Exam 14: Working Capital and Management of Current Assets

A decrease in collection efforts will result in_________ in sales volume, _________in the investment in accounts receivable,_________ in bad debt expenses, and_________ in collection expenditures.

Because firms are unable to match cash inflows to outflows with certainty, most of them need current liabilities that more than cover outflows for current assets.

An increase in accounts receivable turnover due to an increase in collection efforts will

When managing inventories, a good strategy is to increase inventory turnover by doing the following EXCEPT

Increased collection expenditures should reduce the investment in accounts receivable and bad debt expenses, increasing profits.

A firm with a cash conversion cycle of 175 days can stretch its average payment period from 30 days to 45 days. This will result in a(n)

As the ratio of current assets to total assets increases, the firm's risk increases.

The __________is the time period that elapses from the point when the firm makes the outlay to purchase raw materials on account to the point when payment is made to the supplier of the goods.

Cash inflows-that is, the conversion of the current assets to more liquid forms-are relatively predictable, but the cash outlays for current liabilities are difficult to predict.

The aggressive financing strategy is___________ method while the conservative financing strategy is___________method.

When the creditworthiness of a customer is established, the firm will grant that customer

By increasing collection expenditures, the firm can decrease bad debt losses up to a point, beyond which bad debts cannot be economically reduced. These inescapable bad debts are attributed to the firm's credit policy.

Too little current liability financing reduces profitability, whereas too much of this financing increases the risk of not being able to pay debts as they come due.

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

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. -The firm would like to increase its current ratio. This goal would be accomplished most profitably by

The reorder point is an inventory management system that compares production needs to available inventory balances and determines when orders should be placed for various items on the firm'sbill of materials.

In analyzing an applicant's creditworthiness, the credit manager typically gives primary attention to two of the five C's of credit-collateral and condition-since they represent the most basic requirements for extending credit to an applicant.

The purpose of managing current assets and current liabilities is to

The aggressive financing strategy results in the firm financing its short-term needs with___________ funds and its long-term needs with___________ _ funds.

A zero-balance account is a checking account in which a zero balance is maintained and the bank automatically covers all checks presented against the firm's account.