Objective type questions on working capital management

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Reference no: EM1316297

1. Cross Collectibles currently fills mail orders from all over the U.S. and receipts come in to headquarters in Little Rock, Arkansas. The firm's average accounts receivable (A/R) is $2.5 million and is financed by a bank loan with 11 percent annual interest. Cross is considering a regional lockbox system to speed up collections which it believes will reduce A/R by 20 percent. The annual cost of the system is $15,000. What is the estimated net annual savings to the firm from implementing the lockbox system?

$500,000
$ 30,000
$ 60,000
$ 55,000
$ 40,000

2. Ski Lifts Inc. is a highly seasonal business. The following summary balance sheet provides data for peak and off-peak seasons (in thousands of dollars):

	Peak Off-peak
Cash	$ 50	$ 30
Marketable securities	0	20
Accounts receivable	40	20
Inventories	100	50
Net fixed assets	500	500
	$690	$620
Spontaneous
liabilities	$ 30	$ 10
Short-term debt	50	0
Long-term debt	300	300
Common equity	310	310
	$690	$620

From this data we may conclude that

Ski Lifts has a working capital financing policy of exactly matching asset and liability maturities.
Ski Lifts' working capital financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt.
Ski Lifts follows a relatively conservative approach to working capital financing; that is, some of its short-term needs are met by permanent capital.
Without income statement data, we cannot determine the aggressiveness or conservatism of the company's working capital financing policy.
Both statements a and c are correct.

3. Which one of the following aspects of banks is considered most relevant to businesses when choosing a bank?

Convenience of location.
Competitive cost of services provided.
Size of the bank's deposits.
Experience of personnel.

Loyalty and willingness to assume lending risks

Reference no: EM1316297

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