Exam 18: Working Capital Management

Disadvantages of using current liabilities as opposed to long-term debt include

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

Spontaneous sources of financing may be either short-term or long-term.

Trade credit is an example of which of the following sources of financing?

Maximus, Inc. is planning to borrow $2 million for 9 months at a discounted interest rate of 4.5%. What is the annual percentage rate on the loan?

Why do firms offer trade credit?

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.

Another term for the self-liquidating debt principle is

An increase in ________ would increase net working capital.

The Smith Corporation has purchased $500,000 worth of inventory. The vendor offers terms of 1/15 net 45. Unfortunately, Smith does not have enough cash available to take advantage of the discount. It can borrow $500,000 from Wesson National Bank for 30 days at an annual percentage rate of 6%. Should Smith forego the discount or pay within the discount period with money borrowed from the bank?