Exam 16: Working Capital Policy and Short-term Financing

What is the length of the cash conversion cycle for a firm with annual sales (all cash) of $280,000, an inventory conversion period of 35 days, and a payables deferral period of 25 days.

Lenders normally feel that the relative risk associated with short-term debt is ____ the risk associated with long-term debt.

Explain trade credit.

Fluctuating current assets are those assets that are affected by:

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.

Under a conservative approach to working capital management, a firm tends to hold a relatively ____ proportion of its total assets in the form of current assets.

Many ____ contain provisions requiring firms to maintain a minimum net working capital provision.

A firm's working capital position is important since::

The length of the operating cycle for a firm is equal to the length of the

Cisco Systems wishes to analyze the joint impact of its working capital investment and financing policies on shareholder return. The company has $24 million in fixed assets. Cisco wishes to maintain a debt ratio of 40%. The company's tax rate is also 40%. The following information was developed for the two policies under consideration (dollars in millions): For the aggressive approach, Cisco's ROE is ____ and for the conservative approach the ROE is ____.

Tefft Industries has an average inventory of $170,000, sells on terms of 2/10, net 30, and its cost of sales is $540,000. What is Tefft's inventory conversion period?

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

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

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 have to borrow if it started the month with a cash balance of $52,000?

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

Runners Ink, Inc. had sales last year of $700,000 and 35 percent 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?

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

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

Barnes Company has highly seasonal sales and financing requirements. Barnes has made the following projections of its asset needs and net additions to retained earnings over the next year (in $ million). Net worth (equity) at the beginning of the year is $50 million. The company does not plan to sell any new equity during the coming year. Assume that Barnes follows a matching approach to finance its assets, i.e., long-term debt and equity are used to finance fixed and permanent current assets and short-term debt is used to finance fluctuating current assets. Determine the amount of long-term and short-term debt respectively outstanding at the end of the third quarter ($ million).

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 ____ risk of the firm encountering financial difficulties.