Exam 15: Working Capital and Current Assets Management

A decrease in collection efforts will result in an increase in sales volume, an increase in the investment in accounts receivable, an increase in bad debt expenses, and a decrease in collection expenditures.

Jia's Jewelers has seasonal financing needs that vary from $250,000 to $2,725,000. The permanent financing requirement is $4,100,000. Check the appropriate box indicating the better strategy for each of the following events.

Under conservative financing strategy, short-term financing is used only to finance an emergency, an unexpected outflow of funds, and the variable portion of the firm's current assets.

Which of the following is true of a Eurodollar deposit?

Net working capital is defined as

A firm has an average age of inventory of 60 days, an average collection period of 45 days, and an average payment period of 30 days. The firm's cash conversion cycle is ________ days.

Table 15.7 Dizzy Animators, Inc. currently makes all sales on credit and offers no cash discount. The firm is considering a 3 percent cash discount for payment within 10 days. The firm's current average collection period is 90 days, sales are 400 films per year, selling price is $25,000 per film, variable cost per film is $18,750 per film, and the average cost per film is $21,000. The firm expects that the change in credit terms will result in a minor increase in sales of 10 films per year, that 75 percent of the sales will take the discount, and the average collection period will drop to 30 days. The firm's bad debt expense is expected to become negligible under the proposed plan. The bad debt expense is currently 0.5 percent of sales. The firm's required return on equal-risk investments is 20 percent. -What is the cost of marginal investment in accounts receivable under the proposed plan? (See Table 15.7)

Jia's Apple Farm uses 12,600 baskets a year for apple shipment. Determine the optimum order quantity of baskets assuming the order costs per order is $600 and it costs $2 to carry a unit of basket in inventory per period.

A firm is said to be technically insolvent when its total assets is less than its total liabilities and stockholders' equity.

A firm has an average age of inventory of 101 days, an average collection period of 49 days, and an average payment period of 60 days. The firm's cash conversion cycle is

The aggressive financing strategy is risky due to its minimum level of net working capital, high dependency on short-term sources of funds, and the changing short-term interest.

The market for a security should have both breadth and depth in order to minimize the amount of time required to convert it into cash.

An aging schedule breaks down accounts receivable into groups on the basis of the first letter of the name of the company that owes on the account.

The conversion of current assets from inventory to receivables to cash provides the ________ of cash used to pay the current liabilities, which represents a(n) ________ of cash.

When a firm decreases or cancels a cash discount, sales are expected to ________, the investment in accounts receivable is expected to ________, the bad debt expense is expected to ________, and the profit per unit is expected to ________.

The reorder point is an inventory management system that compares production needs to available inventory balances and determines when orders should be placed for various items on the firm's bill of materials.

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. -Accounts receivable over 90 days total ________. (See Table 15.6)

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. The chemical's economic order quantity is

When managing accounts payable, a good strategy to employ that won't hurt your credit rating is to

While credit scoring provides sound credit information, it is frequently NOT used in business because