Exam 16: The Management of Working Capital Multiple Choice Questions

You plan to place an order with a new supplier. You have been offered terms of 2/10, net 50 from the date your supplies are shipped. The cost of borrowing from the bank is 15 percent on an annual basis. What is the best course of action in paying the supplier, assuming the firm will need to borrow if it takes the discount?

If a firm were to issue $5 million of commercial paper with a maturity of six months at an interest rate of 10%, the paper would sell at issue date for:

Which of the following working capital financing policies subjects the firm to the greatest risk?

Which of the following is true regarding pledged receivables?

Seasonal peaks in business are supported by:

If a bank lends at 10% but requires a 12% compensating balance, what is the effective interest rate on the loan?

The average collection period measures the:

Functions that can be performed by a factor include:

Increasing collection expenditures is likely to result in:

Childers, Inc. operates primarily in the Southeast but has a number of customers in Phoenix who remit about 8,000 checks a year. The average check is $2,400. It currently takes the Phoenix checks an average of seven days after mailing to clear into Childers' account. A Phoenix bank has offered Childers a lock box system for $2,400 a year plus $.22 per check. This will reduce the clearing time for the checks to four days. How much will the lock box system save Childers if it borrows at 11%?

Traditional reasons for holding cash DO NOT include:

A $3 million revolving credit agreement charges a commitment fee of .3% on unborrowed funds. The borrowing company owed nothing at the beginning of April, and during the month made only one take-down on the fifteenth. The commitment fee for April was $562.50. How much did the firm borrow on the fifteenth?

Which of the following credit and collections decisions would typically not increase the accounts receivable balance?

In a field warehouse arrangement for a loan against inventory:

Which of the following will cause working capital to increase?

The gross working capital is equivalent to ____.

The ____ says the term of financing should match the duration of the item or project supported.

What is the effective rate on an 8% loan subject to a 10% minimum compensating balance

Which of the following statements related to trade credit is true?

Economic Order Quantity (EOQ) increases with an increase in ____.