Exam 16: The Management of Working Capital Multiple Choice Questions

You are going to place an order with a new supplier. You have been offered terms of 2/10 net 60 from the date your supplies are shipped. The cost of borrowing from your bank is 16 percent (annual rate). What is the best course of action in paying the supplier?

Assume the following facts about a firm: Antulal cost to maint ain a lock box \1 ,500 system Cost to processs each check \0 .15 Average amount of each check received \1 ,500 Number of checks received per year 4,000 Interest rate on borrowed funds 8.0\% Would a lock box system that reduces check clearing time from six to three days be justified?

A short average collection period (ACP) could indicate that the firm:

Calculate the effective interest rate of a 2/5, net 25 terms of sale, using a 365-day year.

The policy variables a firm can use to control the level of receivables include:

Which of the following factors does not directly affect the firm's investment in working capital?

Working capital represents assets that support day-to-day operating activities. Funding working capital requires:

CNN Corporation needs $750,000 and plans to borrow from its bank under the terms of its line-of-credit arrangement. These terms call for a minimum compensating balance of 12 percent. How much will CNN have to borrow to obtain the needed cash?

The operating cycle is _____.

A firm's total investment in accounts receivable at any point in time is determined by:

The primary objective of offering a cash discount is to:

Terms of sale of 2/10 net 30 mean:

Possible sources of information about a credit applicant include:

Which of the following is true of commitment fees?

All of the following are components of carrying costs except:

Which of the following is not considered working capital?

____ are liquid investments that can be held instead of cash and earn a modest return.

Short-term loans are generally used to:

A revolving-credit agreement between a firm and its bankers:

A revolving credit agreement: