Exam 16: Managing Short-Term Liabilities Financing

Jumpdisk Company writes checks averaging $15,000 a day, and it takes 5 days for these checks to clear.The firm also receives checks in the amount of $17,000 per day, but the firm loses three days while its receipts are being deposited and cleared.What is the firm's net float in dollars?

Borrowing and holding marketable securities are substitute financing alternatives, although the two strategies may have different costs.

Analyzing days sales outstanding (DSO) and the aging schedule are two common methods for monitoring receivables.However, they can provide erroneous signals to credit managers when

Aberwald Corporation Aberwald Corporation expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $200 per order; the purchase price per chip is $25; and the firm's inventory carrying cost is equal to 20 percent of the purchase price. (Assume a 360-day year.) -Refer to Aberwald Corporation.Assume that Aberwald holds a safety stock equal to a 30-day supply of chips. What is the maximum amount of inventory that Aberwald will have on hand at any time; that is, what will be the inventory level right after a delivery is made?

Aberwald Corporation Aberwald Corporation expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $200 per order; the purchase price per chip is $25; and the firm's inventory carrying cost is equal to 20 percent of the purchase price. (Assume a 360-day year.) -Refer to Aberwald Corporation.If Aberwald holds a safety stock equal to a 30-day supply of chips, what is its average inventory level?

The value of checks that have been written and disbursed but have not been deducted from the account on which they were written is the float.

Which of the following statements is correct?

Which of the following statements is correct?

Fullerton Wine Company is a retailer which sells vintage wines.The company has established a policy of reordering inventory every 30 days.A recently employed MBA has considered Fullerton's inventory problem from the EOQ model viewpoint.If the following constitute the relevant data, how does the current policy compare with the optimal policy? Ordering cost = $10 per order Carrying cost = 20% of purchase price Purchase price = $10 per unit Total sales for year = 1,000 units Safety stock = 0

The terms of credit include the length of the credit period and any cash discounts offered.

Target cash balances are generally not affected by compensating balance requirements except during periods of high interest rates and tight money.

Which of the following investments is not likely to be a proper investment for temporarily idle cash?

Two commonly used methods of monitoring receivables are the DuPont method and the aging schedule.

All else equal, firms that hold greater amounts of short-term assets are considered more risky than firms that hold grater amounts of long-term securities.

Which of the following is not a situation which might lead a firm to hold marketable securities:

Exchange rates influence a multinational firm's inventory policy because changing currency values can affect the value of inventory.

A firm's target cash balance should be set as the smaller of (1) its transaction balance plus a precautionary (safety stock) balance or (2) its required compensating balance.

A minimum checking account balance that a firm must maintain with bank to help offset the costs and services such as check clearing and cash management advice is called a balance.

If the forecasted sales or usage rate is not accurate, the EOQ model may not lead to efficient inventory management.

Firms hold cash balances in order to complete transactions that are necessary in business operations and as compensation to banks for providing loans and services.