Exam 18: Working Capital Management

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 cash conversion cycle to the nearest day?

Treasury bills are a safer choice than bank deposits for very large sums.

"Float" is the term given to

Management of a firm's liquidity involves management of the firm's investment in current assets.

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

A negotiable certificate of deposit (CD) is a marketable receipt for funds deposited in a bank.

According to the self-liquidating debt principle permanent assets should be financed with ________ liabilities.

The correct equation for calculating the cost of short-term credit is

Which of the following terms would tend to minimize a firm's investment in accounts receivable?

Although CDs are slightly more risky than Treasury bills, the yield is usually slightly less.

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

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)?

Which of the following factors influence the size of the firm's investments in accounts receivable?

Accrued wages and taxes provide sources of financing that rise and fall spontaneously with the level of the firm's sales.

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

Atlas Tire Irons, Inc. is considering borrowing $5,000 for a 3 month period. The firm will repay the $5,000 principal amount plus $150 in interest.

Queen Co.'s balance in accounts receivable is $240,000. Annual credit sales are $2,880,000. Queen's average collection period is

Current assets include

Which of the following would NOT typically be used for assessing customer quality for purposes of granting trade credit?

The Blackstone River Textiles Company will borrow $50 million for 6 months days from Woonssocket Bank. The bank will charge Blackstone 4.5 % on a discounted basis. What is the dollar amount of interest Stoney River will need to pay and how much of the loan will Blackstone actually be able to use?