Question 1

Use the following information for the question(s) below.
Wyatt Oil has the following accounts on its books:  Rearden extends credit on terms of 1/15, net 30.
-The percentage of Wyatt's receivables that are still eligible to take the discount is closest to:

Accepted Answer

A)  20.1%
B)  32.1%
C)  38.3%
D)  42.2%

Question 2

Which of the following statements is FALSE?

Accepted Answer

A)  The main components of net working capital are cash, inventory, receivables, and payables.
B)  The firm's cash cycle is the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product.
C)  Working capital includes the cash that is needed to run the firm on a day-to-day basis. It does not include excess cash, which is cash that is not required to run the business and can be invested at a market rate.
D)  If the firm pays cash for its inventory, the firm's operating cycle is identical to the firm's cash cycle.

Question 3

Use the following information to answer the question(s) below:
Rearden Metal (RM) had $120 million in sales in 2009. Its cost of goods sold was $85, and its average inventory balance was $15 million.
-The industry average days of inventory is 75 days. The amount that Rearden would have to increase/decrease its inventory in order to match the industry average is closest to:

Accepted Answer

A)  decrease inventory by 2.2 million
B)  increase inventory by 2.2 million
C)  increase inventory by 2.5 million
D)  increase inventory by 4.2 million

Question 4

Your firm purchases goods from its supplier on terms of 2/10, net 45. Calculate the effective annual cost to your firm if it chooses not to take advantage of the trade discount offered.

Accepted Answer

The difference in days = 45 - ...

Question 5

Wyatt Oil purchases goods from its suppliers on terms 3/20 net 40. The effective annual cost to Wyatt if they do not take the discount and pay on day 50 is closest to:

Accepted Answer

A)  18%
B)  45%
C)  75%
D)  82%

Question 6

The amount of cash a firm needs to be able to pay its bills is sometimes referred to as a(n) :

Accepted Answer

A)  operating balance.
B)  compensating balance.
C)  transactions balance.
D)  precautionary balance.

Question 7

Describe "just-in-time" inventory management.

Accepted Answer

Some firms seek to reduce their carrying...

Question 8

Which of the following statements is FALSE?

Accepted Answer

A)  Similar to the situation with its accounts receivable, a firm should monitor its accounts payable to ensure that it is making its payments at an optimal time.
B)  Some firms ignore the payment due period and pay later, in a practice referred to as pushing the accounts payable.
C)  Suppliers may react to a firm whose payments are always late by imposing terms of cash on delivery (CO
D)  or cash before delivery (CB
D)  .
D)  If the accounts payable outstanding is 40 days and the terms are 2/10, net 30, the firm can conclude that it generally pays late and may be risking supplier difficulties.

Question 9

Hammond's net working capital in 2009 is closest to:

Accepted Answer

A)  $2.3 million
B)  $3.8 million
C)  $6.5 million
D)  $10.5 million

Question 10

Your firm purchases goods from its supplier on terms of 1/10, net 30. The effective annual cost to your firm if it chooses not to take advantage of the trade discount offered is closest to:

Accepted Answer

A)  16.8%
B)  44.6%
C)  20.1%
D)  13.0%

Question 11

Which of the following statements is FALSE?

Accepted Answer

A)  A firm's cash cycle is the length of time between when the firm pays cash to purchase its initial inventory and when it receives cash from the sale of the output produced from that inventory.
B)  The longer a firm's cash cycle, the more working capital it has, and the more cash it needs to carry to conduct its daily operations.
C)  Most firms buy their inventory on credit, which increases the amount of time between the cash investment and the receipt of cash from that investment.
D)  Any reduction in working capital requirements generates a positive free cash flow that the firm can distribute immediately to shareholders.

Question 12

Use the following information for the question(s) below.
Wyatt Oil has the following accounts on its books:  Rearden extends credit on terms of 1/15, net 30.
-The percentage of Wyatt's receivables that are current is closest to:

Accepted Answer

A)  32.1%
B)  38.3%
C)  42.2%
D)  61.7%

Question 13

The term 2/10 net 30 means:

Accepted Answer

A)  If the invoice is paid within 10 days a 2% discount can be taken. If the invoice is paid between 11 and 29 days a 1% discount can be taken. After 30 days the full invoice is due.
B)  If the invoice is paid within 2 days a 10% discount can be taken, otherwise the full invoice is due in 30 days.
C)  If the invoice is paid within 2 days a 10% discount can be taken, otherwise a 2% discount can be taken if the invoice is paid in 30 days.
D)  If the invoice is paid within 10 days a 2% discount can be taken, otherwise the full invoice is due in 30 days. D

Question 14

The difference between a firm's operating cycle and its cash cycle is:

Accepted Answer

A)  there is no difference between the cash and operating cycles.
B)  its account receivable days.
C)  its accounts payable days.
D)  its inventory days.

Question 15

Which of the following money market investments is a short-term debt obligations of the U.S. government?

Accepted Answer

A)  Treasury Bill
B)  Repurchase Agreement
C)  Commercial Paper
D)  Certificates of Deposit (C
D)  
E)  Banker's Acceptance

Question 16

Hammond's cash conversion cycle in 2009 is closest to:

Accepted Answer

A)  22 days
B)  44 days
C)  58 days
D)  66 days

Question 17

Wyatt Oil purchases goods from its suppliers on terms 3/20 net 40. The effective annual cost to Wyatt if they do not take the discount and pay on day 40 is closest to:

Accepted Answer

A)  18%
B)  45%
C)  75%
D)  82% C

Question 18

Which one of the following is NOT one of the three steps involved in establishing a credit policy?

Accepted Answer

A)  Establishing credit payment patterns
B)  Establishing credit standards
C)  Establishing a collection policy
D)  Establishing credit terms

Question 19

Use the following information to answer the question(s) below:
Rearden Metal (RM) had $120 million in sales in 2009. Its cost of goods sold was $85, and its average inventory balance was $15 million.
-1. The average number of inventory days outstanding for Rearden is closest to:

Accepted Answer

A)  6 days
B)  8 days
C)  37 days
D)  64 days

Question 20

Goldsboro Industries has an average accounts payable balance of $680,000. Its annual cost of goods sold is $4,500,000, and it receives terms of 1/10, net 40 from its suppliers. Goldsboro chooses to forgo this discount. Is Goldsboro managing its accounts payables well?

Accepted Answer

The firm is not managing its accounts payables well. Goldsboro's days payable outstanding is  = 55.16 days. They are over the term of 40 days offer by their suppliers. Goldsboro is stretching the terms of the credit agreement and risks having problems with their suppliers as a result.

Exam 26: Working Capital Management

Use the following information for the question(s) below. Wyatt Oil has the following accounts on its books: Rearden extends credit on terms of 1/15, net 30. -The percentage of Wyatt's receivables that are still eligible to take the discount is closest to:

Correct Answer
verified

Which of the following statements is FALSE?

Correct Answer
verified

Correct Answer
verified

Your firm purchases goods from its supplier on terms of 2/10, net 45. Calculate the effective annual cost to your firm if it chooses not to take advantage of the trade discount offered.

Correct Answer
verified
The difference in days = 45 - ...
View Answer

Wyatt Oil purchases goods from its suppliers on terms 3/20 net 40. The effective annual cost to Wyatt if they do not take the discount and pay on day 50 is closest to:

Correct Answer
verified

The amount of cash a firm needs to be able to pay its bills is sometimes referred to as a(n) :

Correct Answer
verified

Describe "just-in-time" inventory management.

Correct Answer
verified
Some firms seek to reduce their carrying...
View Answer

Which of the following statements is FALSE?

Correct Answer
verified

Hammond's net working capital in 2009 is closest to:

Correct Answer
verified

Your firm purchases goods from its supplier on terms of 1/10, net 30. The effective annual cost to your firm if it chooses not to take advantage of the trade discount offered is closest to:

Correct Answer
verified

Which of the following statements is FALSE?

Correct Answer
verified

Use the following information for the question(s) below. Wyatt Oil has the following accounts on its books: Rearden extends credit on terms of 1/15, net 30. -The percentage of Wyatt's receivables that are current is closest to:

Correct Answer
verified

The term 2/10 net 30 means:

Correct Answer
verified
D

The difference between a firm's operating cycle and its cash cycle is:

Correct Answer
verified

Which of the following money market investments is a short-term debt obligations of the U.S. government?

Correct Answer
verified

Hammond's cash conversion cycle in 2009 is closest to:

Correct Answer
verified

Wyatt Oil purchases goods from its suppliers on terms 3/20 net 40. The effective annual cost to Wyatt if they do not take the discount and pay on day 40 is closest to:

Correct Answer
verified
C

Which one of the following is NOT one of the three steps involved in establishing a credit policy?

Correct Answer
verified

Use the following information to answer the question(s) below: Rearden Metal (RM) had $120 million in sales in 2009. Its cost of goods sold was $85, and its average inventory balance was $15 million. -1. The average number of inventory days outstanding for Rearden is closest to:

Correct Answer
verified

Goldsboro Industries has an average accounts payable balance of $680,000. Its annual cost of goods sold is $4,500,000, and it receives terms of 1/10, net 40 from its suppliers. Goldsboro chooses to forgo this discount. Is Goldsboro managing its accounts payables well?

Exam 26: Working Capital Management

Use the following information for the question(s) below. Wyatt Oil has the following accounts on its books: Rearden extends credit on terms of 1/15, net 30. -The percentage of Wyatt's receivables that are still eligible to take the discount is closest to:

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Your firm purchases goods from its supplier on terms of 2/10, net 45. Calculate the effective annual cost to your firm if it chooses not to take advantage of the trade discount offered.

Correct AnswerverifiedThe difference in days = 45 - ...View AnswerShow Answer

Wyatt Oil purchases goods from its suppliers on terms 3/20 net 40. The effective annual cost to Wyatt if they do not take the discount and pay on day 50 is closest to:

Correct AnswerverifiedShow Answer

The amount of cash a firm needs to be able to pay its bills is sometimes referred to as a(n) :

Correct AnswerverifiedShow Answer

Describe "just-in-time" inventory management.

Correct AnswerverifiedSome firms seek to reduce their carrying...View AnswerShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Hammond's net working capital in 2009 is closest to:

Correct AnswerverifiedShow Answer

Your firm purchases goods from its supplier on terms of 1/10, net 30. The effective annual cost to your firm if it chooses not to take advantage of the trade discount offered is closest to:

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Use the following information for the question(s) below. Wyatt Oil has the following accounts on its books: Rearden extends credit on terms of 1/15, net 30. -The percentage of Wyatt's receivables that are current is closest to:

Correct AnswerverifiedShow Answer

The term 2/10 net 30 means:

Correct AnswerverifiedD

The difference between a firm's operating cycle and its cash cycle is:

Correct AnswerverifiedShow Answer

Which of the following money market investments is a short-term debt obligations of the U.S. government?

Correct AnswerverifiedShow Answer

Hammond's cash conversion cycle in 2009 is closest to:

Correct AnswerverifiedShow Answer

Wyatt Oil purchases goods from its suppliers on terms 3/20 net 40. The effective annual cost to Wyatt if they do not take the discount and pay on day 40 is closest to:

Correct AnswerverifiedC

Which one of the following is NOT one of the three steps involved in establishing a credit policy?

Correct AnswerverifiedShow Answer

Use the following information to answer the question(s) below: Rearden Metal (RM) had $120 million in sales in 2009. Its cost of goods sold was $85, and its average inventory balance was $15 million. -1. The average number of inventory days outstanding for Rearden is closest to:

Correct AnswerverifiedShow Answer

Goldsboro Industries has an average accounts payable balance of $680,000. Its annual cost of goods sold is $4,500,000, and it receives terms of 1/10, net 40 from its suppliers. Goldsboro chooses to forgo this discount. Is Goldsboro managing its accounts payables well?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The difference in days = 45 - ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Some firms seek to reduce their carrying...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
D

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified