Current Asset Managemen Part 3

Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-22 Just-in-Time Inventory Management 59. Average daily remittances are $5 million, and "extended disbursement float" adds 5 days to the disbursement schedule, how much should the firm be willing to pay for a cash management system if the firm earns 12% on excess funds. A. $3,000,000 B. $600,000 C. $1,000,000 D. $0 Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 07-02 Examine cash management as the control of receipts and disbursements to minimize nonearning cash balances while providing liquidity; and compare techniques to make cash management more efficient. Topic: 07-08 Cash Management Analysis 60. Laura's Furniture is considering selling to a group of new customers and creating new annual sales of $80,000. 7% will be uncollectible. The collection cost on these accounts is 2% of all sales, the cost of producing and selling is 75% of sales and the firm is in the 31% tax bracket. What is the profit on new sales? A. $9,936 B. $8,832 C. $12,696 D. $20,000 7-21 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-12 Management of Accounts Receivable 61. Van Bosch Inc. is considering selling to a group of new customers that will bring in sales of $20,000 with a return on sales of 7%. The only new investment will be in accounts receivable. Waldron has a turnover ratio of 4 to 1 between sales and accounts receivable. What is the return on investment? A. 28% B. 7% C. 1.75% D. cannot calculate with the information provided Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-12 Management of Accounts Receivable 62. Driveline Sprockets expects total sales of $20,000. The price per unit is $5. The firm estimates an ordering cost of $9.00 per order, with an inventory carrying cost of $1.20 per unit. What is the optimum order size? A. 173 units B. 1,852 units C. 245 units D. 2,000 units 7-22 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-20 The Inventory Decision Model 63. Assuming that we can earn a 13.5% return on accounts receivable, which of the following actions to finance an increase in our accounts receivable balance would be optimal? A. a reduction in marketable securities that are earning a return of 12.2% B. a decrease in inventories that are earning a 17.6% return C. an increase in bank loans that would cost us 14.5% D. an increase in accounts payable that would cost our firm 15% Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-12 Management of Accounts Receivable The mechanical engineer at Robinson Manufacturing has developed a new gearbox. The local distributor expects to increase his sales by 30% over the past year due to this new development. Last year's sales were $70,000 at a selling price of $100 per unit. The manager would like to cut costs as much as possible and comes to you for advice. Relevant cost information includes: Warehouse space Material handling expense Insurance premium Total ordering cost $3.00/unit $2.00/unit $1.00/unit $150.00/per order 7-23 Chapter 07 - Current Asset Management 64. What is the economic order quantity? A. 187 units B. 213 units C. 174 units D. 522 units Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Hard Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-20 The Inventory Decision Model 65. What is the amount of average inventory? A. 107 units B. 94 units C. 261 units D. cannot calculate with information provided. Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Hard Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-20 The Inventory Decision Model 66. How many orders will be made per year? A. 8.4 orders per year B. 12 orders per year C. 91 orders per year D. 4.27 orders per year 7-24 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Hard Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-20 The Inventory Decision Model 67. What is the total cost of this inventory decision? A. $640.85 B. $739.52 C. $1,279.85 D. $2,556.59 Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Hard Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-20 The Inventory Decision Model 68. You purchased a T-bill at $99.80. If held the T-bill to maturity and returned a.8038% yield how long did you hold the T-bill? A. 180 days B. 91 days C. 364 days D. 250 days Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 07-03 Define the various marketable securities available for investment by the firm; and calculate the yield on these instruments. Topic: 07-10 Marketable Securities 69. Banker's Acceptances (BA) are issued in the _____________. A BA is guaranteed by a bank for a _________________. A. Long term capital markets; discount fee B. Forex Market; stamping fee C. LIBOR Market; brokerage fee D. Money Market; stamping fee 7-25 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 07-03 Define the various marketable securities available for investment by the firm; and calculate the yield on these instruments. Topic: 07-11 The Rates and Securities 70. The Grocery Chain (GC) reported an average inventory of $349,589 in its last annual report. If GC's annual Cost of Goods Sold was $5,800,000, approximately how many days did GC hold its inventory? A. 30 days B. 15 days C. 97 days D. 22 days Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-17 Inventory Management 71. You anticipate selling 10,000 units of Wonder Soap in the next month. It cost $3.50 per order and total carrying costs are $1.50 per unit. What is the minimum order quantity for this new product? A. 216 units B. 342 units C. 1,000 units D. 100 units Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Easy Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-20 The Inventory Decision Model 72. Western Jet requires a minimum of 1,000,000 litres of jet fuel each month to keep its fleet of Airbus 380A passenger jets running. If Western Jet Operations Manager enters into a future contract to buy 750,000 litres of jet fuel in 90 days he is engaging in ____________. A. Speculation B. Swap options C. Selling Short D. Hedging 7-26 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-19 Inventory Policy in Inflation (and Deflation) 73. If you bought a T-bill at $99.44 and held it for 180 days what would your return be? A. 1.14% B. 011419% C. 0056% D. 11.49% Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Easy Learning Objective: 07-03 Define the various marketable securities available for investment by the firm; and calculate the yield on these instruments. Topic: 07-10 Marketable Securities Ardvark Corp. (AC) reported annual sales of $15,500,000. In the past AC's customers have paid within an average of 35 days. AC's management is considering allowing customers to pay in 40 days. 74. AC's average daily sales are ____________. A. $55,000 B. $67,890 C. $42,466 D. $87,650 7-27 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Easy Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-13 Accounts Receivable as an Investment 75. AC's average AR is ______________. A. $3,238,999 B. $1,486,301 C. $1,698,640 D. $15,500,000 Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Easy Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-13 Accounts Receivable as an Investment 76. If AC increases it collection period to 40 days its average AR will increase to _______. A. $1,698,640 B. $567,000 C. $2,106,788 D. $3,238,999 Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Easy Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-13 Accounts Receivable as an Investment 77. If a firm has total accounts receivable of $6,000,000 and its average daily credit sales are $45,000 what is its collection period? A. 120 days B. 133 days C. 45 days D. 156 days Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Easy Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-13 Accounts Receivable as an Investment 7-28 Chapter 07 - Current Asset Management 7-29