finc620 week 6 quiz

Which of the following statements is CORRECT?

· Question 2

2 out of 2 points


	Which of the following is NOT a situation that might lead a firm to increase its holdings of short-term marketable securities?

· Question 3

2 out of 2 points

Data on Wentz Inc. for 2008 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.

Cost of goods sold =	$75,000
Payables =	$ 5,000
Payables deferral period (PDP) =	24.33
Benchmark payables deferral period =	30.00

· Question 4

2 out of 2 points

Romano Inc. has the following data. What is the firm’s cash conversion cycle?

Inventory conversion period =	38 days
Average collection period =	19 days
Payables deferral period =	20 days

· Question 5

0 out of 2 points

Whittington Inc. has the following data. What is the firm’s cash conversion cycle?

Inventory conversion period =	41 days
Average collection period =	31 days
Payables deferral period =	38 days

· Question 6

2 out of 2 points


	Helena Furnishings wants to reduce its cash conversion cycle. Which of the following actions should it take?

· Question 7

2 out of 2 points


	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 firm’s 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 $35,000; 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 thedifference in the projected ROEs between the restricted and relaxed policies?

· Question 8

2 out of 2 points


	Zarruk Construction’s DSO is 50 days (on a 365-day basis), accounts receivable are $100 million, and its balance sheet shows inventory of $125 million. What is the inventory turnover ratio?

· Question 9

2 out of 2 points

Desai Inc. has the following data, in thousands. Assuming a 365-day year, what is the firm’s cash conversion cycle?

Annual sales =	$45,000
Annual cost of goods sold =	$30,000
Inventory =	$ 4,500
Accounts receivable =	$ 1,800
Accounts payable =	$ 2,500

· Question 10

2 out of 2 points


	Which of the following statements is most consistent with efficient inventory management? The firm has a

· Question 11

2 out of 2 points

Cass & Company has the following data. What is the firm’s cash conversion cycle?

Inventory conversion period =	50 days
Average collection period =	17 days
Payables deferral period =	25 days

· Question 12

2 out of 2 points


	Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its non-free trade credit? (Assume a 365-day year.)

· Question 13

2 out of 2 points


	Kirk Development buys on terms of 2/15, net 60 days. It does not take discounts, and it typically pays on time, 60 days after the invoice date. Net purchases amount to $550,000 per year. On average, what is the dollar amount of total trade credit (costly + free) the firm receives during the year, i.e., what are its average accounts payable? (Assume a 365-day year, and note that purchases are net of discounts.)

· Question 14

2 out of 2 points


	Other things held constant, which of the following would tend to reduce the cash conversion cycle?

· Question 15

2 out of 2 points

Edison Inc. has annual sales of $36,500,000, or $100,000 a day on a 365-day basis. The firm’s cost of goods sold is 75% of sales. On average, the company has $9,000,000 in inventory and $8,000,000 in accounts receivable. The firm is looking for ways to shorten its cash conversion cycle. Its CFO has proposed new policies that would result in a 20% reduction in both average inventories and accounts receivable. She also anticipates that these policies would reduce sales by 10%, while the payables deferral period would remain unchanged at 35 days. What effect would these policies have on the company’s cash conversion cycle? Round to the nearest whole day.

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