Question 1

Suppose a firm changes its credit policy from 2/10 net 30 to 3/10 net
30. The change is meant to meet competition, so no increase in sales is expected. The average accounts receivable balance will probably decline as a result of this change.

Accepted Answer

A) True 
 B)False

Question 2

Accruals are "spontaneous," but unfortunately, due to law and economic forces, firms have little control over the level of these accounts.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A)   Accruals are an expensive but commonly used way to finance working capital.
B)   A conservative financing policy is one where the firm finances part of its fixed assets with short-term capital and all of its net working capital with short-term funds.
C)   If a company receives trade credit under terms of 2/10 net 30, this implies that the company has 10 days of free trade credit.
D)   One cannot tell if a firm has a conservative, aggressive, or moderate current asset financing policy without an examination of its cash budget.
E)   If a firm has a relatively aggressive current asset financing policy vis-à-vis other firms in its industry, then its current ratio will probably be relatively high.F) A) and E)
G) B) and C)

Question 4

Singal Inc. is preparing its cash budget. It expects to have sales of
$30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March?

Accepted Answer

A)   $24,057
B)   $26,730
C)   $29,700
D)   $33,000
E)   $36,300F) B) and C)
G) C) and E)

Question 5

Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its non-free trade credit? (Assume a 365-day year.)

Accepted Answer

A)   20.11%
B)   21.17%
C)   22.28%
D)   23.45%
E)   24.63%F) A) and E)
G) C) and D)

Question 6

Weiss Inc. arranged a $9,000,000 revolving credit agreement with a group of banks. The firm paid an annual commitment fee of 0.5% of the unused balance of the loan commitment. On the used portion of the revolver, it paid 1.5% above prime for the funds actually borrowed on a simple interest basis. The prime rate was 3.25% during the year. If the firm borrowed $6,000,000 immediately after the agreement was signed and repaid the loan at the end of one year, what was the total dollar annual cost of the revolver?

Accepted Answer

A)   $285,000
B)   $300,000
C)   $315,000
D)   $330,750
E)   $347,288F) None of the above
G) A) and E)

Question 7

Zarruk Construction's DSO is 50 days (on a 365-day basis) , accounts receivable are $100 million, and its balance sheet shows inventory of
$125 million. What is the inventory turnover ratio?

Accepted Answer

A)   4.73
B)   5.26
C)   5.84
D)   6.42
E)   7.07F) A) and E)
G) B) and D)

Question 8

Setting up a lockbox arrangement is one way for a firm to speed up the collection of payments from its customers.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is NOT CORRECT?

Accepted Answer

A)   A company may hold a relatively large amount of cash and marketable securities if it is uncertain about its volume of sales, profits, and cash flows during the coming year.
B)   Credit policy has an impact on working capital because it influences both sales and the time before receivables are collected.
C)   The cash budget is useful to help estimate future financing needs, especially the need for short-term working capital loans.
D)   If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10 net 30 to net 60.
E)   Managing working capital is important because it influences financing decisions and the firm's profitability.F) B) and E)
G) A) and C)

Exam 16: Working Capital Management

Correct Answer
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Which of the following statements is NOT CORRECT?

Correct Answer
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Zarruk Construction's DSO is 50 days (on a 365-day basis) , accounts receivable are $100 million, and its balance sheet shows inventory of $125 million. What is the inventory turnover ratio?

Correct Answer
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Which of the following statements is CORRECT?

Correct Answer
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Correct Answer
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Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its non-free trade credit? (Assume a 365-day year.)

Correct Answer
verified

Suppose a firm changes its credit policy from 2/10 net 30 to 3/10 net 30. The change is meant to meet competition, so no increase in sales is expected. The average accounts receivable balance will probably decline as a result of this change.

Correct Answer
verified

Accruals are "spontaneous," but unfortunately, due to law and economic forces, firms have little control over the level of these accounts.

Correct Answer
verified

Setting up a lockbox arrangement is one way for a firm to speed up the collection of payments from its customers.

Correct Answer
verified

Exam 16: Working Capital Management

Correct AnswerverifiedShow Answer

Which of the following statements is NOT CORRECT?

Correct AnswerverifiedShow Answer

Zarruk Construction's DSO is 50 days (on a 365-day basis) , accounts receivable are $100 million, and its balance sheet shows inventory of $125 million. What is the inventory turnover ratio?

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its non-free trade credit? (Assume a 365-day year.)

Correct AnswerverifiedShow Answer

Suppose a firm changes its credit policy from 2/10 net 30 to 3/10 net 30. The change is meant to meet competition, so no increase in sales is expected. The average accounts receivable balance will probably decline as a result of this change.

Correct AnswerverifiedShow Answer

Accruals are "spontaneous," but unfortunately, due to law and economic forces, firms have little control over the level of these accounts.

Correct AnswerverifiedShow Answer

Setting up a lockbox arrangement is one way for a firm to speed up the collection of payments from its customers.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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