Exam 15: Managing Short- Term Assets

The average cash conversion cycle of European firms is American firms.

The average length of time required to convert a firm's receivables into cash is called the .

The inventory conversion period is calculated by dividing inventory by the cost of goods sold per day.

Golden Fritter Corporation has a current ratio equal to three.If Golden Fritter issues $1,000,000 in long term bonds and uses the proceeds to purchase inventory, what will happen to the current ratio?

Which of the following current liabilities are considered when calculating net working capital?

A firm's goal should be to lengthen the cash conversion cycle since shorter cash conversion cycles leads firms to increase their dependence on costly external financing.

Jordan Air Inc.has average inventory of $1,000,000.Its estimated annual sales are 15 million and the firm estimates its receivables collection period to be twice as long as its inventory conversion period.The firm pays its trade credit on time; its terms are net 30.The firm wants to decrease its cash conversion cycle by 10 days.It believes that it can reduce its average inventory to $900,000.Assume a 360-day year and that sales will not change.Cost of goods sold equal 80 percent of sales.By how much must the firm also reduce its accounts receivable to meet its goal of a 10- day reduction?

The average length of time between the purchase of raw material and labor and the payment of cash for them is called the .

Net working capital is

Gator Corporation currently has a current ratio equal to 0.65.If Gator Corporation increases current assets and current liabilities by the same amount, what will happen to their current ratio?

The best and most comprehensive picture of a firm's liquidity position is obtained by examining its cash budget.

The sale of common stock for cash will increase the current assets for a firm.

On average, a firm sells $2,500,000 in merchandise a month.Its cost of goods sold equals 80 percent of sales, and it keeps inventory equal to one-half of its monthly cost of goods on hand at all times.If the firm analyzes its accounts using a 360-day year, what is the firm's inventory conversion period?

The fact that no explicit interest cost is paid on accruals and that the firm can exercise considerable control over their level makes accruals an attractive source of additional funding.

A firm following an aggressive approach to working capital policy will finance all of the fixed assets with , and Some of the firm's permanent current assets will be financed with .

In terms of the cash conversion cycle, a restricted investment policy would tend to reduce the inventory conversion and receivables collection periods, which would result in a relatively short cash conversion cycle.

The cash conversion cycle is the sum of the inventory conversion period, the receivables collection period, and the payables deferral period.

The average length of time required to convert materials into finished products and sell that product is called the ____.

You have recently been hired to improve the performance of Multiplex Corporation which has been experiencing a severe cash shortage.As one part of your analysis, you want to determine the firm's cash conversion cycle.Using the following information and a 360-day year, what is your estimate of the firm's current cash conversion cycle? Current inventory = $120,000 Annual sales = $600,000 Accounts receivable = $160,000 Accounts payable = $25,000 Total annual purchases = $360,000 Purchases credit terms: net 30 days Receivables credit terms: net 50 days

The sale of inventory at cost for cash will increase the current assets for a firm.