Question 1

Which of the following statements is CORRECT?

Accepted Answer

The answer of Which of the following statements is CORRECT?
...

Question 2

Whittington Inc. has the following data. What is the firm's cash conversion cycle? Inventory conversion period = 41 days
Receivables collection period = 31 days
Payables deferral period = 38 days

Accepted Answer

The answer of Whittington Inc. has the following data. What...

Question 3

Which of the following statements is CORRECT?

Accepted Answer

Commercial paper is primarily used by large, strong, financially stable companies. This is because commercial paper is an unsecured, short-term financing option that is backed by the issuer's reputation and credit rating, rather than by collateral. As a result, investors are more likely to purchase commercial paper from companies with a strong credit rating and financial stability. Trade credit (A) can be provided to firms of all sizes, depending on the nature of the transaction. Short-term debt (C) may expose the borrowing firm to less risk than long-term debt in certain circumstances, but it is not favored by firms in general, as it can be more expensive than long-term debt. Commercial paper can be issued by virtually any firm (D) that meets certain credit and eligibility requirements. Commercial paper typically has a maturity of less than 270 days, and is not offered at a long-term maturity of at least five years (E).

Question 4

Singal Inc. is preparing its cash budget. It expects to have sales of $30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March?

Accepted Answer

The answer of Singal Inc. is preparing its cash budget....

Question 5

Which of the following statements is CORRECT?

Accepted Answer

A regular monthly cash budget may not accurately reflect cash flow timing if inflows and outflows occur at different times, which can be addressed with a daily cash budget.

Question 6

Inmoo Company's average age of accounts receivable is 45 days, the average age of accounts payable is 40 days, and the average age of inventory is 69 days. Assuming a 365-day year, what is the length of its cash conversion cycle?

Accepted Answer

The answer of Inmoo Company's average age of accounts receivable...

Question 7

Your firm's cost of goods sold (COGS) average $2,000,000 per month, and it keeps inventory equal to 50% of its monthly COGS on hand at all times. Using a 365-day year, what is its inventory conversion period?

Accepted Answer

The answer of Your firm's cost of goods sold (COGS)...

Question 8

Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is the firm's present cash conversion cycle? Average inventory = $75,000
Annual sales = $600,000
Annual cost of goods sold = $360,000
Average accounts receivable = $160,000
Average accounts payable = $25,000

Accepted Answer

The answer of Your consulting firm was recently hired to...

Question 9

Which of the following statements is NOT CORRECT?

Accepted Answer

The answer of Which of the following statements is NOT...

Question 10

Data on Shin Inc for 2008 are shown below, along with the inventory conversion period (ICP)Cost of goods sold = $85,000 Inventory = $20,000
Inventory conversion period (ICP)Benchmark inventory conversion period (ICP) = 38.00

Accepted Answer

The answer of Data on Shin Inc for 2008 are...

Question 11

Dewey Corporation has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle? Annual sales = $45,000
Annual cost of goods sold = $31,500
Inventory = $4,000
Accounts receivable = $2,000
Accounts payable = $2,400

Accepted Answer

The answer of Dewey Corporation has the following data, in...

Question 12

Data on Shick Inc. for 2008 are shown below, along with the days sales outstanding of the firms against which it benchmarks. The firm's new CFO believes that the company could reduce its receivables enough to reduce its DSO to the benchmarks' average. If this were done, by how much would receivables decline? Use a 365-day year. Sales $110,000
Accounts receivable $16,000
Days sales outstanding (DSO)Benchmarks' days sales outstanding (DSO) 20.00

Accepted Answer

To find the decline in receivables, calculate the current DSO and compare it to the benchmark. Current DSO = (Accounts Receivable / Sales) * 365 = (16,000 / 110,000) * 365 = 53.09 days. The benchmark DSO is 20 days. The target receivables = (Sales / 365) * Benchmark DSO = (110,000 / 365) * 20 = 6,027. Decline in receivables = Current Receivables - Target Receivables = 16,000 - 6,027 = 9,973.

Question 13

Which of the following statements is CORRECT?

Accepted Answer

The statement correctly explains the terms of 2/10, net 30, which means a 2% discount is available if the payment is made within 10 days, otherwise the total amount is due within 30 days.

Question 14

Which of the following statements is NOT CORRECT?

Accepted Answer

Changing the credit policy from 2/10, net 30 to net 60 would actually delay the collection of receivables, thus reducing cash flow from operations in the short term.

Question 15

Cass & Company has the following data. What is the firm's cash conversion cycle?

Accepted Answer

The answer of Cass & Company has the following data....

Question 16

Romano Inc. has the following data. What is the firm's cash conversion cycle? Inventory conversion period = 38 days
Receivables collection period = 19 days
Payables deferral period = 20 days

Accepted Answer

Cash conversion cycle = Inventory conversion period + Receivables collection period - Payables deferral period
= 38 + 19 - 20
= 37 days

Question 17

Data on Wentz Inc. for 2008 are shown below, along with the payables deferral period (PDP)Cost of goods sold = $75,000 Payables = $5,000
Payables deferral period (PDP)Benchmark payables deferral period = 30.00

Accepted Answer

The answer of Data on Wentz Inc. for 2008 are...

Question 18

Halka Company is a no-growth firm. Its sales fluctuate seasonally, causing total assets to vary from $320,000 to $410,000, but fixed assets remain constant at $260,000. If the firm follows a maturity matching (or moderate) working capital financing policy, what is the most likely total of long-term debt plus equity capital?

Accepted Answer

The answer of Halka Company is a no-growth firm. Its...

Question 19

Dyl Pickle Inc. had credit sales of $3,500,000 last year and its days sales outstanding was DSO = 35 days. What was its average receivables balance, based on a 365-day year?

Accepted Answer

The answer of Dyl Pickle Inc. had credit sales of...

Question 20

Edwards Enterprises follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed policy. The firm's annual sales are $400,000; its fixed assets are $100,000; its target capital structure calls for 50% debt and 50% equity; its EBIT is $35,000; the interest rate on its debt is 10%; and its tax rate is 40%. With a restricted policy, current assets will be 15% of sales, while under a relaxed policy they will be 25% of sales. What is the difference in the projected ROEs between the restricted and relaxed policies?

Accepted Answer

The answer of Edwards Enterprises follows a moderate current asset...

Quiz 16: Working Capital Management

Which of the following statements is CORRECT?

Whittington Inc. has the following data. What is the firm's cash conversion cycle? Inventory conversion period = 41 days Receivables collection period = 31 days Payables deferral period = 38 days

Which of the following statements is CORRECT?

Which of the following statements is CORRECT?

Inmoo Company's average age of accounts receivable is 45 days, the average age of accounts payable is 40 days, and the average age of inventory is 69 days. Assuming a 365-day year, what is the length of its cash conversion cycle?

Your firm's cost of goods sold (COGS) average $2,000,000 per month, and it keeps inventory equal to 50% of its monthly COGS on hand at all times. Using a 365-day year, what is its inventory conversion period?

Which of the following statements is NOT CORRECT?

Data on Shin Inc for 2008 are shown below, along with the inventory conversion period (ICP) Cost of goods sold = $85,000 Inventory = $20,000 Inventory conversion period (ICP) Benchmark inventory conversion period (ICP) = 38.00

Dewey Corporation has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle? Annual sales = $45,000 Annual cost of goods sold = $31,500 Inventory = $4,000 Accounts receivable = $2,000 Accounts payable = $2,400

Which of the following statements is CORRECT?

Which of the following statements is NOT CORRECT?

Cass & Company has the following data. What is the firm's cash conversion cycle?

Romano Inc. has the following data. What is the firm's cash conversion cycle? Inventory conversion period = 38 days Receivables collection period = 19 days Payables deferral period = 20 days

Data on Wentz Inc. for 2008 are shown below, along with the payables deferral period (PDP) Cost of goods sold = $75,000 Payables = $5,000 Payables deferral period (PDP) Benchmark payables deferral period = 30.00

Dyl Pickle Inc. had credit sales of $3,500,000 last year and its days sales outstanding was DSO = 35 days. What was its average receivables balance, based on a 365-day year?