Exam 19: Working Capital Policy and Short-Term Financing

Great Skot expects to have cash receipts in June of $532,160. Skot's cash disbursements in June are $581,720, including an interest payment on a bond issue of $32,000. If Skot wishes to maintain a cash balance of $40,000, how much will Skot need to borrow if it started the month with a cash balance of $52,000?

Which of the following assets (if any) are not part of a firm's working capital investment?

Which of the following factors does not directly affect the firm's level of investment in working capital?

Cryo-vac expects sales to increase 20% next year from the current level of $5,000,000. The firm has current assets of $1,000,000 and fixed assets of $1,500,000. Cryo-vac has current liabilities of $750,000, of which $300,000 are in notes payable. What additional financing will Cryo-vac need to support the expected sales increase if its profit margin is 8% and the firm expects to pay out $200,000 in dividends? An increase in net fixed assets of $300,000 will be required.

A firm's operating cycle is equal to its ______. I. inventory conversion period plus receivables conversion period II. cash conversion cycle minus payables deferral period

Which of the following factors affect the firm's level of investment in working capital?

Commercial paper is _____.

Explain trade credit.

Laserscope Inc. is trying to determine the best combination of short-term and long-term debt to employ in financing its assets. Laserscope will have $16 million in current assets and $20 million in fixed assets next year and expects operating income (EBIT) to be $4.1 million. The company's tax rate is 40%, and its debt ratio is 50%. The firm's debt will be financed by one of the following policies: Amount of Interestrate Financing policy Short-term debt LTD (\%) STD (\%) Aggressive \ 12 11.0 7.5 Conservative 6 10.3 7.0 ? What is the return on shareholder's equity under each policy?

Fluctuating current assets are those assets that are affected by _____.

The relationship between the maturity of debt and its associated cost (interest rate) is referred to as _____.

The size and nature of a firm's investment in current assets is a function of a number of several different factors, including all except which of the following?

Linear Technology had sales (all on credit) of $36 million and a gross profit margin of 30% last year. If Linear Technology's inventory averaged $3.9 million, and its accounts receivable were $5.0 million, what was the length of its operating cycle?

Negotiated short-term credit sources are all except which of the following?

A firm's cash conversion cycle is equal to its operating cycle minus its ____.

Historically, the yield curve generally had a ____ slope, which indicates that long-term interest rates usually have been ____ short-term interest rates.

What are accrued expenses and how are they handled as unsecured short-term credit?

Runners Ink, Inc. had sales last year of $700,000, and 35% of its sales are for cash, with the remainder buying on terms of net 30 days. If the receivables conversion period is actually 38 days, what is Runners Ink's accounts receivable?

In examining the term structure of interest rates, the interest rates of ____ have exceeded short-term rates.

Renfro Industries' balance sheet for December 31, 2016, is as follows: Assets (\ million) Liabilities and Equity (\ million) Cash \ 8,000 Accounts Payable \ 36,000 Marketable Securities 4,000 Notes Payable 12,000 Accounts Receivable 60,000 Other Current Liabilities 32,000 Inventories 100,000 Long-term debt 80,000 Plant \& Equipment 220,000 Preferred Stock 48,000 Less: Depreciation 64,000 Common Stock 20,000 Net Plant \& Equipment 156,000 Paid-in Surplus 40,000 Retained Earnings 60,000 Total Assets \3 28,000 Total Claims \3 28,000 ? What is Renfro's net working capital at the end of 2016?