Question 1

A financial manager who wants her investment to have a higher return would choose to invest some of her firm's excess cash in commercial paper over Treasury bonds.

Accepted Answer

A) True 
 B)False

Question 2

Your firm purchases $100,000 worth of goods from its supplier on terms of 2/20 net 60.How much more does your firm pay if it chooses not to take advantage of the trade discount?

Accepted Answer

A) $100,000 
B) $10,000 
C) $2,000 
D) $40,000 
E) $20,000 
A) $100,000 
B) $10,000 
C) $2,000 
D) $40,000 
E) $20,000

Question 3

What are the costs of holding inventory?

Accepted Answer

The costs for holdin

Question 4

A firm has average accounts receivable of $85,000,and,on average,takes 50 days to collect on its sales.What is the total amount of the firm's sales?

Accepted Answer

A) $98,500 
B) $620,500 
C) $26.8 million 
D) $78 million 
E) $31 million 
A) $98,500 
B) $620,500 
C) $26.8 million 
D) $78 million 
E) $31 million

Question 5

What are the five Cs of Credit?

Accepted Answer

Lenders have coined the phrase

Question 6

Your firm purchases goods from its supplier on terms of 2/10,net 40.The effective annual cost to your firm if it chooses not to take advantage of the trade discount offered and stretches the accounts payable to 60 days is closest to:

Accepted Answer

A) 20.1% 
B) 15.9% 
C) 13.0% 
D) 11.1% 
E) 9.5% 
A) 20.1% 
B) 15.9% 
C) 13.0% 
D) 11.1% 
E) 9.5%

Question 7

Evertz Metals buys and stockpiles $4,000,000 worth of dolomite to use in its smelting processes.How is this inventory cost best categorized?

Accepted Answer

A) an acquisition cost 
B) a carrying cost 
C) an order cost 
D) a holding cost 
E) a hidden cost 
A) an acquisition cost 
B) a carrying cost 
C) an order cost 
D) a holding cost 
E) a hidden cost

Question 8

Use the table for the question(s)below.
Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2006.
A simplified balance sheet for the firm appears below:
    
-Luther's Accounts Receivable days is closest to:

Accepted Answer

A) 42 days 
B) 39 days 
C) 32 days 
D) 59 days 
E) 47 days 
A) 42 days 
B) 39 days 
C) 32 days 
D) 59 days 
E) 47 days

Question 9

Which of the following is a firm's operating cycle?

Accepted Answer

A) the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product 
B) the average length of time between when a firm pays cash to purchase its initial inventory and when it receives cash from the sale of the product produced from that inventory 
C) the average length of time between when a firm originally purchases its inventory and when it sells the product produced from that inventory 
D) the average length of time between when a firm originally purchases its inventory and when it pays cash for that inventory 
E) the average length of time between when a firm receives cash for its current inventory and uses that cash to purchase new inventory 
A) the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product 
B) the average length of time between when a firm pays cash to purchase its initial inventory and when it receives cash from the sale of the product produced from that inventory 
C) the average length of time between when a firm originally purchases its inventory and when it sells the product produced from that inventory 
D) the average length of time between when a firm originally purchases its inventory and when it pays cash for that inventory 
E) the average length of time between when a firm receives cash for its current inventory and uses that cash to purchase new inventory

Question 10

A firm offers its customers 3/5 net 25.What is the cost of trade credit to a customer who chooses to pay on day 25?

Accepted Answer

A) 32.3% 
B) 65.5% 
C) 68.4% 
D) 74.3% 
E) 59.4% 
A) 32.3% 
B) 65.5% 
C) 68.4% 
D) 74.3% 
E) 59.4%

Question 11

What should a firm do after establishing a credit policy?

Accepted Answer

A) Decide what should be done for those customers who do not pay their accounts on time. 
B) Monitor its accounts receivable to analyze whether its credit policy is effective. 
C) Decide on the length of the period before payment must be made. 
D) Determine what percent of monthly sales are collected in the month after that sale. 
E) Encourage as many customers as possible to use credit. 
A) Decide what should be done for those customers who do not pay their accounts on time. 
B) Monitor its accounts receivable to analyze whether its credit policy is effective. 
C) Decide on the length of the period before payment must be made. 
D) Determine what percent of monthly sales are collected in the month after that sale. 
E) Encourage as many customers as possible to use credit.

Question 12

Firms typically would prefer a positive cash conversion cycle versus a negative cash conversion cycle.

Accepted Answer

A) True 
 B)False

Question 13

ALT had $25 million in sales last year.Its cost of goods sold was $15 million and its average inventory balance was $3 million.The average days of inventory in the industry is 65 days.What would ALT's average inventory need to be so that it would meet the industry average?

Accepted Answer

A) $4.45 million 
B) $3.65 million 
C) $3.33 million 
D) $2.67 million 
E) $1.54 million 
A) $4.45 million 
B) $3.65 million 
C) $3.33 million 
D) $2.67 million 
E) $1.54 million

Question 14

A firm has an average accounts payable balance of $180,000.Its average daily cost of goods sold is $12,000.What is the average number of days that the firm takes to pay its debt?

Accepted Answer

A) 2 days 
B) 8 days 
C) 15 days 
D) 21 days 
E) 30 days 
A) 2 days 
B) 8 days 
C) 15 days 
D) 21 days 
E) 30 days

Question 15

A firm offers its customers 1/10 net 40.What is the cost of trade credit to a customer who chooses to pay on day 40?

Accepted Answer

A) 12.8% 
B) 13.0% 
C) 65.5% 
D) 96.0% 
E) 83.1% 
A) 12.8% 
B) 13.0% 
C) 65.5% 
D) 96.0% 
E) 83.1%

Question 16

Brilliant Balloons,a party balloon manufacturer,buys latex on credit on September 1.It processes this latex to make balloons on September 6 and pays cash for the latex on September 14.On September 19 it sells the balloons to a party supply retailer,and on October 5 receives cash payment for this sale.What is the length of the operating cycle in this case?

Accepted Answer

A) 21 days 
B) 5 days 
C) 18 days 
D) 34 days 
E) 13 days 
A) 21 days 
B) 5 days 
C) 18 days 
D) 34 days 
E) 13 days

Question 17

The three steps in establishing a credit policy are establishing credit standards,establishing credit terms,and establishing a collection policy.

Accepted Answer

A) True 
 B)False

Question 18

A firm's practice of ignoring a payment due period and paying later is called:

Accepted Answer

A) shirking. 
B) missing accounts payable. 
C) default. 
D) a credit event. 
E) stretching the accounts payable. 
A) shirking. 
B) missing accounts payable. 
C) default. 
D) a credit event. 
E) stretching the accounts payable.

Question 19

Gencom International has inventory days of 33,accounts receivable days of 24,and accounts payable days of 41.What is its cash conversion cycle?

Accepted Answer

A) 17 days 
B) 118 days 
C) 22 days 
D) 50 days 
E) 16 days 
A) 17 days 
B) 118 days 
C) 22 days 
D) 50 days 
E) 16 days

Question 20

Which of the following would increase a firm's cash conversion cycle?

Accepted Answer

A) increase inventory days 
B) decrease accounts receivable days 
C) decrease accounts payable days 
D) increase cash days 
E) increase average daily sales 
A) increase inventory days 
B) decrease accounts receivable days 
C) decrease accounts payable days 
D) increase cash days 
E) increase average daily sales

Exam 19: Working Capital Management

A financial manager who wants her investment to have a higher return would choose to invest some of her firm's excess cash in commercial paper over Treasury bonds.

Your firm purchases $100,000 worth of goods from its supplier on terms of 2/20 net 60.How much more does your firm pay if it chooses not to take advantage of the trade discount?

What are the costs of holding inventory?

A firm has average accounts receivable of $85,000,and,on average,takes 50 days to collect on its sales.What is the total amount of the firm's sales?

What are the five Cs of Credit?

Your firm purchases goods from its supplier on terms of 2/10,net 40.The effective annual cost to your firm if it chooses not to take advantage of the trade discount offered and stretches the accounts payable to 60 days is closest to:

Evertz Metals buys and stockpiles $4,000,000 worth of dolomite to use in its smelting processes.How is this inventory cost best categorized?

Use the table for the question(s)below. Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2006. A simplified balance sheet for the firm appears below: -Luther's Accounts Receivable days is closest to:

Which of the following is a firm's operating cycle?

A firm offers its customers 3/5 net 25.What is the cost of trade credit to a customer who chooses to pay on day 25?

What should a firm do after establishing a credit policy?

Firms typically would prefer a positive cash conversion cycle versus a negative cash conversion cycle.

ALT had $25 million in sales last year.Its cost of goods sold was $15 million and its average inventory balance was $3 million.The average days of inventory in the industry is 65 days.What would ALT's average inventory need to be so that it would meet the industry average?

A firm has an average accounts payable balance of $180,000.Its average daily cost of goods sold is $12,000.What is the average number of days that the firm takes to pay its debt?

A firm offers its customers 1/10 net 40.What is the cost of trade credit to a customer who chooses to pay on day 40?

The three steps in establishing a credit policy are establishing credit standards,establishing credit terms,and establishing a collection policy.

A firm's practice of ignoring a payment due period and paying later is called:

Gencom International has inventory days of 33,accounts receivable days of 24,and accounts payable days of 41.What is its cash conversion cycle?

Which of the following would increase a firm's cash conversion cycle?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Short-Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

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