Exam 19: Working Capital Management

Jen Industries had sales of $32 million this year and an average accounts receivable of $0.8 million per day. On average, how long does it take to collect on its sales?

What is the effective annual cost of credit terms of 2/20, net 60, if the firm stretches the accounts payable to 80 days?

The level of cash a firm holds is irrelevant; it can never be short of cash since a firm is able to raise new money instantly at a fair rate, while it can never have surplus cash since the firm can invest excess cash at a fair rate to earn a net present value (NPV) of zero.

What is a compensating balance?

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.

What is cash discount?

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 Industries Balance Sheet As of December 31, 2006 (millions of dollars) -Luther's Accounts Receivable days is closest to ________.

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

Which of the following are the "5-C's of Credit"?

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 and stretches the accounts payable to 45 days is closest to ________.