finance data bank
Which of the following statements is
a. Under normal conditions the shape of the yield curve implies that the interest cost of short-term debt is greater than that of long-term debt, although short-term debt has other advantages that make it desirable as a financing source.
b. Flexibility is an advantage of short-term credit but this is somewhat offset by the higher flotation costs associated with the need to repeatedly renew short-term credit.
c. A short-term loan can usually be obtained more quickly than a long-term loan but the penalty for early repayment of a short-term loan is significantly higher than for a long-term loan.
d. Statements about the flexibility, cost, and riskiness of short-term versus long-term credit are dependent on the type of credit that is actually used.
e. Short-term debt is often less costly than long-term debt and the major reason for this is that short-term debt exposes the borrowing firm to much less risk than long-term debt.
Spartan Sporting Goods has $5 million
in inventory and $2 million in accounts receivable. Its
average daily sales are $100,000. The company's payables deferral period (accounts payable divided
by daily purchases) is 30 days. What is the length of the company's cash conversion cycle?
a. 100 days
b. 60 days
c. 50 days
d. 40 days
e. 33 days
For the Cook County Company, the
average age of accounts receivable is 60 days, the average age of accounts
payable is 45 days, and the average age of inventory is 72 days. Assuming a
365-day year, what is the length of the firm's cash conversion cycle?
a. 87 days
b. 90 days
c. 65 days
d. 48 days
e. 66 day
The Danser Company expects to have
sales of $30,000 in January, $33,000 in February, and $38,000 in March. If 20
percent of sales are for cash, 40 percent are credit sales paid in the month
following the sale, and 40 percent are credit sales paid 2 months following the
sale, what are the cash receipts from sales in March?
Jumpdisk Company writes checks
averaging $15,000 a day, and it takes 5 days for these
checks to clear. The firm also receives checks in the amount of $17,000 per day, but the
firm loses three days while its receipts are being deposited and cleared. What is the
firm's net float in dollars?
b. $ 75,000
c. $ 32,000
d. $ 24,000
e. $ 16,000
Bowa Construction's days sales outstanding
is 50 days (on a 365-day basis). The company's
accounts receivable equal $100 million and its balance sheet shows inventory equal to $125
million. What is the company's inventory turnover ratio?
If Hot Tubs Inc. had sales of
$2,027,773 per year (all credit) and its days sales
outstanding was equal to 35 days, what was its average amount of accounts receivable
outstanding? (Assume a 365-day year.)
b. $ 57,143
c. $ 5,556
d. $ 97,222
A firm is offered trade credit terms of
3/15, net 45 days. The firm does not take the
discount, and it pays after 67 days. What is the nominal annual cost of not taking the
discount? (Assume a 365-day year.)
Dixie Tours Inc. buys on terms of 2/15,
net 30 days. It does not take discounts, and it
typically pays 35 days after the invoice date. Net purchases amount to $720,000 per year.
What is the nominal annual cost of its non-free trade credit? (Assume a 365-day year.)
Your company has been offered credit
terms on its purchases of 4/30, net 90 days. What will
be the nominal annual cost of trade credit if your company pays on the 35th day after
receiving the invoice? (Assume a 365-day year.)
Phillips Glass Company buys on terms of
2/15, net 30 days. It does not take discounts, and it
typically pays 30 days after the invoice date. Net purchases amount to $730,000 per year.
On average, how much "free" trade credit does Phillips receive during the year? (Assume a
Wildthing Amusement Company's total
assets fluctuate between $320,000 and $410,000,
while its fixed assets remain constant at $260,000. If the firm follows a maturity
matching or moderate working capital financing policy, what is the likely level of its
a. $ 90,000
Inland Oil arranged a $10,000,000
revolving credit agreement with a group of small banks. The firm paid an annual
commitment fee of one-half of one percent of the unused balance of the loan
commitment. On the used portion of the loan, Inland paid 1.5 percent above
prime for the funds actually borrowed on an annual, simple interest basis.
prime rate was at 9 percent for the year. If Inland borrowed $6,000,000 immediately after the agreement was signed and repaid the loan at the end of one year, what was the total dollar cost of the loan agreement for one year?
On average, a firm sells $2,000,000 in
merchandise a month. It keeps inventory equal to one-half of its monthly sales
on hand at all times. If the firm analyzes its accounts using a 365-day year,
what is the firm's inventory conversion period?
a. 365.0 days
b. 182.5 days
c. 30.3 days
d. 15.2 days
e. 10.5 days
Porta Stadium Inc. has annual sales of
$80,000,000 and keeps average inventory of $20,000,000. On average, the firm
has accounts receivable of $16,000,000. The firm buys all raw materials on
credit, its trade credit terms are net 35 days, and it pays on time. The firm's
managers are searching for ways to shorten the cash conversion cycle. If sales
can be maintained at existing levels but inventory can be lowered by $4,000,000
accounts receivable lowered by $2,000,000, what will be the net change in the cash conversion cycle? Use a 365-day year. Round to the closest whole day.
a. +105 days
b. -105 days
c. +27 days
d. -27 days
e. -3 days
You have recently been hired to improve
the performance of Multiplex Corporation, which has been experiencing a severe
cash shortage. As one part of your analysis, you want to determine the firm's
cash conversion cycle. Using the following information and a 365-day year, what
is your estimate of the firm's current cash conversion cycle?
· Current inventory = $120,000.
· Annual sales = $600,000.
· Accounts receivable = $157,808.
· Accounts payable = $25,000.
· Total annual purchases = $365,000.
· Purchases credit terms: net 30 days.
· Receivables credit terms: net 50 days.
a. 49 days
b. 193 days
c. 100 days
d. 168 days
e. 144 days
Kolan Inc. has annual sales of
$36,500,000 ($100,000 a day on a 365-day basis). On average, the company has
$12,000,000 in inventory and $8,000,000 in accounts receivable. The company is
looking for ways to shorten its cash conversion cycle, which is calculated on a
365-day basis. Its CFO has proposed new policies that would result in
a 20 percent reduction in both average inventories and accounts receivables. The company anticipates that these policies will also reduce sales by 10 percent. Accounts payable will remain unchanged. What effect would these policies have on the company's cash conversion cycle? Round to the nearest whole day.
a. -40 days
b. -22 days
c. -13 days
d. +22 days
e. +40 days