Reference no: EM132758634

Questions -

Q1. Which of the following items should a company NOT report directly in its monthly cash budget?

Cash proceeds from selling its products.

Cash proceeds from selling one of its divisions.

Tax payments.

New shares issued in a stock dividend.

Q2 Since short-term interest rates have historically averaged less than long-term rates, the heavy use of short-term debt is considered to be an aggressive working capital financing strategy.

True.

False

Q3. A firm wants to reduce its cash conversion cycle sharply. Which of the following actions should it take?

The company increases its average inventory without increasing its sales.

The company reduces its DSO (days sales outstanding).

The company starts paying its bills sooner, which reduces its average accounts payable without reducing its sales.

The company sells an issue of long-term bonds and uses the proceeds to buy back some of its common stock.

Q4. When deciding whether or not to take a trade discount, the cost of borrowing from a bank or other source should be compared to the cost of trade credit to determine if the cash discount should be taken

True

False

Q5. A firm purchases $4,380,000 in goods over a 1-year period from its sole supplier. The supplier offers trade credit under the following terms: 2/15, net 50 days. The company finally chooses to pay on time (pay in the 50th day) but not to take the discount. We assume 365 days per year. What is the average level of the company's free trade credit?

$187,500

$420,000

$180,000

$437,500

Q6. Based on the information from Question 5, what is the average level of the company's costly trade credit?

$187,500

$420,000

$180,000

$437,500

Q7. Based on the information from Question 5, what is the nominal annual cost of the firm's costly trade credit?

17.6%

21.3%

23.5%

25.2%

Q8. Based on the information from Question 5, what is the effective annual cost of the firm's costly trade credit?

17.6%

21.3%

23.5%

25.2%

Q9. A firm has $5 million of inventory and $2 million of accounts receivable. Its average daily sales are $100,000 and cost of goods sold (COGS) is $80,000. The company's payables deferral period (accounts payable divided by daily purchases) is 32 days. What is its cash conversion cycle?

25.5

26.0

43.6

50.5

Q10. A firm expects to have sales of $30,000 in January, $35,000 in February, and $40,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month following the sale, and another 40% are credit sales paid 2 months following the sale, what are the cash receipts for the firm in March?

$29,151

$32,685

$34,000

$36,800