Exam 15: Working Capital and Current Assets Management

In working capital management, risk is measured by the probability that a firm will become

The ability to purchase production inputs on credit allows the firm to partially (or may be even totally) offset the length of time resources are tied up in the operating cycle.

A firm which uses the aggressive financing strategy plans to purchase a major fixed asset financed with a loan. The most likely consequence of this action is

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.

The aggressive financing strategy is ________ method while the conservative financing strategy is ________ method.

Table 15.4 Bowring Ball Bearings has 10 different items in its 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 -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. It takes 18 days to receive an order once it is placed. The reorder point is

Table 15.4 Bowring Ball Bearings has 10 different items in its 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 -In the EOQ model, ________ costs are the fixed clerical cost of writing a purchase order, processing the paper work, and verifying the invoice.

A firm has a cash conversion cycle of 60 days and average collection period of 40 days. The firm's operating cycle is ________ days.

The cash conversion cycle is the total number of days in the operating cycle less the average payment period for inputs to production.

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

If the firm's credit period is increased, the sales volume can be expected to ________, the investment in accounts receivable can be expected to ________, and the bad debt expenses can be expected to ________.

The difference between the number of days resources are tied up in the operating cycle and the number of days the firm can use spontaneous financing before payment is made is the

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's initial annual profits on total assets are ________. (See Table 15.2)

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

If the cash discount period is increased, the firm's investment in accounts receivable due to discount takers still getting cash discounts but paying later is expected to

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

The operating cycle is the amount of time the firm's cash is tied up between payment for production inputs and receipt of payment from the sale of the resulting finished product.

In the ABC system of inventory management, the ________ method or system is appropriate for monitoring B items.

If the firm's cash discount period is decreased or cancelled, the sales volume can be expected to ________, the bad debt expenses can be expected to ________, and the profit per unit can be expected to ________.

A firm has a cash conversion cycle of 120 days, an average collection period of 25 days, and an average payment period of 50 days. The firm's average age of inventory is ________ days.