketable securities to be 5 percent per year; and the trading cost per sale or purchase of marketable securities to be $100 per transaction.What will be their optimal upper cash limit?

If a firm needs to keep minimum cash balance on hand and faces both cash inflows and outflows,which cash management strategy would be most appropriate for the firm to use?

"The net amount of current assets that the firm has to fund,above and beyond those that someone else funds for them" is referred to as:

If a firm has a cash cycle of 25 days and an operating cycle of 80 days,what is its payables turnover?

For most businesses,particularly smaller ones,the most common way to cover a short-term financing need is to apply at a bank for which of the following?

If demand for a firm's products suddenly increases so that inventory decreases while sales increase,how will the firm's needs for net working capital react?

Suppose your firm is seeking a seven-year,amortizing $400,000 loan with annual payments and your bank is offering you the choice between a $410,000 loan with a $10,000 compensating balance and a $400,000 loan without a compensating balance.If the interest rate on the $400,000 loan is 9.5 percent,how low would the interest rate on the loan with the compensating balance have to be in order for you to choose it?

Scribble,Inc.has sales of $100,000 and cost of goods sold of $75,000.The firm had a beginning inventory of $20,000 and an ending inventory of $22,000.What is the length of the days' sales in inventory?

Would it be worth it to incur a compensating balance of $15,000 in order to get a 2-percent-lower interest rate on a 1-year,pure discount loan of $1,000,000?

If a firm's inventory ratio increases,what will happen to the firm's operating cycle?

Which of the following will decrease the operating cycle?

Suppose that LilyMac Photography has annual sales of $290,000; cost of goods sold of $155,000; average inventories of $3,500; average accounts receivable of $21,000; and an average accounts payable balance of $10,000.Assuming that all of LilyMac's sales are on credit,what will be the firm's cash cycle?