Exam 14: Working Capital and Management of Current Assets

Delaying the payment of accounts payable in order to improve cash management is known as

An increase in the current asset to total asset ratio has the effects of _________on profits and_________on risk.

Mail float is the delay between the deposit of a check by a payee and the actual availability of the funds.

A firm has arranged for a lockbox system to reduce the collection time of accounts receivable.Currently the firm has an average collection period of 43 days, an average age of inventory of 50days, and an average payment period of 10 days. The lockbox system will reduce the average collection period by 3 days by reducing processing, mail, and clearing float. The firm's cash conversion cycle .

A firm has a cash conversion cycle of 60 days. Annual outlays are $12 million and the cost of negotiated financing is 12 percent. If the firm reduces its average age of inventory by 10 days, the annual savings is __________.

Dizzy Animators, Inc. currently makes all sales on credit and offers no cash discount. The firm is considering a 3 percent cash discount for payment within 10 days. The firm's current average collection period is 90 days, sales are 400 films per year, selling price is $25,000 per film, variable cost per film is $18,750 per film, and the average cost per film is $21,000. The firm expects that the change in credit terms will result in a minor increase in sales of 10 films per year, that 75 percent of the sales will take the discount, and the average collection period will drop to 30 days. The firm's bad debt expense is expected to become negligible under the proposed plan. The bad debt expense is currently 0.5 percent of sales. The firm's required return on equal-risk investments is 20 percent. -What is the cost of marginal investment in accounts receivable under the proposed plan?

A firm can reduce its cash conversion cycle by

A lockbox system is used to reduce collection float by shortening all three basic float components(i.e., mail, processing, and clearing).

The cash management techniques are aimed at minimizing the firm's financing requirements by taking advantage of certain imperfections in the collection and payment system.

A decrease in the current liabilities to total assets ratio has the effects of__________ on profits and__________on risk.

____________float results from the lapse between the time when a firm deducts a payment from its checking account ledger and the time when funds are actually withdrawn from its account.

In economic conditions characterized by a scarcity of short-term funds, a firm would best choose the___________ financing strategy.

Which of the following is NOT one of the four C's of credit?

The cash conversion cycle is the amount of time that elapses from the point when the firm inputs materials and labor into the production process to the point when cash is collected from the sale of the resulting finished product.

Working capital represents the portion of the firm's investment that circulates from one form toanother in the long-term conduct of business.

Caren's Canoes is considering relaxing its credit standards to encourage more sales. As a result, sales are expected to increase 15 percent from 300 canoes per year to 345 canoes per year. The average collection period is expected to increase to 40 days from 30 days and bad debts are expected to double the current 1 percent level. The price per canoe is $850, the variable cost per canoe is $650 and the average cost per unit at the 300 unit level is $700. The firm's required return on investment is 20 percent. -What is the cost of marginal investments in accounts receivable under the proposed plan?

A firm is said to be technically insolvent when its total assets is less than its total liabilities and stockholders' equity.

If the firm's cash discount period is increased, the sales volume can be expected to__________ , thebad debt expenses can be expected to__________ , and the profit per unit can be expected to ___________.

A firm's credit policy generally includes determining credit selection, credit terms, and collection.

Disbursement float is experienced by the payee and is a delay in the actual withdrawal of funds.