Question 1

Hollywood Shoes would like to maintain their cash account at a minimum level of $50,000, but expects the standard deviation in net daily cash flows to be $4,000; the effective annual rate on marketable securities to be 6 percent per year; and the trading cost per sale or purchase of marketable securities to be $100 per transaction. What will be their optimal cash return point?

Accepted Answer

A)  $59,094.77
B)  $69,588.47
C)  $181,131.66
D)  $54,000.00 B

Question 2

If demand for a firm's products suddenly slows down so that inventory increases while sales decrease, how will the firm's needs for net working capital react?

Accepted Answer

A)  Net working capital would increase.
B)  Net working capital would decrease.
C)  There would be no change in net working capital.
D)  Net working capital would first decrease, then increase slowly over time. A

Question 3

Suppose that Darlene's Donuts has annual sales of $200,000; cost of goods sold of $90,000; average inventories of $4,000; average accounts receivable of $10,000; and an average accounts payable balance of $7,000. Assuming that all of Darlene's sales are on credit, what will be the firm's cash cycle?

Accepted Answer

A)  6.08
B)  28.39
C)  34.47
D)  62.86 A

Question 4

All of the following are examples of carrying costs EXCEPT:

Accepted Answer

A)  rental payments on building where the business is located.
B)  the lost sale if the company runs out of a particular model.
C)  the opportunity costs associated with having capital tied up in current assets instead of more productive fixed assets.
D)  all of these are examples of carrying costs.

Question 5

Which of these is a short-term loan secured by a company's assets?

Accepted Answer

A)  Commercial loan
B)  Line of credit
C)  Asset-based loan
D)  Inventory loan

Question 6

Which of the following is the technique for reducing collection float by having funds sent to several geographically situated regional banks and then transferring to a main concentration account in another bank?

Accepted Answer

A)  Lockbox system
B)  Concentration banking
C)  Wire transfers
D)  Collection float

Question 7

To trace cash flows through the firm's operations, we must measure which of the following? (It is the time necessary to acquire raw materials, turn them into finished goods, sell them, and receive payment for them.)

Accepted Answer

A)  Cash cycle
B)  Operating cycle
C)  Transaction cycle
D)  Production cycle

Question 8

If a firm has a cash cycle of 71 days and an operating cycle of 139 days, what is its average payment period?

Accepted Answer

A)  210 days
B)  68 days
C)  53 days
D)  41 days

Question 9

Suppose that Freddy's Fries has annual sales of $500,000, cost of goods sold of $375,000, average inventories of $9,000, and average accounts receivable of $25,000. Assuming that all of Freddy's sales are on credit, what will be the firm's operating cycle?

Accepted Answer

A)  27.01
B)  18.25
C)  8.76
D)  9.49

Question 10

KJ Enterprises estimates that it takes, on average, three days for their customers' payments to reach them, one day for the payments to be processed and deposited by their bookkeeping department, and two more days for the checks to clear once they're deposited. What is their collection float?

Accepted Answer

A)  one day
B)  two days
C)  three days
D)  six days

Question 11

Team Sports Industries has a cash balance of $60,000; accounts payable of $40,000; inventory of $100,000; accounts receivable of $110,000; notes payable of $80,000; and accrued wages and taxes of $10,000. How much net working capital does the firm need to fund?

Accepted Answer

A)  $140,000
B)  $130,000
C)  $150,000
D)  $210,000

Question 12

If a firm's inventory ratio increases, what will happen to the firm's operating cycle?

Accepted Answer

A)  It will increase.
B)  It will decrease.
C)  It will increase and then slowly decrease back to the initial level.
D)  It will decrease and the slowly increase back to the initial level.

Question 13

Which of the following is NOT one of the five basic elements of the kaizen approach of productivity improvement?

Accepted Answer

A)  Teamwork
B)  Improved morale
C)  Quality circles
D)  Suggestions for personal discipline

Question 14

If the firm wants to identify the percentage of accounts receivable that are over 90 days old, the firm should prepare:

Accepted Answer

A)  a detailed analysis of accounts receivable.
B)  an aging schedule.
C)  a credit analysis.
D)  an analysis of the cash cycle.

Question 15

If a firm has a cash cycle of 75 days and an operating cycle of 120 days, what is its payables turnover?

Accepted Answer

A)  8.11
B)  7.19
C)  5.97
D)  6.73

Question 16

B&O Cos. has sales of $850,000 and cost of goods sold of $490,000. The firm had a beginning inventory of $69,000 and an ending inventory of $54,000. What is the length of the days' sales in inventory?

Accepted Answer

A)  40.22 days
B)  51.40 days
C)  23.19 days
D)  29.63 days

Question 17

Rose N More Resources faces a smooth annual demand for cash of $50 million; incurs transaction costs of $350 every time they sell marketable securities, and can earn 5.2 percent on their marketable securities. What will be their optimal cash replenishment level?

Accepted Answer

A)  $18,708.29
B)  $187,082.87
C)  $82,041.27
D)  $820,412.65

Question 18

BOGO Shoes would like to maintain their cash account at a minimum level of $100,000, but expects the standard deviation in net daily cash flows to be $7,000; the effective annual rate on marketable securities to be 6.5 percent per year; and the trading cost per sale or purchase of marketable securities to be $175 per transaction. What will be their optimal cash return point?

Accepted Answer

A)  $107,000
B)  $133,374.63
C)  $144,266.52
D)  $101,859.65

Question 19

If a firm has a cash cycle of 10 days and an operating cycle of 43 days, what is its average payment period?

Accepted Answer

A)  10
B)  33
C)  43
D)  53

Question 20

All of the following are the different types of float the firm may experience in its collections EXCEPT:

Accepted Answer

A)  mail float.
B)  availability float.
C)  check kiting float.
D)  processing float.

Exam 14: Working Capital Management and Policies