Exam 19: Working Capital Management

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 cash conversion cycle is closest to:

If a firm decreases the level of inventory it carries,the order costs will ________ and the carrying costs will ________.

What is the effective annual cost of credit terms of 3/15 net 30,if the firm stretches the accounts payable to 60 days?

Which of the following best describes the availability float?

What are the advantages of holding inventory?

What is the discount period?

What is the cash discount?

A firm offers its customers 2/14 net 28.What is the cost of trade credit to a customer who chooses to pay on day 28?

Your firm purchases goods from its supplier with a discount of 1%,and a credit period of 20 days.If the effective annual cost of forgoing the discount is 27.71%,what is the length of the discount period?

Your firm purchases goods from its supplier with a discount of 2%,and a discount period of 10 days.If the effective annual cost of forgoing the discount is 44.59%,what is the length of the credit period?

What is the effective cost of credit terms of 3/5 net 45 if the firm stretches the accounts payable to 60 days?

A firm had sales of $32 million,and,on average,takes 41 days to collect on its sales.What is the average daily amount of the firm's accounts receivable?

A firm had sales of $8 million,and,on average,takes 33 days to collect on its sales.What is the average daily amount of the firm's accounts receivable?

A firm should choose to borrow using accounts payable only if trade credit is the cheapest source of funding.

What is the credit period?

Which of the following is the major benefit to a firm of using just-in-time inventory management?

A firm currently sells its product with a 2% discount to customers who pay by cash or credit card when they purchase one of the firm's products; otherwise,the full price is due within 30 days.Forty percent of customers take advantage of the discount.The firm plans to drop the discount so the new terms will simply be net 30.In doing so it expects to sell 100 fewer units per month and all customers to pay at day 30.The firm currently sells 1000 units per month at a cost per unit of $45 and a selling price per unit of $80.If the firm's required return is 2%,what is the net present value (NPV)of making this change?

Jerome Industries has inventory days of 31,accounts payable days of 28,and a cash conversion cycle of 56 days.What is its accounts receivable days?

Evertz Metals buys and stockpiles dolomite to use in its smelting processes.Before all this dolomite is used,however,they alter their smelting process so that calcite limestone is used instead.How is the inventory cost of the unused dolomite best categorized?

Effective inventory management builds up assets through increases in inventory and thus increases a firm's value.