Working Capital Management

Question 1

Increase in borrowing costs represent a drag or pull on liquidity?

Answer 1

A drag on liquidity and not a pull on liquidity

Question 2

Is a sale of short term assets considered a secondary or primary source of liquidity

Answer 2

A secondary source of liquidity

Question 3

What other name does the cash conversion cycle have

Answer 3

Net operating cycle

Question 4

How does a firm manager its daily cash position

Answer 4

To efficiently manage daily cash position a firm must analyze its typical cash inflows and outflows and create a short medium and long run forecasts and identify periods in which the cash balance is low for short term borrowing, liquidation short term investments or in excess for short term investments

Question 5

Issuing long term debt to pay short term debt is considered a primary or secondary source of liquidity

Answer 5

A secondary source of liquidity

Question 6

The denominator of accounts recievables, payables and inventory turnover ratios all have what?

Answer 6

Averages and not just the ending period amount. In addition they are all considered liquidity measures or also called activity measures

Question 7

What is the numerator in inventory turnover ratio

Answer 7

COGS

Question 8

What is the appropriate result for turnover ratios

Answer 8

Close to the industry average

Question 9

What does the days in receivables, payables and inventory mean

Answer 9

The number of days it takes to collect money from customers, sell the inventory or pay off creditors.

Question 10

Too high cash conversion cycle or operating cycle is good or bad?

Answer 10

Too high cash or operating cycles are bad because it means that too much capital is tied up in assists

Question 11

The return on the short term securities investments should stated as from a corporation perspective?

Answer 11

Bond equivalent yield and the return on the portfolio is the weighted average of those yields

Question 12

Should inventory turnover ratios be compared between firms in different industries?

Answer 12

No

Question 13

When is it optimum to accounts payables on time?

Answer 13

When the interest charged on late payments exceed the interest earned for keeping the money beyond the payment period

Question 14

The cost for a company that doesn’t take discounts for early payments is called?

Answer 14

Cost of trade credit and its formula is = (1+%discount/1-%discount)^365/days last discount-1

Question 15

What happens to the cost of trade credit as the payments are delayed or extended?

Answer 15

Decreases

Question 16

What is adjustable rate preferred stocks?

Answer 16

Have dividends rate that reset quarterly to common market yields and offers corporate holders a tax advantage because a percentage of the dividends received are exempt from federal tax

Question 17

When can small firms with low credit rating use bank borrowings

Answer 17

When they pledge assets as a collateral for their loans, when a firm services its receivables as collateral it’s still responsible for any uncollected payments. Another source of non bank financing for small firms with low credit ratings is borrowing funds from other non banks entities at a higher interest rate.

Question 18

A firm pays more interest on issuing commercial paper or borrowing funds from banks?

Answer 18

From bank borrowings

Question 19

Which lines of credit has a fee and which of them can be listed on a companies footnotes?

Answer 19

Only the committed and revolving lines of credit

Question 20

The revolving line of credit it considered short term or long term borrowing?

Answer 20

Long term unlike the other two lines of credits

Question 21

The formulas of bond equivalent yield money market yield and bank discount yield(discount basis yields) are?

Answer 21

Look them up

Question 22

The costs of lines of credit, bankers acceptance and commercial paper formulas are?

Answer 22

Check them up