Exam 15: Working Capital and Current Assets Management

Short-term instruments issued by the Federal Home Loan Bank, the Federal National Mortgage Association, and the Federal Land Bank are examples of

When should credit standards be relaxed?

The philosophy of the ________ is that the firm would have only work-in-process inventory.

Inventory insurance costs are an example of ________ costs.

One of the key inputs to the final credit decision is the credit analyst's subjective judgment of a firm's creditworthiness since it can provide a better feel of a firm's operation than any quantitative figures.

Commercial paper is a short-term loan issued by commercial banks that have variable yields based on size, maturity, and prevailing money market conditions.

Ashley's Ad Agency's accounts receivable totaled $451,000 on January 30, 2003. An aging summary of receivables at this date follows: The firm extends 30-day credit terms to all its credit customers. (a) Prepare an aging schedule for Ashley's Ad Agency. (b) Evaluate the firm's collection performance.

The cash conversion cycle is the difference between the number of days resources are tied up in the operating cycle and the average number of days the firm can delay making payment on the production inputs purchased on credit.

As the ratio of current assets to total assets increases, the firm's risk increases.

________ is a procedure resulting in a number reflecting the applicant's credit strength, derived as a weighted average of the scores obtained on a variety of key financial and credit characteristics.

Nongovernmental issues typically have slightly higher yields than government issues with similar maturities due to the slightly ________ associated with them.

The ________ uses no, or very little, safety stock.

The ________ is the time period that elapses from the point when the firm sells a finished good on account to the point when the receivable is collected.

Because firms are unable to match cash inflows to outflows with certainty, most of them need current liabilities that more than cover outflows for current assets.

The depth of a market is determined by

Most federal agency issues have short maturities and offer slightly higher yields than U.S. Treasury issues having similar maturities.

The cost of marginal bad debts is found by multiplying the firm's opportunity cost by the difference between the level of bad debts before and after the relaxation of credit standards.

The effect of a decrease in the ratio of current assets to total assets and the effect of an increase in the ratio of current liabilities to total assets are increases in the firm's profits and, correspondingly, its risk.

________ float results from the delay between the time when a customer deducts a payment from the checking account ledger and the time when the vendor actually receives the funds in a spendable form.

The principal nongovernmental marketable securities are all of the following EXCEPT