Exam 19: Working Capital Management

Your firm purchases goods from its supplier on terms of 1/10 net 30. The effective annual cost to your firm if it chooses not to take advantage of the trade discount offered is closest to ________.

The amount of cash a firm needs to be able to pay its bills is sometimes referred to as a(n) ________.

If a firm wishes to invest cash that might be needed at short notice in the very near future, they would be most likely to invest in which of the following securities?

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

Which of the following statements is FALSE?

What is trade credit?

Which of the following statements is FALSE?

Which of the following is the term used to describe debt issued by state and local government which has a maturity of one to six months?

Working capital alters a firm's value by affecting its free cash flow.

Which of the following statements is FALSE?

What of the following best describes just-in-time inventory management?

Which of the following statements is FALSE?

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

Which one of the following is NOT one of the three steps involved in establishing a credit policy?

Collection float is the amount of time it takes for a firm to be able to use funds after a customer has paid for its goods.

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% per month, what is the net present value (NPV) of making this change? (Assume that all 1,000 units are sold at the beginning of the month and the cost of producing the units is paid immediately.)

Which of the following statements is FALSE?

Which of the following money market investments is a draft written by the borrower and guaranteed by the bank on which the draft is drawn? It is typically used in international trade transactions. The borrower is an importer who writes the draft in payment for goods.

Vega Music's projected net income and free cash flows are given above in thousands of dollars. Vega expects that their net income and increases in net working capital to increase by 5% per year. If Vega were able to reduce its annual increase in working capital by 10% without affecting any other part of the business adversely, what would be the effect of this reduction on Vega's value, given a cost of capital of 13%?

What is a transactions balance?