Question 1

Prince Co.'s inventory turnover ratio is 30.4.Its inventory conversion period is

Accepted Answer

A) 12 days. 
B) 30.4 days. 
C) 2.5 days. 
D) There is not enough information. 
A) 12 days. 
B) 30.4 days. 
C) 2.5 days. 
D) There is not enough information.

Question 2

Frosty's Frozen Food Inc.'s inventory balance is $1.22 million.Frosty's Cost of Good's Sold is $30.4 million.Its inventory conversion period is

Accepted Answer

A) 12 days. 
B) 24.92 days. 
C) 14.65 days. 
D) 299.2 days. 
A) 12 days. 
B) 24.92 days. 
C) 14.65 days. 
D) 299.2 days.

Question 3

A firm buys on terms of 3/10,net 30.What is the cost of trade credit under these terms?

Accepted Answer

A) 55.7% 
B) 47.4% 
C) 31.5% 
D) 23.2% 
A) 55.7% 
B) 47.4% 
C) 31.5% 
D) 23.2%

Question 4

Georgia Peaches Corporation (GPC)has a line of credit with Trust Company Bank that allows GPC to borrow up to $300,000 at an annual interest rate of 5.5%.However,GPC must keep a compensating balance of 20% of any amount borrowed on deposit at the Trust Company Bank.GPC does not normally have a cash balance account with the Trust Company.What is the effective annual cost of credit?

Accepted Answer

A) 6.875% 
B) 6.975% 
C) 7.075% 
D) 7.775% 
A) 6.875% 
B) 6.975% 
C) 7.075% 
D) 7.775%

Question 5

What is the conventional method for financing permanent levels of accounts receivable and inventory?

Accepted Answer

A) Bonds and equity 
B) Short-term loans 
C) Accounts payable and accrued expenses 
D) Equity only 
A) Bonds and equity 
B) Short-term loans 
C) Accounts payable and accrued expenses 
D) Equity only

Question 6

Electronic funds transfer (EFT)could eventually eliminate the use of most checks and minimize float.

Accepted Answer

A) True 
 B)False

Question 7

Within the context of working capital management,the risk-return trade-off involves an increased risk of illiquidity versus increased profitability.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is most likely to occur if a firm over-invests in net working capital?

Accepted Answer

A) The current ratio will be lower than it should be. 
B) The quick ratio will be lower than it should be. 
C) The return on investment will be lower than it should be. 
D) The times interest earned ratio will be lower than it should be. 
A) The current ratio will be lower than it should be. 
B) The quick ratio will be lower than it should be. 
C) The return on investment will be lower than it should be. 
D) The times interest earned ratio will be lower than it should be.

Question 9

Abbot Corporation has an average collection period of 49 days,an inventory conversion period of 83 days,and a payables deferral period of 36 days.What is Abbott's cash conversion cycle?

Accepted Answer

A) 96 days 
B) 70 days 
C) 85 days 
D) 132 days 
A) 96 days 
B) 70 days 
C) 85 days 
D) 132 days

Question 10

Which of the following is an advantage of using commercial paper for short-term credit?

Accepted Answer

A) The interest rate is usually lower than for equivalent bank loans. 
B) It is a readily available source of credit for most firms 
C) It is a type of free credit. 
D) It can be issued for very small amounts. 
A) The interest rate is usually lower than for equivalent bank loans. 
B) It is a readily available source of credit for most firms 
C) It is a type of free credit. 
D) It can be issued for very small amounts.

Question 11

Becker.com has an inventory turnover ratio of 52,an accounts receivable balance of $365,000,average daily credit sales of $36,500,accounts payable of $182,500 and cost of goods sold of $7,993,500.What is Becker's operating cycle to the nearest day?

Accepted Answer

A) 17 days 
B) 61 days 
C) 27 days 
D) -27 days 
A) 17 days 
B) 61 days 
C) 27 days 
D) -27 days

Question 12

Solstice Corporation has current assets of $10 million and current liabilities of $8 million.Solstice's current ratio is ________ and its net working capital is ________.

Accepted Answer

A) 1.25,$10 million 
B) 1.25,$2 million 
C) 2,$1.25 million 
D) .8, ($2 million) 
A) 1.25,$10 million 
B) 1.25,$2 million 
C) 2,$1.25 million 
D) .8, ($2 million)

Question 13

As the inventory turnover ratio decreases,the inventory conversion cycle increases.

Accepted Answer

A) True 
 B)False

Question 14

It is not possible to have a negative cash conversion cycle.

Accepted Answer

A) True 
 B)False

Question 15

A quite risky working capital management policy would have a high ratio of

Accepted Answer

A) short-term debt to bonds and equity. 
B) short-term debt to total debt. 
C) bonds to property,plant,and equipment. 
D) short-term debt to equity. 
A) short-term debt to bonds and equity. 
B) short-term debt to total debt. 
C) bonds to property,plant,and equipment. 
D) short-term debt to equity.

Question 16

A& B Global's annual credit sales are $18 million;the accounts receivable balance is $1.5 million;the cost of goods sold is $12.6 million;the inventory balance is $350,000,and the balance in accounts payable is $700,000.
a.Compute A&B's operating cycle.
b.Compute A&B's cash conversion cycle.

Accepted Answer

Average collection period = $1,500,00/($

Question 17

Commercial paper is an unsecured form of credit.

Accepted Answer

A) True 
 B)False

Question 18

The risk of a firm not being able to pay its bills on time is called

Accepted Answer

A) illiquidity. 
B) insolvency. 
C) capital inadequacy. 
D) float. 
A) illiquidity. 
B) insolvency. 
C) capital inadequacy. 
D) float.

Question 19

Smith Enterprises has a line of credit with Fidelity National Bank that allows Smith to borrow up to $350,000 at an interest rate of 5%.However,Smith must keep a compensating balance of 10% of any amount borrowed on deposit at Fidelity.Smith does not normally keep a cash balance account with Fidelity.What is the effective annual cost of credit (round to nearest .01 percent)?

Accepted Answer

A) 5.93% 
B) 5.84% 
C) 5.64% 
D) 5.56% 
A) 5.93% 
B) 5.84% 
C) 5.64% 
D) 5.56%

Question 20

ViteS Equipment Company has increased its inventory turnover ratio from 12 to 18.By how many days has it reduced the operating cycle?

Accepted Answer

A) 20 days 
B) 6 days 
C) 10 days 
D) 1.5 days 
A) 20 days 
B) 6 days 
C) 10 days 
D) 1.5 days

Prince Co.'s inventory turnover ratio is 30.4.Its inventory conversion period is

Frosty's Frozen Food Inc.'s inventory balance is $1.22 million.Frosty's Cost of Good's Sold is $30.4 million.Its inventory conversion period is

A firm buys on terms of 3/10,net 30.What is the cost of trade credit under these terms?

What is the conventional method for financing permanent levels of accounts receivable and inventory?

Electronic funds transfer (EFT)could eventually eliminate the use of most checks and minimize float.

Within the context of working capital management,the risk-return trade-off involves an increased risk of illiquidity versus increased profitability.

Which of the following is most likely to occur if a firm over-invests in net working capital?

Abbot Corporation has an average collection period of 49 days,an inventory conversion period of 83 days,and a payables deferral period of 36 days.What is Abbott's cash conversion cycle?

Which of the following is an advantage of using commercial paper for short-term credit?

Becker.com has an inventory turnover ratio of 52,an accounts receivable balance of $365,000,average daily credit sales of $36,500,accounts payable of $182,500 and cost of goods sold of $7,993,500.What is Becker's operating cycle to the nearest day?

Solstice Corporation has current assets of $10 million and current liabilities of $8 million.Solstice's current ratio is and its net working capital is .

As the inventory turnover ratio decreases,the inventory conversion cycle increases.

It is not possible to have a negative cash conversion cycle.

A quite risky working capital management policy would have a high ratio of

A& B Global's annual credit sales are $18 million;the accounts receivable balance is $1.5 million;the cost of goods sold is $12.6 million;the inventory balance is $350,000,and the balance in accounts payable is $700,000. a.Compute A&B's operating cycle. b.Compute A&B's cash conversion cycle.

Commercial paper is an unsecured form of credit.

The risk of a firm not being able to pay its bills on time is called

ViteS Equipment Company has increased its inventory turnover ratio from 12 to 18.By how many days has it reduced the operating cycle?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements,taxes,and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

International Business Finance

Corporate Risk Management

Filters

Exam 18: Working Capital Management

Prince Co.'s inventory turnover ratio is 30.4.Its inventory conversion period is

Frosty's Frozen Food Inc.'s inventory balance is $1.22 million.Frosty's Cost of Good's Sold is $30.4 million.Its inventory conversion period is

A firm buys on terms of 3/10,net 30.What is the cost of trade credit under these terms?

What is the conventional method for financing permanent levels of accounts receivable and inventory?

Electronic funds transfer (EFT)could eventually eliminate the use of most checks and minimize float.

Within the context of working capital management,the risk-return trade-off involves an increased risk of illiquidity versus increased profitability.

Which of the following is most likely to occur if a firm over-invests in net working capital?

Abbot Corporation has an average collection period of 49 days,an inventory conversion period of 83 days,and a payables deferral period of 36 days.What is Abbott's cash conversion cycle?

Which of the following is an advantage of using commercial paper for short-term credit?

Becker.com has an inventory turnover ratio of 52,an accounts receivable balance of $365,000,average daily credit sales of $36,500,accounts payable of $182,500 and cost of goods sold of $7,993,500.What is Becker's operating cycle to the nearest day?

Solstice Corporation has current assets of $10 million and current liabilities of $8 million.Solstice's current ratio is ________ and its net working capital is ________.

As the inventory turnover ratio decreases,the inventory conversion cycle increases.

It is not possible to have a negative cash conversion cycle.

A quite risky working capital management policy would have a high ratio of

A& B Global's annual credit sales are $18 million;the accounts receivable balance is $1.5 million;the cost of goods sold is $12.6 million;the inventory balance is $350,000,and the balance in accounts payable is $700,000. a.Compute A&B's operating cycle. b.Compute A&B's cash conversion cycle.

Commercial paper is an unsecured form of credit.

The risk of a firm not being able to pay its bills on time is called

ViteS Equipment Company has increased its inventory turnover ratio from 12 to 18.By how many days has it reduced the operating cycle?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements,taxes,and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

International Business Finance

Corporate Risk Management

Filters

Solstice Corporation has current assets of $10 million and current liabilities of $8 million.Solstice's current ratio is and its net working capital is .