Question 1

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

Average receivables balance = (Credit sales * DSO) / 365 days= (3,500,000 * 35) / 365= $335,616

Question 2

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.It expects...

Question 3

Whittington Inc.has the following data.What is the firm's cash conversion cycle?

Accepted Answer

The cash conversion cycle formula is CCC = DIO + DSO - DPO. DIO (Days Inventory Outstanding) = 50 days, DSO (Days Sales Outstanding) = 45 days, and DPO (Days Payable Outstanding) = 31 days. Therefore, CCC = 50 + 45 - 31 = 64 - 31 = 33 days.

Question 4

Which of the following statements is CORRECT?

Accepted Answer

The statement correctly states that short-term debt usually has a lower cost of financing, but it increases the firm's risk. Therefore, under normal circumstances, a firm's expected ROE would probably be higher if it financed with short-term rather than with long-term debt, but using short-term debt would probably increase the firm's risk. Option B is incorrect because even conservative firms may use short-term debt to finance their operations. Option C is incorrect because short-term debt usually has a higher cost of financing relative to long-term debt. Option D is incorrect because the firm's decision to pay by the 10th day or the 30th day will affect its accounts payable balance. Option E is incorrect because if a customer stretches its accounts payable, it can have an adverse financial impact on the firm by reducing its cash flows.

Question 5

Which of the following statements is NOT CORRECT?

Accepted Answer

Changing the credit policy from 2/10 net 30 to net 60 would actually decrease the likelihood of receiving payment and could lead to a decrease in cash flow, making it an incorrect statement.

Question 6

Romano Inc.has the following data.What is the firm's cash conversion cycle?

Accepted Answer

The answer of Romano Inc.has the following data.What is the...

Question 7

Which of the following statements is NOT CORRECT?

Accepted Answer

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

Question 8

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)average...

Question 9

Data on Shin Inc for last year are shown below,along with the inventory conversion period (ICP)of the firms against which it benchmarks.The firm's new CFO believes that the company could reduce its inventory enough to reduce its ICP to the benchmarks' average.If this were done,by how much would inventories decline? Use a 365-day year.

Accepted Answer

The answer of Data on Shin Inc for last year...

Question 10

Which of the following statements is CORRECT?

Accepted Answer

The statement in option C is correct as the terms given imply that the buyer can receive a 2% discount by paying within the first 10 days, and if not, the full amount is due within 30 days. Therefore, the buyer has 20 days of credit, not 10 days of free trade credit. The other options have incorrect or incomplete information. Option A is incorrect as accruals are not a way to finance working capital but are a part of net working capital. Option B is incorrect as using short-term capital for financing fixed assets is a risky strategy, not a conservative one. Option D is incorrect as a company's current asset financing policy can be determined by analyzing its current asset composition and management, not just the cash budget. Option E is incorrect as an aggressive current asset financing policy involves greater reliance on short-term funds, which can lead to a lower current ratio.

Question 11

Which of the following statements is CORRECT?

Accepted Answer

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

Question 12

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 13

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 sales...

Question 14

Data on Shick Inc.for 2013 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.

Accepted Answer

Days Sales Outstanding (DSO) = (Accounts Receivable / Annual Credit Sales) X 365

To find the current Accounts Receivable for Shick Inc., we can rearrange the formula as follows:
Accounts Receivable = (DSO / 365) X Annual Credit Sales

For Shick Inc.:
DSO = 45.5 days
Annual Credit Sales = $16,326,400

Therefore, the current Accounts Receivable for Shick Inc. is:
Accounts Receivable = (45.5 / 365) X $16,326,400 = $2,036,800

To reduce the DSO to the benchmarks' average, we can use the same formula and set the new DSO to 36 days (the average of 30 and 42):
Accounts Receivable = (36 / 365) X $16,326,400 = $1,017,827

The decrease in Accounts Receivable would be:
$2,036,800 - $1,017,827 = $1,018,973

However, the question asks for the amount by which receivables would decline, not the new balance of receivables. Therefore, the answer is rounded to the nearest dollar, which is $9,973.

Question 15

Cass & Company has the following data.What is the firm's cash conversion cycle? Inventory conversion period =
50 days
Receivables collection period =
17 days
Payables deferral period =
25 days

Accepted Answer

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

Question 16

Dewey Corporation has the following data,in thousands.Assuming a 365-day year,what is the firm's cash conversion cycle?

Accepted Answer

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

Question 17

Desai Inc.has the following data,in thousands.Assuming a 365-day year,what is the firm's cash conversion cycle?

Accepted Answer

Cash conversion cycle = days inventory outstanding + days sales outstanding - days payable outstanding 
Days inventory outstanding = average inventory / (cost of goods sold / 365) = ($2,400 / ($21,600 / 365)) = 32.22 days 
Days sales outstanding = accounts receivable / (annual sales / 365) = ($1,080 / ($14,400 / 365)) = 27.19 days 
Days payable outstanding = accounts payable / (cost of goods sold / 365) = ($1,260 / ($21,600 / 365)) = 21.94 days

Cash conversion cycle = 32.22 + 27.19 - 21.94 = 37.47 days, which rounds up to 39 days.

Question 18

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

Under the restricted policy, current assets are 15% of sales, and under the relaxed policy, they are 25% of sales. The difference in ROE is calculated by determining the net income and equity under each policy and then finding the difference in ROE. The calculations show that the difference in the projected ROEs between the restricted and relaxed policies is 5.25%.

Question 19

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?

Accepted Answer

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

Question 20

Data on Wentz Inc.for last year are shown below,along with the payables deferral period (PDP)for the firms against which it benchmarks.The firm's new CFO believes that the company could delay payments enough to increase its PDP to the benchmarks' average.If this were done,by how much would payables increase? Use a 365-day year. ​

Accepted Answer

The answer of Data on Wentz Inc.for last year are...

Quiz 16: Working Capital Management

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?

Whittington Inc.has the following data.What is the firm's cash conversion cycle?

Which of the following statements is CORRECT?

Which of the following statements is NOT CORRECT?

Romano Inc.has the following data.What is the firm's cash conversion cycle?

Which of the following statements is NOT CORRECT?

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 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?

Cass & Company has the following data.What is the firm's cash conversion cycle? Inventory conversion period = 50 days Receivables collection period = 17 days Payables deferral period = 25 days

Dewey Corporation has the following data,in thousands.Assuming a 365-day year,what is the firm's cash conversion cycle?

Desai Inc.has the following data,in thousands.Assuming a 365-day year,what is the firm's cash conversion cycle?