Exam 15: Working Capital and Current Assets Management

________ is a method of consciously anticipating the mail, processing, and clearing time involved with the payment process.

A ________ is a telegraphic communication that, via bookkeeping entries, removes funds from the payer's bank and deposits them in an account of the payee's bank.

A firm's credit selection is the process of determining the minimum requirements for extending credit to a customer.

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 operating cycle is ________ days.

In general, the greater a firm's current assets relative to its short-term obligations, the better able it will be to pay its bills as they come due.

________ are not obligations of the U.S. Government, but most purchasers feel that they are implicitly guaranteed by the federal government.

The ________ inventory contains the basic components of the production process.

A technique that provides the analyst with the information concerning the proportion of each type of account that has been outstanding for a specified period of time is called

An increase in current assets increases net working capital, thereby reducing the risk of technical insolvency.

A(n) ________ in current assets ________ net working capital, thereby ________ the risk of technical insolvency.

A firm's credit terms cover all of the following EXCEPT

The ________ of a firm is the amount of time that elapses from the point when the firm makes an outlay to purchase raw materials to the point when cash is collected from the sale of the finished good.

The goal of a firm's cash management is to

The ________ of a firm is the amount of time that elapses from the point when the firm inputs material and labor into the production process to the point when cash is collected from the sale of the finished product that contains these production inputs.

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 firm's marginal profit contribution from sales under the proposed plan of initiating the cash discount? (See Table 15.7)

The aggressive financing strategy results in the firm financing its short-term needs with ________ funds and its long-term needs with ________ funds.

The disposition of the financial manager, marketing manager, and manufacturing manager toward inventory levels is to keep them ________, ________, and ________, respectively.

The credit applicant's character includes all of the following EXCEPT

In economic conditions characterized by short-term interest rates which exceed long-term interest rates, the financing strategy which would maximize profits is ________ strategy.

If the firm's credit period is decreased, 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 ________.