Lab 15 Problems with Key by JWv8eZ


									                                     Chapter 15 Problems
                                (Show work were appropriate)
7.     An aggressive working capital policy:
a.     uses more short-term financing than long-term.
b.     uses short-term financing to support only the peaks of temporary working capital.
c.     supports a portion of permanent working capital with short-term financing.
d.     both a & b
e.     both a & c

14.   An effective program of working capital management requires that:
a.    the firm run with the absolute minimum in each current asset account.
b.    a series of cost/benefit tradeoffs be considered because running a business is easier with
more working capital than with less, but holding working capital costs money.
c.    large inventories be maintained to adequately service customers.
d.    credit can be easily granted to customers to encourage higher sales.

16.   Temporary working capital is:
a.    the seasonal borrowing capacity of a firm.
b.    incremental working capital necessary to finance slower than expected collections of
customer receivables.
c.    incremental working capital necessary to support peak activity in seasonal businesses.
d.    additional payroll cost and expenses incurred during seasonal peaks.

50.     Credit terms of 1/10, net 30 mean:
a.      purchases made between the first and tenth day of the month must be paid by month end.
b.      if the vendor is not paid within 30 days, 1% interest is charged for every 10 days
c.      the vendor will grant a discount of 10% for payment within 30 days.
d.      the vendor will grant a 1% discount if paid within 10 days; otherwise the bill is due in full
within 30 days.

62.    Large, strong companies frequently resort to commercial paper as a source of short-term
funds because:
a.     commercial paper dealers and lenders are flexible about repayment terms.
b.     commercial paper is normally cheaper than other sources of short-term credit.
c.     interest rates on commercial paper are very stable.
d.     all of the above

75.     Under which of the following inventory financing arrangements does the borrower
remain in physical control of the inventory?
a.      Blanket liens and chattel mortgage agreements
b.      Field warehousing
c.      Public warehousing
d.      The borrower doesn't remain in complete physical control of the inventory under any of
these arrangements.

147.    Calculate the effective interest rate of a 2/5, net 25 terms of sale, using a 365-day year.
a.      24.5%
b.      36.5%
c.      42.5%
d.      55.5%

127.   What is the effective rate on an 8% loan subject to a 10% minimum compensating balance?
a. 10.0%
b. 8.0%
c. 8.89%
d. none of the above
131.    If a vendor’s invoice states terms of sale of 2/10 net 60, the implied annual cost of interest from
foregoing the discount would be:
a. 13.2%
b. 14.6%
c. 2.0%
d. 13.7%
143.    You plan to place an order with a new supplier. You have been offered terms of 2/10, net 50 from
the date your supplies are shipped. The cost of borrowing from the bank is 15 percent on an annual basis.
What is the best course of action in paying the supplier, assuming the firm will need to borrow if it takes
the discount?
a. Pay as soon as supplies are received.
b. Pay on the 10th day.
c. Pay on the 50th day.
d. Pay on the 51st day.


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