Exam 14: Working Capital and Management of Current Assets

An increase in the average payment period will result in___________in the cash conversion cycle.

Flum Packages, Inc. Assets Liabilities \& Equity Current assets \ 10,000 Current Liabilities \ 5,000 Fixed assets 20,000 Long-term debt 12,000 Equity 13,000 ---- --- Total \3 0,000 Total \3 0,000 The company earns 5 percent on current assets and 15 percent on fixed assets. The firm's current liabilities cost 7 percent to maintain and the average annual cost of long-term funds is 20 percent. -If the firm was to shift $3,000 of current assets to fixed assets, the firm's net working capital would,___________ the annual profits on total assets would___________, and the risk of technical insolvency would___________, respectively.

D&B (the old Dun & Bradstreet) have developed an extensive database of financial and rating information on thousands of Canadian companies.

The firm's credit selection procedures must be established on a sound economic basis that considers the costs of investigating the creditworthiness of a customer and the expected size of its credit purchases.

Sound cash management techniques would support

In general, the more a firm's current assets cover its short-term obligations, the better able it will be to pay its bills as they come due.

If the cash discount period is increased, the firm's investment in accounts receivable due todiscount takers still getting cash discounts but paying later is expected to

The disposition of the financial manager, marketing manager, and manufacturing manager towardinventory levels is to keep them____________ , ____________, and____________ , respectively.

Improvements to cash management include all of the following EXCEPT a reduction in

A firm that is unable to pay its bills as they come due is technically insolvent.

If the cash discount period is increased, the firm's investment in accounts receivable due tonondiscount takers now paying earlier is expected to

A decrease in collection efforts will result in an increase in sales volume, an increase in the investment in accounts receivable, an increase in bad debt expenses, and a decrease in collection expenditures.

An increase in the average payment period will result in___________ in the operating cycle and___________in the cash conversion cycle.

A firm's credit____________ provides guidelines for determining whether to extend credit to a customer and how much credit to extend.

A customer sends payment to a post office box which is emptied by the firm's bank daily. The bank then processes the payments and notifies the firm of the day's collections. This collection technique is known as

The three basic types of inventory are all of the following EXCEPT

A firm is considering relaxing credit standards which will result in an increase in annual sales from$3 million to $3.75 million, a decrease in the cost of annual sales from $2,225,000 to $2,000,000, anincrease in additional profit contribution from sales of $10,000, and an increase in the average collection period of 15 days, from 20 to 35 days. The bad debt loss is expected to increase from 1 percent to 1.5 percent of sales. The firm's required return on investments is 15 percent. The net result of the firm relaxing its credit standards is ___________.

When managing accounts payable, a good strategy to employ which won't hurt your credit rating is to

In general, the more working capital a firm has,

Collection float is experienced by the payer and is a delay in the receipt of funds.