Exam 18: Working Capital Management

Use the following information to answer the following question(s). Quick Corp.makes its purchases under terms of 2/10 net 30. -If Quick foregoes the discount but does not pay for its purchases until day 40,what is Quick's effective cost of using this source of credit? Assume that no penalty is incurred for late payment.

P.Noel's Inc.'s current ratio is 2.Current liabilities are $500,000.P.Noel's current assets equal ________ and net working capital is ________.

The current ratio and net working capital are good predictors of a firm's ability to meet its short term obligations.Agree or disagree.

Typical securities in which firms invest their temporary cash surpluses include all of the following EXCEPT

Unlike spontaneous sources of financing,discretionary financing requires a managerial decision.

Which of the following policies will reduce a retailer's investment in working capital?

Accounts receivable typically comprise ________ of a firm's assets.

Clark Corporation has an average collection period of 7 days,an inventory conversion period of 30 days,and a payables deferrable period of 60 days.What is Clark's cash conversion cycle?

The U.R.Bloom Corporation established a line of credit with a local bank.The maximum amount that can be borrowed under the terms of the agreement is $125,000 at a rate of 5%.A compensating balance averaging 10% of the loan is required.If the firm needs $100,000 for six months,what is the dollar cost of the loan and the annual percentage rate (APR)?

A company that foregoes a discount of 1/7 net 30 is essentially borrowing money from the vendor at

The effective cost to the borrower of an unsecured bank loan is increased if a compensating balance is required.

A firm can reduce net working capital by substituting long-term financing,such as bonds,with short-term financing,such as a one-year notes payable.

Which of the following is NOT a typical characteristic of money-market securities?

T-bills and Treasury bonds are guaranteed by the full faith and credit of the United States and are therefore default-free.

The Omega Corp.plans to borrow $10,000 for a 2 months.At maturity,Omega will repay the $10,000 principal plus $100 interest.What is the annual percentage rate (APR)rate of interest on this loan?

An increase in ________ would increase net working capital.

The Stoney River Textiles Company will borrow $50 million for 180 days from Merrimac Bank.The bank will charge Stoney River 4.5 % on a discounted basis.What is the dollar amount of interest Stoney River will need to pay? Assume a 360 day year.

Accounts payable is considered a

A decrease in ________ would increase net working capital.

When faced with a surplus of cash,most firms should stretch their trade accounts.