Question 1

Drawing,Inc.has sales of $860,000 and cost of goods sold of $450,000.The firm had a beginning inventory of $50,000 and an ending inventory of $59,000.What is the length of the days' sales in inventory?

Accepted Answer

A)  23.13 days 
B)  44.21 days 
C)  21.22 days 
D)  47.86 days

Question 2

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 3

Which of these is an entity who will buy accounts receivable before they are due on a discounted basis,with the spread between the discounted price and the receivable's face value providing them with the expected compensation for both the time value of money and for the expected level of defaults amongst the accounts receivable?

Accepted Answer

A)  Commercial bank 
B)  Factor 
C)  Receiver 
D)  Blanket loaner

Question 4

Which of the following is NOT a fundamental factor ignored by the target cash balance models?

Accepted Answer

A)  Firms have the option to borrow short-term to meet unexpected demands for cash. 
B)  The costs and delays of trading securities have fallen dramatically since the advent of the Internet. 
C)  Many large firms habitually use all or the majority of their available cash to purchase overnight securities. 
D)  Models take into account that many firms must keep compensating balances in their deposit accounts as part of borrowing agreements with their banks.

Question 5

Suppose that Tucker Industries has annual sales of $5 million,cost of goods sold of $2.78 million,average inventories of $1,125,000,and average accounts receivable of $500,000.Assuming that all of Tucker's sales are on credit,what will be the firm's operating cycle?

Accepted Answer

A)  147.71 
B)  111.21 
C)  184.21 
D)  36.5

Question 6

Would it be worth it to incur a compensating balance of $4,000 in order to get a 1.5-percent-lower interest rate on a 1-year,pure discount loan of $300,000?

Accepted Answer

A)  Yes, if the interest rate is less than 13.64 percent 
B)  No, if the interest rate is less than 13.64 percent 
C)  Yes, if the interest rate is more than 1.5 percent 
D)  Not enough information is given to determine

Question 7

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

Accepted Answer

A)  5 days 
B)  6 days 
C)  9 days 
D)  18 days

Question 8

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

Accepted Answer

A)  12 days 
B)  10 days 
C)  9 days 
D)  7 days

Question 9

Scribble,Inc.has sales of $80,000 and cost of goods sold of $64,000.The firm had a beginning inventory of $10,000 and an ending inventory of $12,000.What is the length of the days' sales in inventory?

Accepted Answer

A)  13.75 days 
B)  45.63 days 
C)  17.19 days 
D)  68.44 days

Question 10

Painting,Inc.has sales of $400,000 and cost of goods sold of $275,000.The firm had a beginning inventory of $42,000 and an ending inventory of $38,000.What is the length of the days' sales in inventory?

Accepted Answer

A)  53.09 days 
B)  36.50 days 
C)  38.33 days 
D)  50.44 days

Question 11

Which of the following actions will cause a firm's net working capital to increase?

Accepted Answer

A)  The firm uses more trade credit. 
B)  The firm increases its inventory in anticipation of seasonal sales. 
C)  The firm pays off a short-term bank loan with cash. 
D)  All of the options will cause a firm's net working capital to increase.

Question 12

Suppose that Sam Industries has annual sales of $2 million,cost of goods sold of $950,000,average inventories of $45,000,and average accounts receivable of $90,000.Assuming that all of Sam's sales are on credit,what will be the firm's operating cycle?

Accepted Answer

A)  0.85 
B)  16.43 
C)  17.29 
D)  33.72

Question 13

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 14

Which of the following will increase the operating cycle?

Accepted Answer

A)  The cash cycle decreases by one day but the average payment period increases by two and a half days. 
B)  The days' sales in inventory decreases by one day but the average collection period increases by two days. 
C)  COGS stays the same but inventory increases. 
D)  All of the options will increase the operating cycle.

Question 15

Happy Feet would like to maintain their cash account at a minimum level of $75,000,but expects the standard deviation in net daily cash flows to be $5,000; the effective annual rate on marketable securities to be 7 percent per year; and the trading cost per sale or purchase of marketable securities to be $150 per transaction.What will be their optimal upper cash limit?

Accepted Answer

A)  $80,000.00 
B)  $99,755.64 
C)  $76,593.42 
D)  $149,266.92

Question 16

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 17

If a firm has a cash cycle of 32 days and an operating cycle of 67 days,what is its payables turnover?

Accepted Answer

A)  5.45 
B)  10.43 
C)  11.41 
D)  35

Exam 14: Working Capital Management and Policies