Q&A Hero

Q: Ticktock Clocks sells 10,000 alarm clocks each year. If the total cost of placing an order is $65 and it costs $85 per year to carry the alarm clock in inventory, calculate the optimal order size using the EOQ formula. Round your final answer to nearest whole number.A) 124 clocksB) 161 clocksC) 15,294 clocksD) 26,154 clocks

Q: How many orders will the dealer need to place this year? Round your answer to the whole number. A) 4 orders B) 5 orders C) 6 orders D) 7 orders

Q: What is the number of cars per order? Round your final answer to the nearest whole number.A) 80 carsB) 101carsC) 58 carsD) 113 cars

Q: Which of the following statements about just-in-time inventory management policy is NOT true?A) It calls for the exact day-by-day, or even hour-by-hour raw material needs to be delivered by the suppliers.B) If the supplier fails to make the needed deliveries, then production shuts down.C) A big disadvantage in this system is that there are high raw inventory costs.D) It eliminates obsolescence or loss to theft.

Q: Which of the following statements is NOT true of economic order quantity (EOQ)? A) The economic order quantity (EOQ) mathematically determines the minimum total inventory cost. B) The EOQ ignores inventory reorder costs and inventory carrying costs. C) The optimal order size is determined by the EOQ model. D) The EOQ is directly proportional to the sales per period.

Q: Which of the following statements is true of economic order quantity (EOQ)? A) The EOQ mathematically determines the minimum total inventory cost. B) The EOQ takes into account inventory reorder costs and inventory carrying costs. C) The optimal order size is determined by the EOQ model. D) All of the above

Q: Kearns, Inc. sells its goods with terms of 3/15 EOM, net 60. What is the implicit cost of the trade credit? Round your final answer to the nearest whole percent. Do not round your intermediate calculations. A) 15% B) 45% C) 34% D) 28%

Q: 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.A) 18.50%B) 30.00%C) 44.59%D) 21.89%

Q: Which of the following statements is NOT true? A) Accounts payable (trade credit), bank loans, and commercial paper are common sources of short-term financing. B) An informal line of credit is a verbal agreement between the firm and the bank, allowing the firm to borrow up to an agreed-upon limit. C) An informal line of credit is a special type of collateralized loan. D) A formal line of credit is also known as "revolving credit."

Q: The aging schedule A) shows the breakdown of a firm's accounts receivable by their date of sale. B) identifies and then tracks delinquent accounts to see that they are paid. C) is an important financial tool for analyzing the quality of a company's receivables. D) All of the above.

Q: Which of the following statements about working capital trade-off is NOT true? A) Financial managers need to balance shortage costs against carrying costs to find an optimal management strategy. B) If carrying costs are smaller than shortage costs, then the firm will maximize value by adopting a more restrictive strategy. C) If shortage costs dominate carrying costs, the firm will need to move toward a more flexible policy. D) Management will try to find the level of current assets that minimizes the sum of the carrying costs and shortage costs.

Q: Which of the following statements about working capital trade-off is true? A) Financial managers need to balance shortage costs against carrying costs to find an optimal management strategy. B) If carrying costs are greater than shortage costs, then the firm will maximize value by adopting a more restrictive strategy. C) If shortage costs dominate carrying costs, the firm will need to move toward a more flexible policy. D) All of the above

Q: Operating shortage costs that result from lost production and sales are caused by A) not holding enough raw materials in inventory. B) running out of finished goods. C) restrictive credit policies. D) All of the above.

Q: Which of the following statements is true? A) Financial shortage costs arise mainly from illiquidityshortage of cash or a lack of marketable securities to sell for cash. B) Operating shortage costs result from lost production and sales. C) Operating shortage costs can be substantial, especially if the product markets are competitive. D) All of the above.

Q: The restrictive current asset management strategy is a high-risk, high-return alternative to the flexible strategy because of A) financial shortage costs. B) production shortage costs. C) human resources shortage costs. D) None of the above

Q: A restrictive current asset investment strategy calls for A) levels of current assets kept to a minimum. B) a firm barely investing in cash, marketable securities and inventory. C) tight terms of sale intended to curb credit sales and accounts receivable. D) All of the above

Q: Which of the following is NOT true about the flexible current asset investment strategy? A) The strategy promotes a liberal trade credit policy for customers. B) The strategy calls for management to invest large amounts in cash, short-term investments, and inventory. C) The strategy is perceived be a high-risk and high-return course of action for management to follow. D) The strategy's downside is the high inventory carrying cost.

Q: The flexible current asset investment strategy A) has a high percent of current assets to sales, is generally perceived to be a low-risk and low-return course of action. B) calls for management to invest large amounts in cash, short-term investments, and inventory. C) leads to high levels of accounts receivable. D) All of the above

Q: 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.A) $34,087B) $126,900C) $71,203D) $56,322

Q: 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.A) 119 daysB) 34 daysC) 57 daysD) 125 days

Q: 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? A) 61 days B) 115 days C) 57 days D) 46 days

Q: 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? A) 119 days B) 34 days C) 57 days D) 46 days

Q: What is the cash conversion cycle for Ridge Company? Round your final answers to one decimal place. A) 83.5 days B) 38.3 days C) 129.9 days D) 46.4 days

Q: What is the operating cycle for Ridge Company? Round your final answer to the nearest whole number.A) 47 daysB) 85 daysC) 36 daysD) 51 days

Q: All Stars, Inc. has inventory of $44,233 and cost of goods sold of $512,902. The company has an operating cycle of 74 days. What is the firm's days' sales outstanding (DSO)? Round your answers to the nearest whole number.A) 43 daysB) 32 daysC) 49 daysD) 26 days

Q: Le Baron Company, a men's designer firm, has an operating cycle of 123 days. The firm's days' sales in inventory is 73 days. How much does the firm have in receivables if it has credit sales of $433,450? Round your final answer to the nearest dollar.A) $59,377B) $71,252C) $47,501D) $64,233

Q: Stamp, Inc. has an operating cycle of 81 days and takes 47 days to collect on its receivables. What is its level of inventory if the firm's cost of goods sold is $312,455? Round your final answer to the nearest dollar.A) $9,190B) $14,685C) $29,105D) $69,339

Q: Trend Foods distributes its products to more than 100 restaurants and delis. The company's collection period is 32 days, and it keeps its inventory for 10 days. What is Trend's operating cycle?A) 22 daysB) 32 daysC) 42 daysD) None of the above

Q: Which of the following statements is NOT true?A) B) C) Both A and BD) None of the above

Q: Which of the following statements is true?A) B) C) D) None of the above.

Q: Which of the following statements is true when managing working capital accounts? A) Maintain minimal raw material inventories without causing manufacturing delays. B) Use as little labor as possible to manufacture the product while producing a quality product. C) Delay paying accounts payable as long as possible without suffering any penalties. D) All of the above are true.

Q: The operating cycle A) begins when a firm receives the raw materials that would be used to produce the goods that the firm manufactures. B) begins when a firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales. C) cannot be measured without knowing the days' payables outstanding. D) does not end with the finished goods being sold to customers and the cash collected on the sales; but when you take into account the time taken by the firm to pay for its purchases.

Q: Which of the following statements is NOT true? A) The cash conversion cycle begins when a firm invests cash to purchase the raw materials that would be used to produce the goods that the firm manufactures. B) The cash conversion cycle begins when the firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales. C) To measure the cash conversion cycle, we need another measure called the days' payables outstanding. D) The cash conversion cycle ends not with the finished goods being sold to customers and the cash collected on the sales; but when you take into account the time taken by a firm to pay for its purchases.

Q: The cash conversion cycle A) shows how long a firm keeps its inventory before selling it. B) begins when a firm invests cash to purchase the raw materials that would be used to produce the goods that the firm manufactures. C) begins when a firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales. D) estimates how long it takes on average for a firm to collect its outstanding accounts receivable balance.

Q: Which of the following is the equation for net working capital? A) Total assets " total liabilities B) Current assets " current liabilities C) Current assets / current liabilities D) Total assets / total liabilities

Q: Which of the following statements is NOT true? A) If cash balances become too small, it may lead the firm to bankruptcy. B) The lower the cash balance, the better the ability of a firm to meet its short-term financial obligations. C) The level of the cash balance has no bearing on a firm's ability to meet its short-term financial obligations. D) The downside of holding too much cash is that the returns on cash are low.

Q: Which of the following statements is NOT true? A) Gross working capitalis the funds invested in a company's current liabilities. B) Net working capital (NWC) refers to the difference between current assets and current liabilities. C) Working capital efficiency refers to the length of time between when a working capital asset is acquired and when it is converted into cash. D) Working capital managementinvolves making decisions regarding the use and sources of current assets.

Q: A factor is an individual or financial institution that buys accounts receivable without recourse. A) True B) False

Q: An informal line of credit is short term debt promissory notes issued by large financial firms. A) True B) False

Q: Short term funding strategy calls for all seasonal working capital and a portion of the permanent working capital and fixed assets to be funded with short-term debt. A) True B) False

Q: Under the maturity matching strategy, a firm funds all seasonal working capital needs with short-term borrowing. A) True B) False

Q: A lockbox system allows geographically dispersed customers to send their payments to a post office box close to them. A) True B) False

Q: Float is the time taken by a credit customer to pay the firm. A) True B) False

Q: A firm that employs just-in-time management has to increase its investment in working capital. A) True B) False

Q: The conflict between carrying costs and shortage costs is called the working capital trade-off. A) True B) False

Q: The aging schedule shows the breakdown of the firm's accounts receivable by their date of sale. A) True B) False

Q: Trade credit is a cheap loan from the supplier. A) True B) False

Q: An offer of 3/10, net 40 means that the selling firm offers a 10 percent discount if the buyer pays the full amount of the purchase in cash within 3 days of the invoice date. Otherwise, the buyer has 40 days to pay the balance in full from the date of delivery. A) True B) False

Q: Trade credit, which is short-term financing, comes with an explicit interest charge. A) True B) False

Q: If carrying costs are less than shortage costs, then the firm will maximize value by adopting a more restrictive strategy. A) True B) False

Q: If shortage costs dominate carrying costs, the firm will need to move toward a more flexible policy. A) True B) False

Q: The restrictive current asset management strategy is a high-risk, high-return alternative to a flexible strategy. A) True B) False

Q: The flexible current asset management strategy is perceived to be a high-risk and low-return course of action for management to follow. A) True B) False

Q: The flexible current asset management strategy calls for management to invest large amounts in cash, short-term investments, and inventory. A) True B) False

Q: An efficient firm with good working capital management should have a high average collection period compared to that of its industry. A) True B) False

Q: Day's payables outstanding (DPO) is computed as number of days in a year divided by accounts payable turnover. A) True B) False

Q: Days' payables outstanding (DPO), which tells how long, on average, a firm takes to pay off its suppliers for the cost of inventory, is used to measure the operating cycle. A) True B) False

Q: The cash conversion cycle is the length of time between the cash outflow for materials and the cash inflow from sales. A) True B) False

Q: The operating cycle begins when the firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit sales. A) True B) False

Q: Liquidity is the ability of a company to convert assetsreal or financialinto cash quickly without suffering a financial loss. A) True B) False

Q: Working capital efficiency refers to the length of time it takes for a firm to convert the raw material to a finished product. A) True B) False

Q: Working capital management involves making decisions regarding the use and sources of current assets. A) True B) False

Q: Net working capital is important because it is a measure of a firm's liquidity and represents the net short-term investment the firm keeps in the business. A) True B) False

Q: The appropriate mix of current assets is not a working capital management decision. A) True B) False

Q: Beckham Corporation has semiannual bonds outstanding with 13 years to maturity and the bonds are currently priced at $746.16. If the bonds have a coupon rate of 8.5 percent, then what is the after-tax cost of debt for Beckham if its marginal tax rate is 35%? Round your intermediate calculation to two decimal places & final percentage answer to three decimal places.A) 6.250%B) 8.125%C) 12.500%D) 12.890%

Q: Dynamo Corporation has semiannual bonds outstanding with 12 years to maturity, and the bonds are currently priced at $1,080.29. If the bonds have a coupon rate of 8 percent, then what is the equivalent annual return (EAR) to the investor for purchasing the bonds at the described price? Round your final percentage answer to two decimal places.A) 3.5%B) 7.00%C) 7.12%D) 8.00%

Q: Bellamee, Inc. has semiannual bonds outstanding with five years to maturity, and the bonds are priced at $920.87. If the bonds have a coupon rate of 7 percent, then what is the YTM for the bonds? Round your final percentage answer to two decimal places.A) 4.5%B) 7.0%C) 9.0%D) 9.2%

Q: Income taxes have the effect of A) increasing the cost of debt for a firm. B) decreasing the cost of debt for a firm. C) decreasing the cost of equity for a firm. D) Both B and C are correct

Q: Bond issuance costs include A) investment banking fees. B) legal fees. C) accountant fees. D) All of the above

Q: A bond has a coupon rate of 6 percent and the bond makes semiannual coupon payments. The dollar amount of coupon interest received every six months is A) $60. B) $30. C) $30 plus or minus the prorate portion of the discount or premium that the bond was purchased for. D) $60 plus or minus the prorate portion of the discount or premium that the bond was purchased for.

Q: If a firm has bonds outstanding and the firm would like to calculate the current cost of debt for the bonds, then the firm would A) use the coupon rate of the bonds to estimate the cost. B) use the current yield to maturity of the bonds to estimate the cost. C) use the current coupon yield of the bonds to estimate the cost. D) None of the above

Q: When analyzing a firm's cost of debt, we are typically interested in A) the cost of the debt on the date that the analysis is being completed. B) the coupon rate on the firm's bonds. C) the cost of the debt and cost of preferred stock on the date that the analysis is being completed. D) None of the above

Q: Which of the following need to be excluded from the calculation of a firm's amount of permanent debt? A) Long-term debt B) Revolving lines of credit C) Mortgage debt D) None of the above

Q: Long-term debt typically describes A) debt with a maturity greater than one year. B) only coupon debt. C) publicly traded debt. D) None of the above

Q: When estimating the cost of debt capital for a firm, we are primarily interested in A) the weighted average cost of capital. B) the cost of long-term debt. C) the coupon rate of the debt. D) None of the above

Q: If markets are not reasonably efficient, then A) the estimates of expected returns are not needed. B) the need for a discount rate to analyze project cash flows is not needed. C) estimates of expected returns based on security prices will not be reliable. D) None of the above

Q: In order for a firm to estimate its cost of debt capital by observing the price of its debt instruments, A) the firm must depend on markets being reasonably efficient. B) the debt must be privately held by the firm. C) the beta of the debt must be greater than the beta of the firm's equity. D) None of the above

Q: A firm can be viewed as A) a portfolio of individual projects, each with its own risks, cost of capital, and returns. B) a collection of equity shares comprising it. C) a collection of debt instruments financing it. D) a portfolio of all individual projects in the industry, each with its own risks, cost of capital, and returns.

Q: The beta for a firm can be estimated by A) adding up the betas of the individual projects of the firm. B) taking the weighted average of the beta for the individual projects of the firm. C) taking the simple average of the beta for the individual projects of the firm. D) None of the above

Q: The value of the cash flows that the assets of a firm are expected to generate must equal A) the value of the cash flows claimed by the equity investors. B) the value of the cash flows claimed by the debt investors. C) the value of the cash flows claimed by both the equity and debt investors. D) the revenue produced by the firm.