Exam 15: Working Capital and Current Assets Management

A firm can reduce its cash conversion cycle by

Zero-balance accounts are checking accounts in which a zero balance is maintained and the bank automatically covers all checks presented against the accounts.

The cost of marginal investment in accounts receivable can be calculated by finding the difference between the average investment in accounts receivable before and after the introduction of the changes in credit standards.

One major risk a firm assumes in an aggressive financing strategy is

Match each marketable security with its description. (a) Eurodollar deposit (b) Banker's acceptance (c) Federal agency issue (d) Commercial paper (e) Repurchase agreement (f) Treasury bill (g) Money market mutual fund (h) Negotiable certificate of deposit (i) Treasury note 1. _____ A short term, unsecured promissory note issued by a corporation. 2. _____ An obligation of the U.S. Treasury with common maturities of 91 to 182 days. 3. _____ A portfolio of marketable securities. 4. _____ An arrangement whereby a bank or securities dealer sells specific marketable securities to a firm and agrees to purchase them in the future. 5. _____ An obligation of the U.S. Treasury with mutual maturities of between one and seven years. 6. _____ Negotiable instrument evidencing the deposit of a certain number of dollars in a commercial bank. 7. _____ An instrument issued by the Federal National Mortgage Association. 8. _____ Funds deposited in banks located outside the U.S. and denominated in U.S. dollars. 9. _____ Short term credit arrangement used by businesses to finance transactions with foreign countries or firms with unknown credit capacities.

Delaying the payment of accounts payable in order to improve cash management is known as

Safety stocks are extra inventories that can be drawn down when actual lead times and/or usage rates are greater than expected.

Since Treasury bills are issued in bearer form, they are considered to be virtually risk-free.

If the level of bad debt attributable to credit policy is relatively constant, increasing collection expenditures can be expected to reduce bad debts.

An increase in the average payment period will result in ________ in the operating cycle.

In the aggressive financing strategy, a firm anticipating a large increase in sales should finance the increase in working capital with

Sound cash management techniques would support

An applicant's capacity to repay its requested credit can be found through

Because managing inventory is just like managing any other investment, decisions about the level of inventory should be guided by

A decrease in the average age of inventory will result in ________ in the cash conversion cycle.

The operating cycle is the recurring transition of a firm's working capital from cash to inventories and inventories to receivables and back to cash.

Certain financing plans are termed conservative when

________ is a short-term, unsecured promissory note issued by a corporation with a very high credit standing.

The yield on commercial paper is generally higher than the yield on

A firm's credit standard is a procedure for ranking of an applicant's overall credit strength, derived as a weighted average of scores on key financial and credit characteristics.