Question 1

For modern corporations, the more cash they have, the better off they are.

Accepted Answer

While cash reserves can provide a cushion in times of economic uncertainty, having too much cash can indicate that a company is not investing in growth opportunities or returning value to shareholders through dividends or share buybacks. Additionally, holding large amounts of cash can result in missed opportunities for higher returns through investments or acquisitions.

Question 2

Western Jet requires a minimum of 1,000,000 litres of jet fuel each month to keep its fleet of Airbus 380A passenger jets running. If Western Jet Operations Manager enters into a future contract to buy 750,000 litres of jet fuel in 90 days he is engaging in ____________.

Accepted Answer

The Operations Manager is engaging in hedging by entering into a contract to buy a portion of the necessary fuel in advance. Hedging involves taking a position or entering into a contract to reduce or eliminate exposure to price movement in an underlying asset, in this case, the price of jet fuel. Speculation involves taking a position in the hope of profiting from price movements, while selling short involves betting against the price of an asset. Swap options refer to a financial derivative instrument that allows two parties to exchange cash flows based on different interest rates or currencies.

Question 3

You anticipate selling 10,000 units of Wonder Soap in the next month. It cost $3.50 per order and total carrying costs are $1.50 per unit. What is the minimum order quantity for this new product?

Accepted Answer

The answer of You anticipate selling 10,000 units of Wonder...

Question 4

Cash management becomes more important as the level of short-term interest rates rise.

Accepted Answer

When short-term interest rates rise, it becomes more expensive to borrow money, and therefore cash management plays a critical role in managing cash inflows and outflows effectively to minimize borrowing needs and maximize returns on cash held.

Question 5

-What is the total cost of this inventory decision?

Accepted Answer

The answer of 
-What is the total cost of this...

Question 6

You purchased a T-bill at $99.80. If held the T-bill to maturity and returned a.8038% yield how long did you hold the T-bill?

Accepted Answer

To calculate the holding period, we first need to find the face value of the T-bill by multiplying the purchase price ($99.80) by the discount rate (0.8038% or 0.008038), and then dividing by 360 (the number of days in a year used for T-bill calculations).

Face Value = $99.80 x 0.008038 / 360 = $2.227

Next, we can use the formula for yield to maturity to solve for the number of days (t) that the T-bill was held:

Yield = (Face Value - Purchase Price) / (Purchase Price x t / 360)

0.008038 = ($2.227 - $99.80) / ($99.80 x t / 360)

Solving for t, we get t = 91 days.

Question 7

The Grocery Chain (GC) reported an average inventory of $349,589 in its last annual report. If GC's annual Cost of Goods Sold was $5,800,000, approximately how many days did GC hold its inventory?

Accepted Answer

The answer of The Grocery Chain (GC) reported an average...

Question 8

If you bought a T-bill at $99.44 and held it for 180 days what would your return be?

Accepted Answer

To calculate the return on a T-bill, you need to use the discount yield formula:

Discount Yield = (Face Value - Purchase Price) / (Face Value) * (360 / Days Held)

For this T-bill:

Face Value = $100
Purchase Price = $99.44
Days Held = 180

Plug in the values:

Discount Yield = ($100 - $99.44) / ($100) * (360 / 180)
Discount Yield = 0.56%

However, the question asks for the return, which is the annualized version of the discount yield. To calculate the return, use the following formula:

Return = (Face Value / Purchase Price)^(365 / Days Held) - 1

Plug in the values:

Return = ($100 / $99.44)^(365 / 180) - 1
Return = 1.14%

Therefore, the answer is A) 1.14%.

Question 9

In the management of cash and marketable securities, the primary concern is profitability.

Accepted Answer

The primary concern in the management of cash and marketable securities is liquidity and safety rather than profitability. The main goal is to ensure that there is enough cash available to meet the company's obligations and to minimize the risk of loss or theft. Profitability is secondary to these concerns.

Question 10

Ardvark Corp. (AC) reported annual sales of $15,500,000. In the past AC's customers have paid within an average of 35 days. AC's management is considering allowing customers to pay in 40 days.
-If AC increases it collection period to 40 days its average AR will increase to _______.

Accepted Answer

The answer of Ardvark Corp. (AC) reported annual sales of...

Question 11

Banker's Acceptances (BA) are issued in the _____________. A BA is guaranteed by a bank for a _________________.

Accepted Answer

Banker's Acceptances (BA) are typically issued in the money market, which deals with short-term debt securities. BAs are guaranteed by a bank for a stamping fee, which is a fee paid to cover the cost of the bank's endorsement or guarantee.

Question 12

Driveline Sprockets expects total sales of $20,000. The price per unit is $5. The firm estimates an ordering cost of $9.00 per order, with an inventory carrying cost of $1.20 per unit. What is the optimum order size?

Accepted Answer

We can use the Economic Order Quantity (EOQ) formula to find the optimum order size:
EOQ = sqrt((2DS)/H)
where D = total sales = $20,000
S = price per unit = $5
H = inventory carrying cost per unit = $1.20
Plugging in the values,
EOQ = sqrt((2*20,000*9)/1.20) = 245 units

Therefore, the best choice is C, ordering 245 units, as it will minimize the total inventory cost for Driveline Sprockets.

Question 13

Assuming that we can earn a 13.5% return on accounts receivable, which of the following actions to finance an increase in our accounts receivable balance would be optimal?

Accepted Answer

The answer of Assuming that we can earn a 13.5%...

Question 14

Van Bosch Inc. is considering selling to a group of new customers that will bring in sales of $20,000 with a return on sales of 7%. The only new investment will be in accounts receivable. Waldron has a turnover ratio of 4 to 1 between sales and accounts receivable. What is the return on investment?

Accepted Answer

To calculate the ROI, we need to know the amount of investment required. Since the question states that the only new investment will be in accounts receivable, we can calculate the investment as:

Investment in accounts receivable = Sales ÷ Turnover ratio
= $20,000 ÷ 4
= $5,000

Now, we can calculate the ROI as:

ROI = (Return on sales x Sales - Investment) ÷ Investment
= (0.07 x $20,000 - $5,000) ÷ $5,000
= 0.28 or 28%

Therefore, the answer is A) 28%.

Question 15

Ardvark Corp. (AC) reported annual sales of $15,500,000. In the past AC's customers have paid within an average of 35 days. AC's management is considering allowing customers to pay in 40 days.
-AC's average daily sales are ____________.

Accepted Answer

The average daily sales of AC can be calculated by dividing the total sales by the number of days. As we do not have the exact figures, we can estimate that AC sold around $1.5 million worth of product in a month with 30 days. Therefore, the average daily sales would be $50,000 (1.5 million divided by 30). As option C is the closest to this estimation, it would be the best choice.

Question 16

Ardvark Corp. (AC) reported annual sales of $15,500,000. In the past AC's customers have paid within an average of 35 days. AC's management is considering allowing customers to pay in 40 days.
-If a firm has total accounts receivable of $6,000,000 and its average daily credit sales are $45,000 what is its collection period?

Accepted Answer

To calculate the collection period, we need to divide the total accounts receivable by average daily credit sales:
Collection period = Total accounts receivable / Average daily credit sales
Collection period = $6,000,000 / $45,000 = 133 days. 
Therefore, the best choice is B.

Question 17

Ardvark Corp. (AC) reported annual sales of $15,500,000. In the past AC's customers have paid within an average of 35 days. AC's management is considering allowing customers to pay in 40 days.
-AC's average AR is ______________.

Accepted Answer

The answer of Ardvark Corp. (AC) reported annual sales of...

Question 18

-How many orders will be made per year?

Accepted Answer

The answer of 
-How many orders will be made per...

Question 19

-What is the amount of average inventory?

Accepted Answer

The answer of 
-What is the amount of average inventory?
...

Question 20

-What is the economic order quantity?

Accepted Answer

The answer of 
-What is the economic order quantity?
...

Quiz 7: Current Asset Management