Exam 19: Working Capital Policy and Short-Term Financing

Crystal Oil has $9 million in accounts payable, $1.8 million in salaries and taxes payable, and $10.4 in other current liabilities. If Crystal Oil had a cost of sales of $54 million and selling, general, and administrative expense of $18 million, what is the length of its payables deferral period?

Sources of debt financing are classified according to their ______.

The length of the operating cycle for a firm is equal to the length of the _____. I. payables deferral period. II. cash conversion cycle.

Borrowers (e.g., business firms) feel that there is more risk associated with short-term debt (as compared with long-term debt) because of the I. uncertainty arising from interest rate fluctuations II. risk of being unable to refund the debt III. relatively high cost of short-term debt

Working capital policy involves day-to-day decisions that determine all except which of the following?

If a firm uses only short-term debt to finance the fluctuating level of current assets, the firm is said to be using the ____ approach to asset financing.

The firm's receivables conversion period (measured in days) is equal to its accounts receivable divided by its ____.

All other things being equal, a policy of holding a relatively ____ proportion of the firm's total assets in the form of current assets will tend to result in a ____ expected profitability or rate of return on the total assets of the firm.

The ____ is the optimal working capital investment and financing policy.

Explain how a firm uses commercial paper as a short-term financing source and explain the disadvantage of using this form of financing.

Which of the following working capital financing policies subjects the firm to the greatest risk?

A firm's net working capital position is a widely used measure of its ____.

In considering factoring accounts receivable, which of the following statements is (are) correct? I. Maturity factoring occurs when the firm receives payment at the normal collection or due date of the factored accounts. II. Advance factoring occurs when the firm receives payment in prior to the normal collection or due date of the factored accounts.

The size of a firm's investment in current assets is a function of all except which of the following factors?

All other things being equal, a policy of financing its assets with a relatively ____ proportion of short-term debt will tend to result in ____ expected after-tax earnings for the firm.

The relationship among interest rates of debt securities that differ in their length of time to maturity is referred to as _____.

The rate of return on fixed assets is normally assumed to be ____ the rate of return on current assets (especially cash and marketable securities).

The firm's inventory conversion period (measured in days) is equal to its average inventory divided by its ____.

The ____ shows the time interval over which additional non-spontaneous sources of working capital financing must be obtained to carry out the firm's activities.

The ____ assets are those that are affected by the seasonal or cyclical nature of company sales.