Exam 14: Working Capital and Management of Current Assets

A firm has an operating cycle of 120 days, an average collection period of 40 days, and an averagepayment period of 30 days. The firm's average age of inventory is_________ days.

A firm with a very low current ratio in comparison to the industry standard could lower the risk of unavailable short-term funds by moving toward__________ financing strategy.

Irish Air Services has determined several factors relative to its asset and financing mix. A. The firm earns 10 percent annually on its current assets. B. The firm earns 20 percent annually on its fixed assets. C. The firm pays 13 percent annually on current liabilities. D. The firm pays 17 percent annually on longterm funds. E. The firm's monthly current, fixed and total asset requirements for the previous year are summarized in the table below: Month Current Assets Fixed Assets Total Assets January \ 45,000 \ 100,000 \ 145,000 February 40,000 100,000 140,000 March 50,000 100,000 150,000 April 55,000 100,000 155,000 May 60,000 100,000 160,000 June 75,000 100,000 175,000 July 75,000 100,000 175,000 August 75,000 100,000 175,000 September 60,000 100,000 160,000 October 55,000 100,000 155,000 November 50,000 100,000 150,000 December 50,000 100,000 150,000 -The firm's annual financing costs of the aggressive financing strategy is__________

Disbursement float has all of the following basic components EXCEPT

A firm's credit standard is a procedure for ranking of an applicant's overall credit strength, derived as a weighted average of scores on key financial and credit characteristics.

In the EOQ model, if carrying costs increase while all other costs remain unchanged, the number oforders placed would be expected to

An increase in accounts receivable turnover due to an increase in collection efforts will decrease the firm's marginal investment in accounts receivable.

Since its objective is to minimize inventory investment, a Just-in-Time (JIT) system uses no, or very few, safety stocks.

Current liabilities can be viewed as

The conservative financing strategy is a strategy by which the firm finances at least its seasonal requirements, and possibly some of its permanent requirements, with short-term funds and the balance of its permanent requirements with long-term funds.

Irish Air Services has determined several factors relative to its asset and financing mix. A. The firm earns 10 percent annually on its current assets. B. The firm earns 20 percent annually on its fixed assets. C. The firm pays 13 percent annually on current liabilities. D. The firm pays 17 percent annually on longterm funds. E. The firm's monthly current, fixed and total asset requirements for the previous year are summarized in the table below: Month Current Assets Fixed Assets Total Assets January \ 45,000 \ 100,000 \ 145,000 February 40,000 100,000 140,000 March 50,000 100,000 150,000 April 55,000 100,000 155,000 May 60,000 100,000 160,000 June 75,000 100,000 175,000 July 75,000 100,000 175,000 August 75,000 100,000 175,000 September 60,000 100,000 160,000 October 55,000 100,000 155,000 November 50,000 100,000 150,000 December 50,000 100,000 150,000 -The firm's monthly average seasonal funds requirement is_________

In the EOQ model, the total cost is minimized at the point where the order costs and carrying costs are equal.

The ___________of a firm is the amount of time that elapses from the point when the firm makes anoutlay to purchase raw materials to the point when cash is collected from the sale of the finished good.

The major variables that should be considered when evaluating proposed changes in creditstandards are all of the following EXCEPT

The aggressive strategy operates with minimum net working capital since only the permanent portion of the firm's current assets is being financed with long-term funds.

A decrease in the average age of inventory will result in__________in the cash conversion cycle.

Irish Air Services has determined several factors relative to its asset and financing mix. A. The firm earns 10 percent annually on its current assets. B. The firm earns 20 percent annually on its fixed assets. C. The firm pays 13 percent annually on current liabilities. D. The firm pays 17 percent annually on longterm funds. E. The firm's monthly current, fixed and total asset requirements for the previous year are summarized in the table below: Month Current Assets Fixed Assets Total Assets January \ 45,000 \ 100,000 \ 145,000 February 40,000 100,000 140,000 March 50,000 100,000 150,000 April 55,000 100,000 155,000 May 60,000 100,000 160,000 June 75,000 100,000 175,000 July 75,000 100,000 175,000 August 75,000 100,000 175,000 September 60,000 100,000 160,000 October 55,000 100,000 155,000 November 50,000 100,000 150,000 December 50,000 100,000 150,000 -The firm's monthly average permanent funds requirement is____________

Net working capital is defined as

The General Chemical Company uses 150,000 gallons of hydrochloric acid per month. The cost of carrying the chemical in inventory is 50 cents per gallon per year, and the cost of ordering the chemical is $150 per order. The firm uses the chemical at a constant rate throughout the year. The chemical's economic order quantity is

The conservative financing strategy results in financing all projected funds requirements with __________funds and use of __________funds in the event of an unexpected cash outflow.