FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 16: Supply Chains and Working Capital Management

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

True/False

Review LaterAdd Note

Review Later

The twin goals of inventory management are (1)to ensure that the inventories needed to sustain operations are available,but (2)to hold the costs of ordering and carrying inventories to the lowest possible level.

A) True
B) False

Correct Answer

verified

True

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following statements is CORRECT?

A) In managing a firm's accounts receivable, it is possible to increase credit sales per day yet still keep accounts receivable fairly steady, provided the firm can shorten the length of its collection period (its DSO) sufficiently.
B) Because of the costs of granting credit, it is not possible for credit sales to be more profitable than cash sales.
C) Since receivables and payables both result from sales transactions, a firm with a high receivables-to-sales ratio must also have a high payables-to-sales ratio.
D) Other things held constant, if a firm can shorten its DSO, this will lead to a higher current ratio.
E) A firm that makes 90% of its sales on credit and 10% for cash is growing at a constant rate of 10% annually. Such a firm will be able to keep its accounts receivable at the current level, since the 10% cash sales can be used to finance the 10% growth rate.

F) B) and D)
G) A) and D)

Correct Answer

verified

Show Answer

Question 3

True/False

Review LaterAdd Note

Firms hold cash balances in order to complete transactions (both routine and precautionary)that are necessary in business operations and as compensation to banks for providing loans and services.

If a firm busy on terms of 2/10 net 30,it should pay as early as possible during the discount period.

During the coming year,Gold & Gold wants to increase its free cash flow by $180 million,which should result in a higher EVA and stock price.The CFO has made these projections for the upcoming year: •EBIT is projected to equal $850 million. •Gross capital expenditures are expected to total to $360 million versus depreciation of $120 million,so its net capital expenditures should total $240 million. •The tax rate is 40%. •There will be no changes in cash or marketable securities,nor will there be any changes in notes payable or accruals. What increase in net working capital (in millions of dollars) would enable the firm to meet its target increase in FCF?

The longer its customers normally hold inventory,the longer the credit period supplier firms normally offer.Still,suppliers have some flexibility in the credit terms they offer.If a supplier lengthens the credit period offered,this will shorten the customer's cash conversion cycle but lengthen the supplier firm's own CCC.

A firm that follows an aggressive current asset financing approach uses primarily short-term credit and thus is more exposed to an unexpected increase in interest rates than is a firm that uses long-term capital and thus follows a conservative financing policy.

Noddings Inc.needs to raise more capital because its business is booming.The company purchases supplies on terms of 1/10 net 20,and it currently takes the discount.One way of getting the needed funds would be to forgo the discount,and the firm's owner believes she could delay payment to 40 days without adverse effects.What would be the effective annual percentage cost of funds raised by this action? (Assume a 365-day year.)

Frosty Corporation has the following data,in thousands.Assuming a 365-day year,what is the firm's cash conversion cycle? $\begin{array} { l l } \text { Angual sales } = & \$ 4,000 \\\text { Annual cost of goads sold } = & \$ 31,500 \\\text { Inventory } = & \$ 4,000 \\\text { Accaunts recervable } = & \$ 2,000 \\\text { Accaunts payable } = & 2,400\end{array}$

Net operating working capital is defined as operating current assets minus operating current liabilities..

The relative profitability of a firm that employs an aggressive current asset financing policy will improve if the yield curve changes from upward sloping to downward sloping.

Changes in a firm's collection policy can affect sales,working capital,and profits.

If the yield curve is upward sloping,then short-term debt will be cheaper than long-term debt.Thus,if a firm's CFO expects the yield curve to continue to have an upward slope,this would tend to cause the current ratio to be relatively low,other things held constant.

If a firm has a large percentage of accounts over 30 days old,this is proof positive that its receivables manager is not doing a good job.

The company you just started has been offered credit terms of 4/30,net 90 days.What will be the nominal annual percentage cost of its non-free trade credit if it pays 120 days after the purchase? (Assume a 365-day year.)

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.

Loans from commercial banks generally appear on balance sheets as notes payable.A bank's importance is actually greater than it appears from the dollar amounts shown on balance sheets because banks provide nonspontaneous funds to firms.

Which of the following is NOT a situation that might lead a firm to increase its holdings of short-term marketable securities?

Shorter-term cash budgets-say a daily cash budget for the next month-are generally used for actual cash control while longer-term cash budgets-say monthly cash budgets for the next year-are generally used for planning purposes.

Monar Inc.'s CFO would like to decrease its cash conversion cycle by 10 days (based on a 365 day year) .The company carries average inventory of $750,000.Its annual sales are $10 million,its cost of goods sold is 75% of annual sales,and its average collection period is twice as long as its inventory conversion period.The firm buys on terms of net 30 days,and it pays on time.The CFO believes he can reduce the average inventory to $647,260 with no effect on sales.By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of the cash conversion cycle?