Question 1

Which of the following actions would be likely to shorten the cash conversion cycle?

Accepted Answer

A)   Adopt a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20 days to 10 days.
B)   Change the credit terms offered to customers from 3/10, net 30 to 1/10, net 50.
C)   Begin to take discounts on inventory purchases; we buy on terms of 2/10, net 30.
D)   Adopt a new manufacturing process that saves some labor costs but slows down the conversion of raw materials to finished goods from 10 days to 20 days.
E)   Change the credit terms offered to customers from 2/10, net 30 to 1/10, net 60.F) A) and B)
G) None of the above

Question 2

Ingram Office Supplies, Inc., buys on terms of 2/15, net 50 days. It does not take discounts, and it typically pays on time, 50 days after the invoice date. Net purchases amount to $450,000 per year. On average, what is the dollar amount of costly trade credit (total credit - free credit)  the firm receives during the year? (Assume a 365-day year, and note that purchases are net of discounts.)

Accepted Answer

A)   $43,151
B)   $45,308
C)   $47,574
D)   $49,952
E)   $52,450F) C) and D)
G) All of the above

Question 3

Trade credit can be separated into two components: free trade credit, which is credit received after the discount period ends, and costly trade credit, which is the cost of discounts not taken.

Accepted Answer

A) True 
 B)False

Question 4

If a firm buys on terms of 2/10, net 30, it should pay as early as possible during the discount period to lower its cost of trade credit.

Accepted Answer

A) True 
 B)False

Question 5

Data on Shick Inc. for 2011 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

A)   $ 8,078
B)   $ 8,975
C)   $ 9,973
D)   $10,970
E)   $12,067F) B) and E)
G) D) and E)

Question 6

Which of the following statements is NOT CORRECT?

Accepted Answer

A)   A company may hold a relatively large amount of cash and marketable securities if it is uncertain about its volume of sales, profits, and cash flows during the coming year.
B)   Credit policy has an impact on working capital because it influences both sales and the time before receivables are collected.
C)   The cash budget is useful to help estimate future financing needs, especially the need for short-term working capital loans.
D)   If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10, net 30 to net 60.
E)   Managing working capital is important because it influences financing decisions and the firm's profitability.F) D) and E)
G) A) and B)

Question 7

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

A)   $335,616
B)   $352,397
C)   $370,017
D)   $388,518
E)   $407,944F) C) and E)
G) B) and E)

Exam 15: Working Capital

Correct Answer
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Correct Answer
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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?

Correct Answer
verified

If a firm buys on terms of 2/10, net 30, it should pay as early as possible during the discount period to lower its cost of trade credit.

Correct Answer
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Which of the following actions would be likely to shorten the cash conversion cycle?

Correct Answer
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Which of the following statements is NOT CORRECT?

Correct Answer
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Trade credit can be separated into two components: free trade credit, which is credit received after the discount period ends, and costly trade credit, which is the cost of discounts not taken.

Correct Answer
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Exam 15: Working Capital

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

If a firm buys on terms of 2/10, net 30, it should pay as early as possible during the discount period to lower its cost of trade credit.

Correct AnswerverifiedShow Answer

Which of the following actions would be likely to shorten the cash conversion cycle?

Correct AnswerverifiedShow Answer

Which of the following statements is NOT CORRECT?

Correct AnswerverifiedShow Answer

Trade credit can be separated into two components: free trade credit, which is credit received after the discount period ends, and costly trade credit, which is the cost of discounts not taken.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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