Economic

Q: Currently, a U.S. trader notes that in the 6-month forward market, the Japanese yen is selling at a premium (that is, you receive more dollars per yen in the forward market than you do in the spot market), while the British pound is selling at a discount. Which of the following statements is CORRECT? a. If interest rate parity holds, 6-month interest rates should be the same in the U.S., Britain, and Japan. b. If interest rate parity holds among the three countries, the United States should have the highest 6-month interest rates and Japan should have the lowest rates. c. If interest rate parity holds among the three countries, Britain should have the highest 6-month interest rates and Japan should have the lowest rates. d. If interest rate parity holds among the three countries, Japan should have the highest 6-month interest rates and Britain should have the lowest rates. e. If interest rate parity holds among the three countries, the United States should have the highest 6-month interest rates and Britain should have the lowest rates.

Q: Which of the following statements is NOT CORRECT? a. Any bond sold outside the country of the borrower is called an international bond. b. Foreign bonds and Eurobonds are two important types of international bonds. c. Foreign bonds are bonds sold by a foreign borrower but denominated in the currency of the country in which the issue is sold. d. The term Eurobond applies only to foreign bonds denominated in U.S. currency. e. A Eurodollar is a U.S. dollar deposited in a bank outside the U.S.

Q: If the inflation rate in the United States is greater than the inflation rate in Britain, other things held constant, the British pound will a. appreciate against the U.S. dollar. b. depreciate against the U.S. dollar. c. remain unchanged against the U.S. dollar. d. appreciate against other major currencies. e. appreciate against the dollar and other major currencies.

Q: In Japan, 90-day securities have a 4% annualized return and 180-day securities have a 5% annualized return. In the United States, 90-day securities have a 4% annualized return and 180-day securities have an annualized return of 4.5%. All securities are of equal risk, and Japanese securities are denominated in terms of the Japanese yen. Assuming that interest rate parity holds in all markets, which of the following statements is most CORRECT? a. The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 90-day forward market. b. The yen-dollar spot exchange rate equals the yen-dollar exchange rate in the 180-day forward market. c. The yen-dollar exchange rate in the 90-day forward market equals the yen-dollar exchange rate in the 180-day forward market. d. The yen-dollar exchange rate in the 180-day forward market equals the yen-dollar exchange rate in the 90-day spot market. e. The relationship between spot and forward interest rates cannot be inferred.

Q: Multinational financial management requires that a. the effects of changing currency values be included in financial analyses. b. legal and economic differences need not be considered in financial decisions because these differences are insignificant. c. political risk should be excluded from multinational corporate financial analyses. d. traditional U.S. and European financial models incorporating the existence of a competitive marketplace not be recast when analyzing projects in other parts of the world. e. cultural differences need not be accounted for when considering firm goals and employee management.

Q: Which of the following are reasons why companies move into international operations? a. To take advantage of lower production costs in regions where labor costs are relatively low. b. To develop new markets for the firm's products. c. To better serve their primary customers. d. Because important raw materials are located abroad. e. All of the above.

Q: When considering the risk of a foreign investment, a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification. a. True b. False

Q: The cost of capital may be different for a foreign project than for an equivalent domestic project because foreign projects may be more or less risky. a. True b. False

Q: The cash flows relevant for a foreign investment should, from the parent company's perspective, include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country. a. True b. False

Q: A foreign currency will, on average, depreciate against the U.S. dollar at a percentage rate approximately equal to the amount by which its inflation rate exceeds that of the United States. a. True b. False

Q: If a dollar will buy fewer units of a foreign currency in the forward market than in the spot market, then the forward currency is said to be selling at a premium to the spot rate. a. True b. False

Q: If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market, then the forward currency is said to be selling at a discount to the spot rate. a. True b. False

Q: Individuals and corporations can buy or sell forward currencies to hedge their exchange rate exposure. Essentially, the process involves simultaneously selling the currency expected to appreciate in value and buying the currency expected to depreciate. a. True b. False

Q: Because political risk is seldom negotiable, it cannot be explicitly addressed in multinational corporate financial analysis. a. True b. False

Q: Exchange rate risk is the risk that the cash flows from a foreign project, when converted to the parent company's currency, will be worth less than was originally projected because of exchange rate changes. a. True b. False

Q: LIBOR is an acronym for London Interbank Offered Rate, which is an average of interest rates offered by London banks to smaller U.S. corporations on all deposits. a. True b. False

Q: A Eurodollar is a U.S. dollar deposited in a bank outside the United States. a. True b. False

Q: Calculating a currency cross rate involves determining the exchange rate for two currencies by using a third currency as a base. a. True b. False

Q: Exchange rate quotations consist solely of direct quotations. a. True b. False

Q: The United States and most other major industrialized nations currently operate under a system of floating exchange rates. a. True b. False

Q: When the value of the U.S. dollar appreciates against another country's currency, we may purchase more of the foreign currency with the U.S. dollar. a. True b. False

Q: Legal and economic differences among countries, although important, do NOT pose significant problems for most multinational corporations when they coordinate and control worldwide operations and subsidiaries. a. True b. False

Q: Multinational financial management requires that financial analysts consider the effects of changing currency values. a. True b. False

Q: Last year Emery Industries had $450 million of sales and $225 million of fixed assets, so its Fixed Assets/Sales ratio was 50%. However, its fixed assets were used at only 85% of capacity. If the company had been able to sell off enough of its fixed assets at book value so that it was operating at full capacity, with sales held constant at $450 million, how much cash (in millions) would it have generated? a. $38.14 b. $33.75 c. $30.38 d. $36.79 e. $27.68

Q: Howton & Howton Worldwide (HHW) is planning its operations for the coming year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 75%, which the firm's investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions. Last year's sales = S0$300 Last year's accounts payable $50 Sales growth rate = g 40% Last year's notes payable $15 Last year's total assets = A0*$500 Last year's accruals $20 Last year's profit margin = PM 20% Initial payout ratio 10% New payout ratio 75% u200b u200b a. $56.2 b. $54.6 c. $57.3 d. $67.7 e. $53.0

Q: Chua Chang & Wu Inc. is planning its operations for next year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Last year's sales = S0$200,000 Last year's accounts payable $50,000 Sales growth rate = g 40% Last year's notes payable $15,000 Last year's total assets = A0*$160,000 Last year's accruals $20,000 Last year's profit margin = PM 20.0% Target payout ratio 25.0% u200b a. -$5,400 b. -$7,140 c. -$6,000 d. -$6,720 e. -$6,360

Q: Clayton Industries is planning its operations for next year. Ronnie Clayton, the CEO, wants you to forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions. Last year's sales = S0$350 Last yr's accounts payable $40 Sales growth rate = g 30% Last yr's notes payable $50 Last year's total assets = A0*$460 Last yr's accruals $30 Last year's prof margin = PM 5% Target payout ratio 60% u200b a. $87.4 b. $124.1 c. $120.8 d. $107.9 e. $90.6

Q: Last year Jain Technologies had $250 million of sales and $100 million of fixed assets, so its Fixed Assets/Sales ratio was 40%. However, its fixed assets were used at only 40% of capacity. Now the company is developing its financial forecast for the coming year. As part of that process, the company wants to set its target Fixed Assets/Sales ratio at the level, it would have had, had it been operating at full capacity. What target Fixed Assets/Sales ratio should the company set? a. 13.3% b. 14.1% c. 16.0% d. 18.2% e. 18.4% ANSWER: c RATIONALE: Sales $250 Fixed assets $100 % of capacity utilized 40% Sales at full capacity = Actual sales / % of capacity used = $625.00 u200b Target FA/Sale ratio = Actual FA/Full capacity sales = 16.0% LOCAL STANDARDS: United States - OH - Default City - N/A - Since we still do not have the Cengage Business School Outcomes, you do not need to include anything for this category. 35. Fairchild Garden Supply expects $590 million of sales this year, and it forecasts a 15% increase for next year. The CFO uses this equation to forecast inventory requirements at different levels of sales: Inventories = $30.2 + 0.25(Sales). All dollars are in millions. What is the projected inventory turnover ratio for the coming year? a. 3.84 times b. 3.23 times c. 3.63 times d. 3.60 times e. 3.40 times ANSWER: e RATIONALE: Current yr.'s sales $590 Growth rate 15% Projected sales $678.5 Req. inventories = $30.2 + 0.25 Projected sales = $30.2 + 0.25 $678.5 = $199.8 u200b Inventory turnover ratio = Sales / Inventories = 3.40 times u200b LOCAL STANDARDS: United States - OH - Default City - N/A - Since we still do not have the Cengage Business School Outcomes, you do not need to include anything for this category.

Q: Last year Handorf-Zhu Inc. had $850 million of sales, and it had $425 million of fixed assets that were used at only 90% of capacity. What is the maximum sales growth rate the company could achieve before it had to increase its fixed assets? a. 9.00% b. 13.00% c. 12.00% d. 10.33% e. 11.11%

Q: Last year Wei Guan Inc. had $275 million of sales, and it had $270 million of fixed assets that were used at 65% of capacity. In millions, by how much could Wei Guan's sales increase before it is required to increase its fixed assets? a. $137.71 b. $159.92 c. $115.50 d. $155.48 e. $148.08

Q: Last year Godinho Corp. had $320 million of sales, and it had $75 million of fixed assets that were being operated at 80% of capacity. In millions, how large could sales have been if the company had operated at full capacity? a. $352.0 b. $392.0 c. $388.0 d. $436.0 e. $400.0 ANSWER: e RATIONALE: Sales $320 Fixed assets $75 % of capacity utilized 80% u200b Full capacity sales = Actual sales / % of capacity used = $400.0 u200b LOCAL STANDARDS: United States - OH - Default City - N/A - Since we still do not have the Cengage Business School Outcomes, you do not need to include anything for this category. 31. Kamath-Meier Corporation's CFO uses this equation, which was developed by regressing inventories on sales over the past 5 years, to forecast inventory requirements: Inventories = $22.0 + 0.125(Sales). The company expects sales of $550.0 million during the current year, and it expects sales to grow by 33% next year. What is the inventory forecast for next year? All dollars are in millions. a. $140.7 b. $131.6 c. $89.6 d. $113.4 e. $88.5 ANSWER: d RATIONALE: Current year's sales $550.0 Growth rate 33% Projected Sales $731.5 Required inventories = $22.0 + 0.125 Projected sales = $22.0 + 0.125 $731.5 = $113.4 u200b u200b LOCAL STANDARDS: United States - OH - Default City - N/A - Since we still do not have the Cengage Business School Outcomes, you do not need to include anything for this category.

Q: Which of the following statements is CORRECT? a. When we use the AFN equation, we assume that the ratios of assets and liabilities to sales (A0*/S0 and L0*/S0) vary from year to year in a stable, predictable manner. b. When fixed assets are added in large, discrete units as a company grows, the assumption of constant ratios is more appropriate than if assets are relatively small and can be added in small increments as sales grow. c. Firms whose fixed assets are lumpy frequently have excess capacity, and this should be accounted for in the financial forecasting process. d. For a firm that uses lumpy assets, it is impossible to have small increases in sales without expanding fixed assets. e. Regression techniques cannot be used in situations where excess capacity or economies of scale exist.

Q: Which of the following statements is CORRECT? a. The sustainable growth rate is the maximum achievable growth rate without the firm having to raise external funds. In other words, it is the growth rate at which the firm's AFN equals zero. b. If a firms assets are growing at a positive rate, but its retained earnings are not increasing, then it would be impossible for the firms AFN to be negative. c. If a firm increases its dividend payout ratio in anticipation of higher earnings, but sales and earnings actually decrease, then the firms actual AFN must, mathematically, exceed the previously calculated AFN. d. Higher sales usually require higher asset levels, and this leads to what we call AFN. However, the AFN will be zero if the firm chooses to retain all of its profits, i.e., to have a zero dividend payout ratio. e. Dividend policy does not affect the requirement for external funds based on the AFN equation.

Q: Which of the following statements is CORRECT? a. Any forecast of financial requirements involves determining how much money the firm will need, and this need is determined by adding together increases in assets and spontaneous liabilities and then subtracting operating income. b. The AFN equation for forecasting funds requirements requires only a forecast of the firms balance sheet. Although a forecasted income statement may help clarify the results, income statement data are not essential because funds needed relate only to the balance sheet. c. Dividends are paid with cash taken from the accumulated retained earnings account, hence dividend policy does not affect the AFN forecast. d. A negative AFN indicates that retained earnings and spontaneous capital are far more than sufficient to finance the additional assets needed. e. If assets and spontaneously generated liabilities are not projected to grow at the same rate as sales, then the AFN method will provide more accurate forecasts than the projected financial statement method.

Q: Which of the following statements is CORRECT? a. Since accounts payable and accrued liabilities must eventually be paid off, as these accounts increase, AFN as calculated by the AFN equation must also increase. b. Suppose a firm is operating its fixed assets at below 100% of capacity, but it has no excess current assets. Based on the AFN equation, its AFN will be larger than if it had been operating with excess capacity in both fixed and current assets. c. If a firm retains all of its earnings, then it cannot require any additional funds to support sales growth. d. Additional funds needed (AFN) are typically raised using a combination of notes payable, long-term debt, and common stock. Such funds are non-spontaneous in the sense that they require explicit financing decisions to obtain them. e. If a firm has a positive free cash flow, then it must have either a zero or a negative AFN.

Q: Which of the following statements is CORRECT? a. Once a firm has defined its purpose, scope, and objectives, it must develop a strategy or strategies for achieving its goals. The statement of corporate strategies sets forth detailed plans rather than broad approaches for achieving a firm's goals. b. A firms corporate purpose states the general philosophy of the business and provides managers with specific operational objectives. c. Operating plans provide management with detailed implementation guidance, consistent with the corporate strategy, to help meet the corporate objectives. These operating plans can be developed for any time horizon, but many companies use a 5-year horizon. d. A firms mission statement defines its lines of business and geographic area of operations. e. The corporate scope is a condensed version of the entire set of strategic plans.

Q: Which of the following statements is CORRECT? a. Perhaps the most important step when developing forecasted financial statements is to determine the breakdown of common equity between common stock and retained earnings. b. The first, and perhaps the most critical, step in forecasting financial requirements is to forecast future sales. c. Forecasted financial statements, as discussed in the text, are used primarily as a part of the managerial compensation program, where managements historical performance is evaluated. d. The capital intensity ratio gives us an idea of the physical condition of the firms fixed assets. e. The AFN equation produces more accurate forecasts than the forecasted financial statement method, especially if fixed assets are lumpy and economies of scale exist.

Q: A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to increase? a. The company previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity. b. The company increases its dividend payout ratio. c. The company begins to pay employees monthly rather than weekly. d. The companys profit margin increases. e. The company decides to stop taking discounts on purchased materials.

Q: Spontaneously generated funds are generally defined as follows: a. Assets required per dollar of sales. b. A forecasting approach in which the forecasted percentage of sales for each item is held constant. c. Funds that a firm must raise externally through borrowing or by selling new common or preferred stock. d. Funds that arise out of normal business operations from its suppliers, employees, and the government, and they include spontaneous increases in accounts payable and accruals. e. The amount of cash raised in a given year minus the amount of cash needed to finance the additional capital expenditures and working capital needed to support the firms growth.

Q: Which of the following is NOT one of the steps taken in the financial planning process? a. Assumptions are made about future levels of sales, costs, and interest rates for use in the forecast. b. The entire financial plan is reexamined, assumptions are reviewed, and the management team considers how additional changes in operations might improve results. c. Projected ratios are calculated and analyzed. d. Develop a set of projected financial statements. e. Consult with key competitors about the optimal set of prices to charge, i.e., the prices that will maximize profits for our firm and its competitors.

Q: The capital intensity ratio is generally defined as follows: a. Sales divided by total assets, i.e., the total assets turnover ratio. b. The percentage of liabilities that increase spontaneously as a percentage of sales. c. The ratio of sales to current assets. d. The ratio of current assets to sales. e. The amount of assets required per dollar of sales, or A0*/S0.

Q: The term additional funds needed (AFN) is generally defined as follows: a. Funds that are obtained automatically from routine business transactions. b. Funds that a firm must raise externally from non-spontaneous sources, i.e., by borrowing or by selling new stock, to support operations. c. The amount of assets required per dollar of sales. d. The amount of internally generated cash in a given year minus the amount of cash needed to acquire the new assets needed to support growth. e. A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant.

Q: Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcoming year. All else being equal, which of the following factors is most likely to lead to an increase of the additional funds needed (AFN)? a. A sharp increase in its forecasted sales. b. A sharp reduction in its forecasted sales. c. The company reduces its dividend payout ratio. d. The company switches its materials purchases to a supplier that sells on terms of 1/5, net 90, from a supplier whose terms are 3/15, net 35. e. The company discovers that it has excess capacity in its fixed assets.

Q: Which of the following assumptions is embodied in the AFN equation? a. All balance sheet accounts are tied directly to sales. b. Accounts payable and accruals are tied directly to sales. c. Common stock and long-term debt are tied directly to sales. d. Fixed assets, but not current assets, are tied directly to sales. e. Last years total assets were not optimal for last years sales.

Q: Which of the following is NOT a key element in strategic planning as it is described in the text? a. The mission statement. b. The statement of the corporate scope. c. The statement of cash flows. d. The statement of corporate objectives. e. The operating plan.

Q: When we use the AFN equation to forecast the additional funds needed (AFN), we are implicitly assuming that all financial ratios are constant. If financial ratios are not constant, regression techniques can be used to improve the financial forecast. a. True b. False

Q: The fact that long-term debt and common stock are raised infrequently and in large amounts lessens the need for the firm to forecast those accounts on a continual basis. a. True b. False

Q: If a firm's capital intensity ratio (A*/S0) decreases as sales increase, use of the AFN formula is likely to understate the amount of additional funds required, other things held constant. a. True b. False

Q: Two firms with identical capital intensity ratios are generating the same amount of sales. However, Firm A is operating at full capacity, while Firm B is operating below capacity. If the two firms expect the same growth in sales during the next period, then Firm A is likely to need more additional funds than Firm B, other things held constant. a. True b. False

Q: A firm's profit margin is 5%, its debt ratio is 56%, and its dividend payout ratio is 40%. If the firm is operating at less than full capacity, then sales could increase to some extent without the need for external funds, but if it is operating at full capacity with respect to all assets, including fixed assets, then any positive growth in sales will require some external financing. a. True b. False

Q: If a firm with a positive net worth is operating its fixed assets at full capacity, if its dividend payout ratio is 100%, and if it wants to hold all financial ratios constant, then for any positive growth rate in sales, it will require external financing. a. True b. False

Q: When developing forecasted financial statements there are some inputs that management controls such as the growth rate and operating costs/sales ratio, while other inputs such as the tax rate and interest rate are not under its control. a. True b. False

Q: To determine the amount of additional funds needed (AFN), you may subtract the expected increase in liabilities, which represents a source of funds, from the sum of the expected increases in retained earnings and assets, both of which are uses of funds. a. True b. False

Q: If a firm wants to maintain its ratios at their existing levels, then if it has a positive sales growth rate of any amount, it will require some amount of external funding. a. True b. False

Q: A rapid build-up of inventories normally requires additional financing, unless the increase is matched by an equally large decrease in some other asset. a. True b. False

Q: The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales, assuming the firm is operating with a positive profit margin. a. True b. False

Q: As a firm's sales grow, its current assets also tend to increase. For instance, as sales increase, the firm's inventories generally increase, and purchases of inventories result in more accounts payable. Thus, spontaneously generated funds arise from transactions brought on by sales increases. a. True b. False

Q: Errors in the sales forecast can be offset by similar errors in costs and income forecasts. Thus, as long as the errors are not large, sales forecast accuracy is not critical to the firm. a. True b. False

Q: A typical sales forecast, though concerned with future events, will usually be based on recent historical trends and events as well as on forecasts of economic prospects. a. True b. False

Q: The first, and most critical, step in constructing a set of forecasted financial statements is the sales forecast. a. True b. False

Q: Desai Inc. has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle? Do not round intermediate calculations. Round to the nearest whole day. Annual sales = $45,000 Annual cost of goods sold = $24,500 Inventory = $4,500 Accounts receivable = $1,800 Accounts payable = $2,500 u200b a. 44 days b. 40 days c. 55 days d. 45 days e. 54 days

Q: Zervos Inc. had the following data for last year (in millions). The new CFO believes (1) that an improved inventory management system could lower the average inventory by $4,000, (2) that improvements in the credit department could reduce receivables by $2,000, and (3) that the purchasing department could negotiate better credit terms and thereby increase accounts payable by $2,000. Furthermore, she thinks that these changes would not affect either sales or the costs of goods sold. If these changes were made, by how many days would the cash conversion cycle be lowered? Do not round your intermediate calculations. Original Revised Annual sales: unchanged $110,000 $110,000 Cost of goods sold: unchanged $80,000 $80,000 Average inventory: lowered by $4,000 $20,000 $16,000 Average receivables: lowered by $2,000 $16,000 $14,000 Average payables: increased by $2,000 $10,000 $12,000 Days in year 365 365 u200b a. 37.41 days b. 28.57 days c. 37.75 days d. 34.01 days e. 25.51 days

Q: Dewey Corporation has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle? Do not round intermediate calculations. Round your answer to the nearest day. Annual sales = $58,000 Annual cost of goods sold = $40,600 Inventory = $4,000 Accounts receivable = $2,000 Accounts payable = $2,400 u200b a. 22 days b. 30 days c. 27 days d. 20 days e. 23 days

Q: Your consulting firm was recently hired to improve the performance of Shin-Soenen Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis, you want to determine the firms cash conversion cycle. Using the following information and a 365-day year, what is the firms present cash conversion cycle? Do not round intermediate calculations. Average inventory = $75,000 Annual sales = $750,000 Annual cost of goods sold = $450,000 Average accounts receivable = $160,000 Average accounts payable = $25,000 u200b a. 136.2 days b. 103.0 days c. 122.0 days d. 118.4 days e. 104.2 days

Q: Data on Wentz Inc. for last year are shown below, along with the payables deferral period (PDP) for the firms against which it benchmarks. The firm's new CFO believes that the company could delay payments enough to increase its PDP to the benchmarks' average. If this were done, by how much would payables increase? Use a 365-day year. Do not round your intermediate calculations. Cost of goods sold = $82,000 Payables = $5,000 Payables Deferral Period (PDP) = 22.256 Benchmark Payables Deferral Period = 30.000 u200b a. $2,175 b. $1,618 c. $1,496 d. $1,914 e. $1,740

Q: Data on Shin Inc for last year are shown below, along with the inventory conversion period (ICP) of the firms against which it benchmarks. The firm's new CFO believes that the company could reduce its inventory enough to reduce its ICP to the benchmarks' average. If this were done, by how much would inventories decline? Use a 365-day year. Do not round your intermediate calculations. Cost of goods sold = $78,000 Inventory = $20,000 Inventory Conversion Period (ICP) = 93.59 Benchmark Inventory Conversion Period (ICP) = 38.00 u200b a. $11,879 b. $11,285 c. $12,949 d. $12,711 e. $12,236

Q: Your firm's cost of goods sold (COGS) average $2,000,000 per month, and it keeps inventory equal to 50% of its monthly COGS on hand at all times. Using a 365-day year, what is its inventory conversion period? a. 15.2 days b. 15.5 days c. 13.8 days d. 16.3 days e. 12.8 days

Q: Data on Shick Inc. for last year are shown below, along with the days sales outstanding of the firms against which it benchmarks. The firm's new CFO believes that the company could reduce its receivables enough to reduce its DSO to the benchmarks' average. If this were done, by how much would receivables decline? Use a 365-day year. Do not round your intermediate calculations. Sales $104,000 Accounts receivable $16,000 Days Sales Outstanding (DSO) 56.154 Benchmarks' Days Sales Outstanding (DSO) 20.000 u200b a. $11,538 b. $7,726 c. $12,053 d. $10,301 e. $10,507

Q: Edwards Enterprises follows a moderate current asset investment policy, but it is now considering a change, perhaps to a restricted or maybe to a relaxed policy. The firms annual sales are $400,000; its fixed assets are $100,000; its target capital structure calls for 50% debt and 50% equity; its EBIT is $38,000; the interest rate on its debt is 10%; and its tax rate is 40%. With a restricted policy, current assets will be 15% of sales, while under a relaxed policy they will be 25% of sales. What is the difference in the projected ROEs between the restricted and relaxed policies? Do not round intermediate calculations. a. 4.85% b. 5.59% c. 5.70% d. 6.27% e. 4.79%

Q: Dyl Pickle Inc. had credit sales of $5,000,000 last year and its days sales outstanding was DSO = 35 days. What was its average receivables balance, based on a 365-day year. a. $436,301 b. $426,712 c. $551,370 d. $570,548 e. $479,452

Q: Singal Inc. is preparing its cash budget. It expects to have sales of $30,000 in January, $35,000 in February, and $22,500 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March? a. $31,415 b. $33,855 c. $30,500 d. $26,840 e. $22,875

Q: Inmoo Companys average age of accounts receivable is 86 days, the average age of accounts payable is 40 days, and the average age of inventory is 69 days. Assuming a 365-day year, what is the length of its cash conversion cycle? a. 116 days b. 107 days c. 115 days d. 139 days e. 124 days

Q: Whittington Inc. has the following data. What is the firm's cash conversion cycle? Inventory Conversion Period = 41 days Receivables Collection Period = 25 days Payables Deferral Period = 38 days u200b a. 28 days b. 32 days c. 29 days d. 25 days e. 34 days

Q: Romano Inc. has the following data. What is the firm's cash conversion cycle? Inventory Conversion Period = 38 days Receivables Collection Period = 19 days Payables Deferral Period = 35 days u200b a. 26 days b. 24 days c. 22 days d. 19 days e. 20 days

Q: Cass & Company has the following data. What is the firm's cash conversion cycle? Inventory Conversion Period = 40 days Receivables Collection Period = 17 days Payables Deferral Period = 25 days u200b a. 35 days b. 31 days c. 25 days d. 32 days e. 33 days

Q: Halka Company is a no-growth firm. Its sales fluctuate seasonally, causing total assets to vary from $295,000 to $410,000, but fixed assets remain constant at $260,000. If the firm follows a maturity matching (or moderate) working capital financing policy, what is the most likely total of long-term debt plus equity capital? a. $295,000 b. $330,400 c. $362,850 d. $227,150 e. $274,350

Q: Which of the following statements is CORRECT? a. Accruals are an expensive but commonly used way to finance working capital. b. A conservative financing policy is one where the firm finances part of its fixed assets with short-term capital and all of its net working capital with short-term funds. c. If a company receives trade credit under terms of 2/10, net 30, this implies that the company has 10 days of free trade credit. d. One cannot tell if a firm has a conservative, aggressive, or moderate current asset financing policy without an examination of its cash budget. e. If a firm has a relatively aggressive current asset financing policy vis--vis other firms in its industry, then its current ratio will probably be relatively high.

Q: Which of the following statements is CORRECT? a. Depreciation is included in the estimate of free cash flows (FCF = EBIT(1 T) + Depreciation [Capital expenditures + u0394NOWC]), hence depreciation is set forth on a separate line in the cash budget. b. If cash inflows from collections occur in equal daily amounts but most payments must be made on the 10th of each month, then a regular monthly cash budget will be misleading. The problem can be corrected by using a daily cash budget. c. Sound working capital policy is designed to maximize the time between cash expenditures on materials and the collection of cash on sales. d. If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10, net 30 to net 60. e. If a firm sells on terms of net 90, and if its sales are highly seasonal, with 80% of its sales in September, then its DSO as it is typically calculated (with sales per day = Sales for past 12 months/365) would probably be lower in October than in August.

Q: Which of the following statements is NOT CORRECT? a. A company may hold a relatively large amount of cash and marketable securities if it is uncertain about its volume of sales, profits, and cash flows during the coming year. b. Credit policy has an impact on working capital because it influences both sales and the time before receivables are collected. c. The cash budget is useful to help estimate future financing needs, especially the need for short-term working capital loans. d. If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10, net 30 to net 60. e. Managing working capital is important because it influences financing decisions and the firm's profitability.

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