Exam 15: Working Capital and Current Assets Management

Table 15.6 A breakdown of Teffan, Inc.'s outstanding accounts receivable dated June 30, 2003 on the basis of the month in which the credit sale was initially made follows. The firm extends 30-day credit terms. -An increase in accounts receivable turnover due to an increase in collection efforts will

In the ABC system of inventory management, the ________ method or system could be utilized to control C items.

The net effect of changes in the cash discount period is quite difficult to analyze because they are directly attributable to the three forces affecting the firm's investment in accounts receivable.

A. Anthony & Sons Concrete Company has been offered by its bank to manage its cash at a cost of $35,000 per year. Under the proposed cash management, the firm can reduce the cash required on hand by $180,000. Since the bank is also doing a lot of record keeping, the firm's administrative cost would decrease by $2,000 per month. What recommendation would you give the firm with respect to the proposed cash management assuming the firm's opportunity cost is 12 percent?

Disbursement float is experienced by the payee and is a delay in the actual withdrawal of funds.

The firm's financing requirements can be separated into

A popular extension of materials requirement planning is inventory integration automation II, which integrates data from numerous areas such as finance, accounting, marketing, engineering, and manufacturing using a sophisticated computer system.

The Hedge Company has an average age of inventory of 65 days, an average collection period of 60 days and an average payment period of 65 days. The firm's total annual outlays for operating cycle investments are $3.65 million. Assuming a 365-day year, how much negotiated financing is required to support it cash conversion cycle?

The basic strategies that should be employed by the business firm in managing cash include all of the following EXCEPT

A relaxation of credit standards is expected to affect profits positively due to lower carrying costs whereas tightening credit standards would affect profits negatively as a result of higher carrying costs.

Table 15.2 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 ________. (See Table 15.2)

A firm has an average age of inventory of 20 days, an average collection period of 30 days, and an average payment period of 60 days. The firm's cash conversion cycle is ________ days.

The aggressive financing strategy is a strategy by which the firm finances its current assets with short-term funds and its fixed assets with long-term funds.

A firm with highly unpredictable sales revenue would best choose ________ financing strategy to minimize risk.

Company ________ are the procedures followed to collect accounts receivable when they come due.

A decrease in the current asset to total asset ratio has the effects of ________ on profits and ________ on risk.

The more predictable a firm's cash inflows, the more net working capital it will need.

Table 15.1 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 long-term funds. (e) The firm's monthly current, fixed and total asset requirements for the previous year are summarized in the table below: -The firm's initial ratio of current to total asset is ________. (See Table 15.1)

Funds on deposit at commercial banks having variable maturities and yields based on size, maturity, and prevailing money market conditions are

Ted's Sheds has ten different items in its finished goods inventory. The average number of units held in inventory and the average unit cost are listed for each item. The firm uses an ABC system of inventory control. (a) Which items should be considered to be in the A category of an ABC system of inventory? (b) Which items should be considered to be in the B category of an ABC system of inventory?