Question 1

Which of the following is NOT true about the flexible current asset investment strategy?

Accepted Answer

A)   The strategy promotes a liberal trade credit policy for customers.
B)   The strategy calls for management to invest large amounts in cash, short-term investments, and inventory.
C)   The strategy is perceived be a high-risk and high-return course of action for management to follow.
D)   The strategy's downside is the high inventory carrying cost.

Question 2

Which of the following statements is true?

Accepted Answer

A)   
B)   
C)   
D)   None of the above.

Question 3

A restrictive current asset investment strategy calls for

Accepted Answer

A)   levels of current assets kept to a minimum.
B)   a firm barely investing in cash, marketable securities and inventory.
C)   tight terms of sale intended to curb credit sales and accounts receivable.
D)   All of the above

Question 4

Trade credit, which is short-term financing, comes with an explicit interest charge.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is true?

Accepted Answer

A)   Financial shortage costs arise mainly from illiquidity-shortage of cash or a lack of marketable securities to sell for cash.
B)   Operating shortage costs result from lost production and sales.
C)   Operating shortage costs can be substantial, especially if the product markets are competitive.
D)   All of the above.

Question 6

Which of the following statements is NOT true?

Accepted Answer

A)   Firms using maturity matching strategy fund all working capital needs with long-term borrowing.
B)   Long-term financing strategy relies on long-term debt to finance both capital assets and working capital.
C)   All permanent working capital and fixed assets are funded with long-term debt when firms use a maturity matching strategy.
D)   Firms using a maturity matching strategy fund all seasonal working capital needs with short-term borrowing.

Question 7

The flexible current asset management strategy calls for management to invest large amounts in cash, short-term investments, and inventory.

Accepted Answer

A) True 
 B)False

Question 8

Trend Foods distributes its products to more than 100 restaurants and delis. The company's collection period is 32 days, and it keeps its inventory for 10 days. What is Trend's operating cycle?

Accepted Answer

A)   22 days
B)   32 days
C)   42 days
D)   None of the above

Question 9

The restrictive current asset management strategy is a high-risk, high-return alternative to a flexible strategy.

Accepted Answer

A) True 
 B)False

Question 10

Renald Corp. estimates that the company takes 27 days on average to pay off its suppliers. It also knows that it has days' sales in inventory of 43 days and days sales' outstanding of 45 days. What is its cash conversion cycle?

Accepted Answer

A)   61 days
B)   115 days
C)   57 days
D)   46 days

Question 11

The aging schedule shows the breakdown of the firm's accounts receivable by their date of sale.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is NOT true?

Accepted Answer

A)   Gross working capital is the funds invested in a company's current liabilities.
B)   Net working capital (NW
C)   refers to the difference between current assets and current liabilities.
C)   Working capital efficiency refers to the length of time between when a working capital asset is acquired and when it is converted into cash.
D)   Working capital management involves making decisions regarding the use and sources of current assets.

Question 13

West Handicrafts, Inc. has net sales of $423,000 with 30 percent of it being credit sales. Its cost of goods sold is $324,000. The firm's cash conversion cycle is 47.9 days. The firm's operating cycle is 86.3 days. What is the firm's accounts payable? Round to the nearest dollar. Do not round your intermediate calculations.

Accepted Answer

A)   $34,087
B)   $126,900
C)   $71,203
D)   $56,322

Question 14

The flexible current asset management strategy is perceived to be a high-risk and low-return course of action for management to follow.

Accepted Answer

A) True 
 B)False

Question 15

Under the maturity matching strategy, a firm funds all seasonal working capital needs with short-term borrowing.

Accepted Answer

A) True 
 B)False

Question 16

An offer of 3/10, net 40 means that the selling firm offers a 10 percent discount if the buyer pays the full amount of the purchase in cash within 3 days of the invoice date. Otherwise, the buyer has 40 days to pay the balance in full from the date of delivery.

Accepted Answer

A) True 
 B)False

Question 17

The operating cycle

Accepted Answer

A)   begins when a firm receives the raw materials that would be used to produce the goods that the firm manufactures.
B)   begins when a firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales.
C)   cannot be measured without knowing the days' payables outstanding.
D)   does not end with the finished goods being sold to customers and the cash collected on the sales; but when you take into account the time taken by the firm to pay for its purchases.

Question 18

Ticktock Clocks sells 10,000 alarm clocks each year. If the total cost of placing an order is $65 and it costs $85 per year to carry the alarm clock in inventory, calculate the optimal order size using the EOQ formula. Round your final answer to nearest whole number.

Accepted Answer

A)   124 clocks
B)   161 clocks
C)   15,294 clocks
D)   26,154 clocks

Question 19

Gibbs, Inc. has just set up a formal line of credit of $1 million with First National Bank. The line of credit is good for up to five years. The bank will be charging them an interest rate of 6.25 percent on the loan, and in addition the firm will pay an annual fee of 50 basis points on the unused balance. The firm borrowed $600,000 on the first day the credit line became available. What is the firm's effective interest rate on this line of credit? Round your final percentage answer to 2 decimal places.

Accepted Answer

A)   8.00%
B)   7.25%
C)   6.58%
D)   8.25%

Question 20

How does a just-in-time inventory management work?

Accepted Answer

In a just-in-time system, the exact day-...

Exam 14: Working Capital Management

Which of the following statements is true?

Correct Answer
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Renald Corp. estimates that the company takes 27 days on average to pay off its suppliers. It also knows that it has days' sales in inventory of 43 days and days sales' outstanding of 45 days. What is its cash conversion cycle?

Correct Answer
verified

The operating cycle

Correct Answer
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The restrictive current asset management strategy is a high-risk, high-return alternative to a flexible strategy.

Correct Answer
verified

The flexible current asset management strategy is perceived to be a high-risk and low-return course of action for management to follow.

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

Which of the following statements is NOT true?

Correct Answer
verified

An offer of 3/10, net 40 means that the selling firm offers a 10 percent discount if the buyer pays the full amount of the purchase in cash within 3 days of the invoice date. Otherwise, the buyer has 40 days to pay the balance in full from the date of delivery.

Correct Answer
verified

Correct Answer
verified

Trade credit, which is short-term financing, comes with an explicit interest charge.

Correct Answer
verified

The flexible current asset management strategy calls for management to invest large amounts in cash, short-term investments, and inventory.

Correct Answer
verified

Which of the following is NOT true about the flexible current asset investment strategy?

Correct Answer
verified

Which of the following statements is NOT true?

Correct Answer
verified

The aging schedule shows the breakdown of the firm's accounts receivable by their date of sale.

Correct Answer
verified

Under the maturity matching strategy, a firm funds all seasonal working capital needs with short-term borrowing.

Correct Answer
verified

Ticktock Clocks sells 10,000 alarm clocks each year. If the total cost of placing an order is $65 and it costs $85 per year to carry the alarm clock in inventory, calculate the optimal order size using the EOQ formula. Round your final answer to nearest whole number.

Correct Answer
verified

How does a just-in-time inventory management work?

Correct Answer
verified
In a just-in-time system, the exact day-...
View Answer

Correct Answer
verified

Trend Foods distributes its products to more than 100 restaurants and delis. The company's collection period is 32 days, and it keeps its inventory for 10 days. What is Trend's operating cycle?

Correct Answer
verified

A restrictive current asset investment strategy calls for

Correct Answer
verified

Exam 14: Working Capital Management

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Renald Corp. estimates that the company takes 27 days on average to pay off its suppliers. It also knows that it has days' sales in inventory of 43 days and days sales' outstanding of 45 days. What is its cash conversion cycle?

Correct AnswerverifiedShow Answer

The operating cycle

Correct AnswerverifiedShow Answer

The restrictive current asset management strategy is a high-risk, high-return alternative to a flexible strategy.

Correct AnswerverifiedShow Answer

The flexible current asset management strategy is perceived to be a high-risk and low-return course of action for management to follow.

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Which of the following statements is NOT true?

Correct AnswerverifiedShow Answer

An offer of 3/10, net 40 means that the selling firm offers a 10 percent discount if the buyer pays the full amount of the purchase in cash within 3 days of the invoice date. Otherwise, the buyer has 40 days to pay the balance in full from the date of delivery.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Trade credit, which is short-term financing, comes with an explicit interest charge.

Correct AnswerverifiedShow Answer

The flexible current asset management strategy calls for management to invest large amounts in cash, short-term investments, and inventory.

Correct AnswerverifiedShow Answer

Which of the following is NOT true about the flexible current asset investment strategy?

Correct AnswerverifiedShow Answer

Which of the following statements is NOT true?

Correct AnswerverifiedShow Answer

The aging schedule shows the breakdown of the firm's accounts receivable by their date of sale.

Correct AnswerverifiedShow Answer

Under the maturity matching strategy, a firm funds all seasonal working capital needs with short-term borrowing.

Correct AnswerverifiedShow Answer

Ticktock Clocks sells 10,000 alarm clocks each year. If the total cost of placing an order is $65 and it costs $85 per year to carry the alarm clock in inventory, calculate the optimal order size using the EOQ formula. Round your final answer to nearest whole number.

Correct AnswerverifiedShow Answer

How does a just-in-time inventory management work?

Correct AnswerverifiedIn a just-in-time system, the exact day-...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Trend Foods distributes its products to more than 100 restaurants and delis. The company's collection period is 32 days, and it keeps its inventory for 10 days. What is Trend's operating cycle?

Correct AnswerverifiedShow Answer

A restrictive current asset investment strategy calls for

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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Correct Answer
verified
In a just-in-time system, the exact day-...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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