B3 - Working Capital Management Flashcards
A working capital technique, which delays the outflow of cash is:
a draft, a lock-box system, compensating balances, factoring
A draft - the use of a draft delays a cash disbursement and increases payable float
Which one of the following would increase the working capital of a firm?
a. payment of a thirty-year mortgage payable wiht cash
b. refinancing of accounts payable wiht a two-year note payable
c. cash collection of accounts receivable
d. cash payment of accounts payable
B - working capital increases only if current assets are increased or current liabilities are decreased. exchanging accounts payable (current liab) for a two-year note payable (long-term liab) would decrease current liabilities and increase working capital
The optinal level of inventory would be affected by all of the following EXCEPT the: cost of placing an order for merchandise, cost per unit of inventory, current level of inventory, lead time to receive merchandise ordered
CURRENT LEVEL OF INVENTORY
As a company becomes more conservative with respect to working capital policy, it would tend to have a(n):
a. decrease in the quick ratio
b. increase in the ratio of current assets to noncurrent assets
c. increase in the ratio of current liabilities to noncurrent liabilities
d. decrease the operating cycle
B - RULE: Working capital policy is deemed to be more conservative as an increasing portion of an organization’s long-term assets, permanent current assets, and temporary current assets are funded by long-term financing
Steward co uses economic order quantity (EOQ) model for inventory management. a decrease in which one of the following variables would increase eoq?
carrying costs, safety stock level, quantity demanded, cost per order
carrying costs
The working capital financing policy that subjects the firm to the greatest risk of being unable to meet the firm’s maturing obligations is the policy that finances:
a. permanent current assets with long term debt
b. fluctuating current assets with short term debt
c. permanent current assets with short term debt
fluctuating current assets with long term debt
C - the working capital financing policy that fiances permanent current assets with short term debt subjects the firm to the greatest risk of being unable to meet the firm’s maturing obligations
Which of the following assumptions is associated with the economic order quantity formula?
a. the purchase cost per unit will vary based on quantity discounts
b. periodic demand is unknown
c. the carrying cost per unit will vary wiht quantity ordered
d. the cost of placing an order will vary with quantity ordered
b - the economic order quantity formula (EDQ) assumes that periodic demand is known. annual sales volume is a crucial variable in the EOQ formula
