davenport finc620 week 6 quiz latest 2015

| June 3, 2016

Question 1

2 out of 2 points

Which of the following statements is CORRECT?

Question 2

2 out of 2 points

Which of the following statements concerning the cash budget is CORRECT?

Question 3

2 out of 2 points

Margetis Inc. carries an average inventory of $750,000. Its annual sales are $10 million, its cost of goods sold is 75% of annual sales, and its average collection period is twice as long as its inventory conversion period. The firm buys on terms of net 30 days, and it pays on time. Its new CFO wants to decrease the cash conversion cycle by 10 days, based on a 365-day year. He believes he can reduce the average inventory to $647,260 with no effect on sales. By how much must the firm also reduce its accounts receivable to meet its goal in the reduction of the cash conversion cycle?

Question 4

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 5

2 out of 2 points

Nogueiras Corp’s budgeted monthly sales are $5,000, and they are constant from month to month. 40% of its customers pay in the first month and take the 2% discount, while the remaining 60% pay in the month following the sale and do not receive a discount. The firm has no bad debts. Purchases for next month’s sales are constant at 50% of projected sales for the next month. “Other payments,” which include wages, rent, and taxes, are 25% of sales for the current month. Construct a cash budget for a typical month and calculate the average net cash flow during the month.

Question 6

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.

Accounts receivable

$ 8,

Question 7

2 out of 2 points

Which of the following is NOT directly reflected in the cash budget of a firm that is in the zero tax bracket?

Question 8

2 out of 2 points

Soenen Inc. had the following data for 2008 (in millions). The new CFO believes that the company could improve its working capital management sufficiently to bring its NWC and CCC up to the benchmark companies’ level without affecting either sales or the costs of goods sold. Soenen finances its net working capital with a bank loan at an 8% annual interest rate, and it uses a 365-day year. If these changes had been made, by how much would the firm’s pre-tax income have increased?

Original

Benchmark

Data

Related CCC

CCC

Sales

$100,000

Cost of goods sold

$ 80,000

Inventory (ICP)

$ 20,000

91.25

38.00

Receivables (DSO)

$ 16,000

58.40

20.00

Payables (PDP)

$ 5,000

22.81

30.00

126.84

28.00

Question 9

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 the difference in the projected ROEs between the restricted and relaxed policies?

Question 10

2 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 11

2 out of 2 points

Which of the following statements is CORRECT?

Question 12

2 out of 2 points

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 firm’s cash conversion cycle. Using the following information and a 365-day year, what is the firm’s present cash conversion cycle?

Average inventory =

$ 75,000

Annual sales =

$600,000

Annual cost of goods sold =

$360,000

Average accounts receivable =

$160,000

Average accounts payable =

$ 25,000

Question 13

2 out of 2 points

Affleck Inc.’s business is booming, and it needs to raise more capital. The company purchases supplies on terms of 1/10 net 20, and it currently takes the discount. One way of getting the needed funds would be to forgo the discount, and the firm’s owner believes she could delay payment to 40 days without adverse effects. What would be the effective annual percentage cost of funds raised by this action? (Assume a 365-day year.)

Question 14

2 out of 2 points

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

Question 15

2 out of 2 points

A lockbox plan is

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