Question 1

What is trade credit?

Accepted Answer

A) the credit that a firm is extends to its customers 
B) the amount a firm is owed by its customers who have received goods and services but have not yet paid for them 
C) the percentage discount offered to a customer who opts to pay their account early 
D) the amount that a firm owes its suppliers for goods which it has received but for which it has not yet paid 
E) an arrangement where two companies make payments on each other's loans

Question 2

A firm decides to stretch its accounts payable,resulting in an effective annual cost of credit of 20.24%,under terms of 2/10 net 20.When is the firm paying its accounts payable?

Accepted Answer

A) 40 days 
B) 45 days 
C) 50 days 
D) 54 days 
E) 55 days

Question 3

Which of the following money market investments is a short-term debt obligation of the Canadian government?

Accepted Answer

A) Treasury bills 
B) repurchase agreement 
C) commercial paper 
D) certificates of deposit 
E) banker's acceptance

Question 4

What is the effective annual cost of credit terms of 1/10 net 30,if the firm stretches the accounts payable to 45 days?

Accepted Answer

A) 8.49 % 
B) 10.91% 
C) 11.05% 
D) 18.03% 
E) 9.64%

Question 5

Can a firm's cash cycle be longer than a firm's operating cycle?

Accepted Answer

The answer of Can a firm's cash cycle be longer...

Question 6

The Holiday Corporation had sales of $450 million this year.Its accounts receivable balance averaged $30 million.How long,on average,does it take the firm to collect on its sales?

Accepted Answer

A) 15.0 days 
B) 24.3 days 
C) 12.2 days 
D) 16.7 days 
E) 19.2 days

Question 7

What is "just-in-time" inventory management?

Accepted Answer

The answer of What is "just-in-time" inventory management?...

Question 8

Jerome Industries has inventory days of 15,accounts receivable days of 33,and a cash conversion cycle of 41 days.What is its accounts payable days?

Accepted Answer

A) 23 days 
B) 7 days 
C) 4 days 
D) 33 days 
E) 59 days

Question 9

Which of the following firms would be expected to need the most cash to conduct its daily operations?

Accepted Answer

A) a retail grocery store that sells on a cash only basis 
B) an electronics manufacturer that only assemble its goods once they have been paid for 
C) an airline that has many of its fares pre-paid by cash or credit card 
D) an aircraft manufacturer with large inventory and long development and sales cycles 
E) a clothing retailer that accepts both cash and credit payments

Question 10

Which of the following money market investments is a draft written by the borrower and guaranteed by the bank on which the draft is drawn? It is typically used in international trade transactions.The borrower is an importer who writes the draft in payment for goods.

Accepted Answer

A) Treasury bills 
B) repurchase agreement 
C) certificates of deposit 
D) banker's acceptance 
E) commercial paper

Question 11

A firm's credit terms specify "1/10 net 30" and the accounts receivable days outstanding is 32 days.Which of the following can be concluded on the basis of this information?

Accepted Answer

A) Most customers pay on time. 
B) The average customer pays two days late. 
C) All customers have paid within 32 days of purchase. 
D) All customers pay late. 
E) No customers have paid within 32 days of purchase.

Question 12

What is the effective cost of credit terms of 2/10,net 30 if the firm stretches the accounts payable to 45 days?

Accepted Answer

A) 49.76% 
B) 36.12% 
C) 23.37% 
D) 44.59% 
E) 29.12%

Question 13

If a firm wishes to invest cash that might be needed at short notice in the very near future,they would be most likely to invest in which of the following securities?

Accepted Answer

A) cash management bills 
B) certificates of deposit 
C) repurchase agreements 
D) banker's acceptances 
E) commercial paper

Question 14

Trade credit should always be used when it is offered.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following best describes just-in-time inventory management?

Accepted Answer

A) Inventory is maintained as a buffer to meet uncertainties in demand,supply,and movements of goods. 
B) Production inefficiencies arising when production capacity stands idle for lack of materials are minimized by holding a small stock of essentials at all times. 
C) A firm acquires inventory precisely when needed so that its inventory balance is always at,or close to,zero. 
D) A firm minimizes the time lags present in the supply chain by maintaining a certain amount of inventory to use in these lag times. 
E) A firm acquires inventory only once customers have placed orders for their product.

Question 16

Bercraft Industries has an average accounts payable balance of $280,000.Its average annual cost of goods sold is $4,780,000.It receives terms of 1/20 net 40 from its suppliers.Is Bercraft managing its accounts payables well?

Accepted Answer

A) Yes,since it,on average,chooses not to take the discount,but pays when payment is due. 
B) Yes,since it,on average,takes the discount,and pays at the end of the discount period. 
C) Yes,since it,on average,stretches payment beyond the due payment date. 
D) No,since it,on average,does not take advantage of the discount period and pays well before payment is due. 
E) No,since it,on average,does not make payment before it is due.

Question 17

A firm has the accounts on its books shown above.What percentage of debt has been outstanding for over 60 days?

Accepted Answer

A) 28% 
B) 30% 
C) 34% 
D) 42% 
E) 54%

Question 18

A firm has an average accounts payable balance of $132,000.The average number of days that the firm takes to pay its debt is 22 days.What is its average daily cost of goods sold?

Accepted Answer

A) $4,000 
B) $132,000 
C) $126,000 
D) $6,000 
E) $6,600

Question 19

A firm decides to stretch its accounts payable,resulting in an effective annual cost of credit of 22.4%,under terms of 3/15 net 30.When is the firm paying its accounts payable?

Accepted Answer

A) 70 days 
B) 65 days 
C) 60 days 
D) 55 days 
E) 50 days

Question 20

Your firm purchases goods from its supplier on terms of 1/10 net 30.The effective annual cost to your firm if it chooses not to take advantage of the trade discount offered is closest to:

Accepted Answer

A) 16.8% 
B) 44.6% 
C) 20.1% 
D) 13.0% 
E) 11.4%

Exam 19: Working Capital Management