Exam 18: Working Capital Management

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?

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

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

The Stant Shoe Company established a line of credit with a local bank. The maximum amount that can be borrowed under the terms of the agreement is $100,000 at an annual rate of 5%. A compensating balance of 10% of the amount borrowed is required. What is the largest amount of money Stant will actually be able to use from the line of credit?

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

A toy manufacturer following the self-liquidating debt. principle will generally finance seasonal inventory build-up prior to the Holiday season with

Describe the differences between secured and unsecured short-term credit.

Calculate the effective cost of the following trade credit terms if the discount is foregone and payment is made on the net due date. a. 2/15 net 30 b. 2/15 net 45 c. 2/15 net 60

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?

Lines of credit involve fixed rates of interest.

The operating cycle equals the inventory conversion period plus the accounts payable deferral period.

Commercial paper is a source of credit available to large firms with healthy balance sheets.

Increasing the accounts payable deferral period also increases the cash conversion cycle.

A "pop-up" store wants to use vacated space at a shopping mall to sell seasonal merchandise during the months of October, November and December. The rent is $10,000 per month, but the mall's owners are requiring a payment of $100,000 on September 1. If the space is vacated in good condition at the end of December, the owners will return $70,000 to the lessees. How should the $100,000 be financed?

An increase in ________ would increase a firm's current ratio and net working capital.

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 operating cycle?

A company which foregoes the discount when credit terms are 4/15 net 70 is essentially borrowing money from his supplier for an additional

Which of the following factors tends to reduce or eliminate the use of float?

Currier & Ive's Lithography has a Cost of Goods Sold of $60.8 million. The company's accounts payable balance is $7.5 million. It's accounts payable deferral period is