Question 1

What is the cash conversion cycle for Ridge Company? Round your final answers to one decimal place.

Accepted Answer

The answer of What is the cash conversion cycle for...

Question 2

The flexible current asset investment strategy

Accepted Answer

The flexible current asset investment strategy involves maintaining high levels of current assets relative to sales, which includes investing significantly in cash, short-term investments, inventory, and often results in high levels of accounts receivable. This approach is generally considered to be lower risk, as it provides a buffer against uncertainties, but it may also lead to lower returns due to the higher costs associated with maintaining these assets.

Question 3

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

The answer of West Handicrafts, Inc. has net sales of...

Question 4

Which of the following statements is NOT true?

Accepted Answer

An informal line of credit is not a special type of collateralized loan. It is simply a verbal agreement between a firm and a bank regarding the amount of money the firm can borrow.

Question 5

A restrictive current asset investment strategy calls for

Accepted Answer

A restrictive current asset investment strategy involves keeping current assets at a minimum, barely investing in cash, marketable securities, and inventory, and implementing tight terms of sale to reduce credit sales and accounts receivable.

Question 6

Which of the following statements about working capital trade-off is NOT true?

Accepted Answer

If carrying costs are smaller than shortage costs, the firm will minimize costs and maximize value by adopting a more flexible strategy rather than a more restrictive one.

Question 7

Wolfgang Electricals estimates that the company takes 31 days on average to pay off its suppliers. It also knows that it has days' sales in inventory of 54 days and days sales' outstanding of 34 days. What is its cash conversion cycle?

Accepted Answer

The cash conversion cycle (CCC) can be calculated as:

CCC = Days inventory outstanding + Days sales outstanding - Days payable outstanding

Substituting in the given values:

CCC = 54 + 34 - 31 
CCC = 57

Therefore, the answer is (C) 57 days.

Question 8

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

Accepted Answer

The flexible current asset investment strategy is generally considered a low-risk approach because it involves maintaining high levels of current assets to meet any unexpected demands. This contradicts the high-risk and high-return description.

Question 9

Kearns, Inc. sells its goods with terms of 3/15 EOM, net 60. What is the implicit cost of the trade credit? Do not round your intermediate calculations, and round your final answer to the nearest whole percent.

Accepted Answer

The answer of Kearns, Inc. sells its goods with terms...

Question 10

Senter Corp. sells its goods with terms of 2/10 EOM, net 30. What is the implicit cost of the trade credit? Round your final percentage answer to 2 decimal places. Do not round your intermediate calculations.

Accepted Answer

2/10 EOM, net 30 means that the customer can take a 2% discount if they pay within 10 days, otherwise the full amount is due in 30 days. 
To calculate the implicit cost of the trade credit, we need to calculate the cost of not taking the discount and paying within 30 days. 
The formula for this is: 
(Discount % / (100% - Discount %)) x (365 / (Full allowed payment days - Discount days)) = Implicit annual rate 
(2 / (100 - 2)) x (365 / (30 - 10)) = 44.59%

Therefore, the implicit cost of the trade credit is 44.59%.
The best choice is C.

Question 11

A restrictive current asset management strategy is a high-risk, high-return alternative to a flexible strategy because of

Accepted Answer

A restrictive current asset management strategy involves keeping low levels of current assets, which can lead to financial shortage costs if unexpected expenses or investments arise. This high-risk approach can also lead to high returns if the company's investments are successful, but it is not recommended for all businesses. Production and human resources shortage costs are not directly related to current asset management strategies.

Question 12

Which of the following statements is true of economic order quantity (EOQ)?

Accepted Answer

All of the given statements are true of economic order quantity (EOQ). The EOQ model helps in determining the minimum total inventory cost by considering both the inventory carrying costs and inventory reorder costs. Moreover, the optimal order size is determined by the EOQ model, which helps in efficient inventory management.

Question 13

The aging schedule

Accepted Answer

All of the above are true statements about the aging schedule. The aging schedule is used to show the breakdown of a company's accounts receivable by their date of sale, to track delinquent accounts and ensure they are paid, and as an important financial tool for analyzing the quality of a company's receivables.

Question 14

Your boss asks you to compute the company's cash conversion cycle. Looking at the financial statements, you see that the average inventory for the year was $126,300, accounts receivable were $97,900, and accounts payable were at $115,100. You also see that the company had credit sales of $324,000 and that cost of goods sold was $282,000. What is your firm's cash conversion cycle? Round to the nearest day.

Accepted Answer

The answer of Your boss asks you to compute the...

Question 15

Operating shortage costs that result from lost production and sales are caused by

Accepted Answer

All of the above options can cause operating shortage costs that result from lost production and sales. Not holding enough raw materials in inventory can lead to production delays or shutdowns, causing lost sales. Running out of finished goods can also lead to lost sales. Restrictive credit policies can prevent customers from being able to purchase products, leading to reduced sales and lost production.

Question 16

Which of the following statements about just-in-time inventory management policy is NOT true?

Accepted Answer

Just-in-time inventory management policy aims to reduce inventory costs by only ordering materials when they are needed, thereby reducing the risk of obsolescence or loss due to theft. Therefore, statement C that suggests high raw inventory costs is not true, making it the correct answer. Statements A and B are true, while statement D is partially true since it reduces the risk of obsolescence or theft but does not guarantee their elimination.

Question 17

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

The cash conversion cycle is calculated as Days Sales Outstanding (45) + Days Sales in Inventory (43) - Days Payable Outstanding (27) = 61 days.

Question 18

Which of the following statements about working capital trade-off is true?

Accepted Answer

Financial managers need to balance the costs associated with carrying too much working capital (carrying costs) against the costs associated with not holding enough working capital (shortage costs) in order to find an optimal management strategy. If carrying costs are greater than shortage costs, then the firm will maximize value by adopting a more restrictive strategy. On the other hand, if shortage costs dominate carrying costs, the firm will need to move toward a more flexible policy. Therefore, all of the above statements are true.

Question 19

Which of the following statements is true?

Accepted Answer

All of the given statements are true. Financial shortage costs arise due to a shortage of cash or marketable securities, while operating shortage costs arise due to lost production and sales. Competitive product markets can add to the substantial operating shortage costs.

Question 20

Which of the following statements is NOT true of economic order quantity (EOQ)?

Accepted Answer

The EOQ model specifically considers both inventory reorder costs and inventory carrying costs to determine the optimal order quantity that minimizes total inventory costs.

Quiz 14: Working Capital Management