Exam 14: Working Capital and Management of Current Assets

By efficiently managing the firm's operating and cash conversion cycles, the financial manager can maintain a high level of cash investment and thereby contribute toward maximization of share value.

Inventory insurance costs is an example of___________costs

Ideally a firm would like to have a

A positive cash conversion cycle means that the firm must obtain financing to support the cash conversion cycle.

When a firm initiates or increases a cash discount, the net effect on the accounts receivable investment is difficult to determine because the nondiscount takers paying earlier will reduce the accounts receivable investment, while the new customer accounts will increase this investment.

A firm is considering relaxing credit standards, which will result in annual sales increasing from$1.5 million to $1.75 million, the cost of annual sales increasing from $1,000,000 to $1,125,000, andthe average collection period increasing from 40 to 55 days. The bad debt loss is expected to increase from 1 percent of sales to 1.5 percent of sales. The firm's required return on investments is20 percent. The firm's cost of marginal investment in accounts receivable is__________ .

A firm's credit terms cover all of the following EXCEPT

The Steel Works, Inc. is required to carry a minimum of 40 days' raw steel, which is 250 tons. It takes 15 days between order and delivery. At what level of steel would Steel Works reorder?

The credit applicant's character includes all of the following EXCEPT

The____________ in current assets _____________ net working capital, thereby____________ the risk of technical insolvency.

The cash conversion cycle is the total number of days in the operating cycle less the average payment period for inputs to production.

A___________is an unsigned check drawn on one of the firm's bank accounts and deposited into itsaccount at another bank.

Safety stocks are extra inventories that can be drawn down when actual lead times and/or usage rates are greater than expected.

In the EOQ model,__________ costs are the fixed clerical cost of writing a purchase order, processing the paper work, and verifying the invoice.

___________float results from the delay between the time when a customer deducts a payment from the checking account ledger and the time when the vendor actually receives the funds in a spendable form.

A computerized inventory system that simulates needed materials requirements for the finishedproduct, and then compares production needs to available inventory balances to determine whenorders should be placed is the

The ___________financing strategy requires the firm to pay interest on excess funds borrowed but not needed throughout the entire year.

The entire process resulting from a check issue and mail by the payer company to the payeecompany (i.e., mail float, processing float, and clearing float) is disbursement float to the payercompany and is collection float to the payee company.

In theory, the conservative financing strategy ignores

In working capital management, risk is measured by the probability that a firm will become