Reading #40 - Working Capital Mgmt

Question 1

define primary and secondary sources of liquidity

Answer 1

primary is cash it uses for day to day operations. secondary is short term or long lived assets.

Question 2

define the operating cycle

Answer 2

“ave # od days it takes to turn raw materials into cash proceeds from sales”

Question 3

FORMULA for operating cycle

Answer 3

days of inventory + days of receivables

Question 4

CORP FINANCE bond equiv yield formula

Answer 4

(face - price / price)(365/days)

Question 5

what is an aging schedule used for?

Answer 5

used for accounts receivable

Question 6

FORMULA: Cost of trade credit

Answer 6

[1+ (%discount/1-%discount)] raised to 365/days past discount all minus 1

Question 7

define banker’s acceptances

Answer 7

“used by firms that export goods. guarantee from the bank that has ordered the goods stating pymts will be made upon receipt of the good”

Question 8

define factoring

Answer 8

“refers to actual sale of receivables at a discount from face values”

Question 9

define commercial paper

Answer 9

short term debt securities issued by large creditworthy companies