“tg (CHAPTER 12 | WORKING CAPITAL MANAGEMENT ‘THEORIES: 1 Working capil management ivelies‘nvesment and Branding decisions relat x & Plnt and ogepmont nd caren ibis foment ass and capil soci Sire aeets and crrent ables, tales end coat ‘The length of te between the acquisition of tventory and payment for its called the a 8 ‘Operating cycle Inventory conversion period ‘Account reevabe period Accounts payable defeal period Ignoring cost and oter effects on the Sm, which of the following measures © D. id ted to redce the cash conversion ce! ergo the ducounts tat re curently ig tken Matin dev cena sles decease Buy mare ra materials o take advange of pie beaks “Taba discounts when fered fe ngs ly mn go te st OB SER aw erry tn mt ey on, uo a © Bs ‘Adopting new inventory stan Yat increases the inventory conversion pei, Increasing the average days sales oustanding on is acount receivable Redacing the amount of tae the firm kes pay supplier everything die reine constant and fem nese it cash conversion ce, ‘i prftabity wil aly a Tnerege Increae eanings ae postive Deere Not boat 301would tend to have a(n) 7 Catone : ee GEE EE ew cart 7. The mansaction motive forhalding as isthe A. Acaley cation Daly operating eaqulrements ‘Compeneatingblance requirements D. Nentof the given ois 8. Thelonger the fr’ scounts payatle perio he ‘A. Longer the frm'scasheonversio prod. 1B Shertrthe fins inventory perio. C_More he delay nthe accounts receivable period Dyes erm maint wenger owag stents shut org capil cones HF Geet may ms 3 Protiabiy vars wi gy ae Then appench to Snag seives making mani of srthapetinccing ede D> Financing pemanet ventory bap with lngerm debt an example Garapseaie waking ps poy 10. Shortaerm financing pans wid high quit have ‘igh retum and high isk a rete acl moderte isk ow prafitand iow risk ,_ none ofthe given choices 11. When fim faces longer aes with shrt-ter ouces of freing it A Reduce he sk of cach shortage BR Willkave higher interest expen ae aes (Poetics 12," Te procedures followed by the frm for ensuring payment of it accounts recut recalled te A Discount policy Collection polity Credit poicy 302 D. Paya pty 1 7S Aa erage of he at flanger de opposed 0 sorte de fo Aieereee tess he kf the fin 8: Kemeny sess cosy then short-term debt peer paces eer rections cn ten Reesyonpey A Which of the foiowing 1g franca isrunents peealy provides the largest ‘oureof shots rei for sual fms? i, Coomassie Tadecedi D Mongagetonds 15. Theprinerteishe A Serefhecommimentfer ons commer bank oan Bete costofacommercl a onn ato cared ons lento borers wi igh cred rang 'BRatearwhich aban brows rm the Bango Set ng Ppnas ng aan ‘Compete «franca ition for service rendered by providing i with depots of unde 3s io campensite for pose ose oma maratabescutisportlo © Ie lvl of iventny hel to compensate fr vernon in wege ral nd ._Isanamount pid by franc incttuon to compensate large depostors 17. Which of the following is tue about fr Boat? ‘AA fm skves to minimize the Noa for both cash receipts and cash disbursements B.A fom tives fo masinice the fat for Yoh cash rept and cash SA irmsrves to maximize the fost fr cash recipe and minimize the oat for cath disbursements, fom sives to mimize the Heat for cash disbursements and minimize ‘he oat foreach ps, 18, A woking ap cq tines the payable oat and therefore delays teoutlo sees ‘A Concrraton ening nt.Bectonie Data Interchange EDD DL Alcor system oA 1B. A minimum checking account balance that a Sem must ma ‘commercial bankisa ‘A Traneacton tance B> Compensating balance ‘© Prenutonarytlarce DL Speculative balance ice sah ow 2 Wh fe ovine teen fa ter om marae Peters ou oe i {sve etl em how sone ; ERIE SNES me tt wt fom a toute fn ot ene aayenetpate point but not fom a cash 21, Temporary working capil supports ‘A thecash nods of the company 1 payment of ong term de. CC eplcion of enptal eipmant © sesonal pets 22. Determining he approve of werk apa fra firm equi ‘A eal ie tks asvcated wi vas ive of ned ase and he Pec tacd ean 1 Ganging he capt srr and aiden poly ‘ranting shorter atm the hwex pose Hel Beas s rally more expres germ det iting te be of ent ets and caent Dabs eps he pray of cilia. 22, Zap Company flows an aggresive Fisncng pol nis working capital ‘Euraperent we Zing Caporaton flows conservative Sancng pay. Wick one ofthe following stmt comet? ‘A Zap hos low ab of shots dott tal debt while Zing has «igh tl of horterm sb total det © © Epona iow coment ao while Zing haa high curren aio ‘Zap hase gly ik wile Zng has ore uty sk D. Zep finnce shorter atts with longer debt Wile Zing ances ‘heer ssl wi shen erm debe 304 ea Ihe wane nt “tele dati hee tome eu om rr tant of shart ‘reas te amount uly nang, The dierence Shown aet beeen the ah balance onthe fms books and the balance stew onthe bk secre seat compet Geiger sale custom ef en ies Thee een tie beeen pment for venoy and the alton of ah papal deal prod "vvtles conversion ped erat DS cohcomerenyde 2. basen noi stern oe ‘becomes less profitable 2 iit tego > Eocene The verge length of 2 ie peso sed up incurrent anti clled he: f mettre C, recabesonersen prod conven yd 2% Wake oogenesis come Ifa company loners 50, ‘but no changes occur in sales or operating costs, then the ee ‘ompanynigh we enduptha pe a npn ii wel en wahoo © cenpen wo poten op wih afte FOE compen toe owl ald 2 Wihot te adie gel py thei ean? 1 honey mae 0 Pemtyen © hu 0s odOewnessire oe ‘31. The mostimpertant considerations with respect vem eee So, Seams policy? 32 _Allbut hich of th flowing considered in determining crt poi ‘AL Creditaandarde BL Giedit mite ‘ ‘Accounts payable defenal period Collection efor Sih ing cant eee ayer pene 2 Theputnageaf cu alowes roy fame E. She dipwesto cles dow pig oa (© regi func tengo ecepale istomers. at Ron or uy al ue BS feat turd ea gor inows a Srnec rine hwy en © Sehitny monday wig ‘ pr cnn wa ie doe undo x that maintain very low or no inventory levels ave Tigher ordering costs 1B. highercanying corte C._ higher ordering and careying costs D. lower ordering and canying corte 36, Anoxample ofacarrying cost is ‘A. Disruption of peeducton schedules B. Quantiy discount ot Handling costs Obsolescence The amount of inventory that a company would tend to hold instock would increase ne the AS Le ine oa ene inert cet of carying inventory decreases variability of sls decreases D. costof running ot of tock decreases 305 oN fms wong cpl hs ime lb inne A sett otcanyingaventny any cost of opal SP ae faring end shortage cone ‘out soag pony “0. When spite tee of aft oc ca Sock i cased for an item in iaventory, the ‘erage inventory level for hat hems on a ea B. ‘one-half the level ofthe safey stoke Syne Beta Sat ate fits ee tara nt cee ce oe a om a ees eta 2 Siete pt ¢ Scene 8 Sptaegemanent ‘2 ich charges cos ae mst conducive to ewihing fom « uadonl ‘nvenor rteingeyiem ta justin time enderng act fun 4 omy tera © tet ot ‘© Tefen te none bein rma pi ioe "Crono order quantity noo 3072 ete he tng of prt een, mages es ‘Sale de cele gla Nametags, ‘Rene ga ep ns ond oat tlw scp ce Fes pete Eroatoedentireatcs CG wieeot pst ‘© Pepper Company changed fom a tonal man Pak 8 ado manafcringrbsophy ft sine ely ha ae ewe of nen freten_ tro: an vy a peerage of al se sepon oh ‘rein Temover—— nvey Peet 7 Decrease —" By ‘Decrease Increase on treme ome : ce ee $6 ther so 3/8/20, whith custome ayant can dat? of Reiptetetwece spine : The 8th cay isthe customer's decision date, E Anytime during the period, 8th to the 30th. ‘ D. Thad aay ate inary decane ne « sources of short-term financing include { ‘svetching payables “se | 8 Sgt 1 Fc inven Dd. ofthe given cies 4. Whi of the ftowing ash mamagenent teges foaes abersemene? oc ts 4 Lotboxsysem Preah ches i Zable coat Deport eat ches ©, owe Compury tus caret ees of P40 oo be tse of PeOM0 and cuentas of "on Wik of he towing weaned aes ts Weng Breet rte ‘Refinancing P500,000 of shart im deb em ee wong erm © Aegis hn vases P millon by bau caenen ack 308 . 1. Purchase of FS0OI0 marketable sect or esh, “igen as curent of 95 10 LO, Which fe fotcwing wld aise Uhecompanysement ato? Th Pays of eco payable By lth mechan in 2/10, ne 30 open aman cancion of acourts receivable 1, Deeamton etch vend. PROBLEMS Linke Company hasan inventory conversion ped of 6D days, a recevable van pod dys, au payne of 9a, Wit Sago the firm's cash conversion eye? fs days Ee shaaye PSD Haan D. wsaays Samaritan Supple, Tne. tas nyentry and 2 ion in acousts sae e dverage daly ara FLOOD. The conpary has PLS lions ‘een papules average daly parchuses are TG, Wha i the ength of Soe ee nes on Se seme imeon DER Naor waren em, i “ue Geng te nod ne gat vat te ing ee ell 3 er ee B mae oar Pe ao a, Jala Compacy has PS min of average Inventor's aes of 70 allon, 1 Ving 30 doy you cael the face vestry conweson pid: SM pg tesa aa ye TH & say Sana = Oy 5. What ae he ees rl ving fom eo pi hat alec 29 vee eas eng ont nk onder ating ree SS ae topkcndy viens pce aac ee ayn) YAY OR ® ame 5 ream Sip on 6. Sie nha atlas eah eee 9075 00 wh ase oe Seat a "She opps to ives ts many a 20% pr ERE + soy 209 Ty10 sedan ORs gas conversion 10 \ anu, The company spends onthe average, 0 7a imarkenblesecurie. hash pina a convertion ‘Peooeo 755.00 B, P7500 sh a ‘Newman Products has raved popes fon seve PM Sop hac Iacono, Newman er day everpng PCD each sd cst of ae cea ae rtm w pede ules PCSIETSNS Ty SUES ia wil one ete owing props orga STS RAPD SOR perchodk JO KID KO? B Recoroateafteamnt ciate 710% 7% Rinieeot Pisa perye (EE ag Gi aerpectine mance cr rizsoen 5. Fao SP cash sh Hyperbole Corporation estimates its total annua + ESL250 wich are to be pid sf. Fipeoke he he CPPS, invest the money at 9% per anrum, Te compuTy SF’ focevery seh conversion to sbarketablesecortir and vie Vert, vats once nibs o pay Sc GREE [rns Shins HU, 0h) I ah, ai e | ses np Company hn cB cei pt of ye ‘evivable conversion period of 30 days and » paeble payment ptiog of : sconce ntl ced ml ed eee cn ae ceromimiatoinmemcsninne a eee, es ms em = bait, (he yey % J27he abe Wat ithe verry peri for with an nda ost of goods od of PS MENSE Pus multon injovorage inventory. and a cash conversion epee of 75 C520 days B 1e7sdaye ISH ) s0days Wye i ys as | 310 1. Wate SOLAS ete ta aig fm aden sen at ca 50 HSE er ay svergig FU sched eds ling ae prowese@ MES pS sey spect th anal ns nes 74? IGN HY 9% 2 amy? Casi Com Fy tans ou 2 aes» eter ins to aya ct of P20 er fx mata a wr crveson cn test a Bday cone Ry teal no clea Cas’s uaa cedt tre ote 9 8 10 aya the im eer ye spn 2 dos a era Same eats Be arid a mos) x34" Te Presa PHW-m) 5 Fim om Company ssn tras 3/100, Tle heya a 50 ery Yo hc poy mh et nya ae san rf prc eyo verge ayn afer pass Whats repr amounel ee? run eF7um — qnow SPB mnpcions) 5. Poa LF a = _ Pion t1hogh se on holla Sonate Companys consider changing ite ret rm fom 2/5 net 30 3190 in erro ped eae. At rant 4 pron of Sota Corps utr take 2 ert denon. Under Bn rm can ames expe ee 0 50 pte rd hector lot tr cnt ed {ay en tine, ra treater el py 10 dye ate Te change des no ioe € rls elt Ser fo a tae eat ep i soe Ba rset 2 pct el Hen he mre grrr ak ct tr a pected Tus 2 mint F26 lor pr yr. Sort Company rile ae 4575 pratt alo nde ed cots a 9 percent ad te fim snc ete pera 1A Wht eh iE) enka sng of Goa rescemeeny Come PY 601209 C0280) S usuneazoanecruey =F © assayeant say pes ete X40 5. madgadmsan wean? (HoH w50)N(28 ¥ 48) au@ nus) yo Depress prot woul all 0 Howeve % va ooo ‘Variable costs arg Z5 percent of sales and Tn esinte PID erly - Ue ccotof crying receahes pce Assume atx at of 0 percent sd 0 Say per gee Vie would be he degen nvertnent in rca ifthe change were Pouca RF nosy BB KHIR Se 25075 Pitt sam 0 Se Bai scape Company seaaly pay id Steaua pafabie onthe tenth day and enjoys te P pee eth rot me 2700 rt 30. ecu ofan veg re pps bcp isda Wa ea oF at net of paying an ae on ied of te a se 0 cays yur @Sist Fag 2D = 543 C 900% 3 208% 50 Doo 210-20 cap Canpry uy pays acon payabin th eth day and enoys fe Z poet cach ducount tom 260, be 30, Besos ofan oveigh one fspplers nce tpl win he acre prod bt pd To ‘iki the taal co ott net of paying an ce Ino het nt Use ays B some Ze. yD. 200% Wy s040 Mercado fers its customers ret tems of 5/10, net 20. Onethird of the ‘stoners take the cath discount andthe remaining customers pay on day 22. 20 units aresld per day, pied at P1000Deach. The rate of sles ore tht te yar Usng» 30 day yer, he company ban) sous cpl othe fal ay of Sas range Yoxo = 43 Yoxw* B% 92 Tat B Baays i eo 20 zope boa + ree Chiles Bupa Sado 300 Ae ae B Paseo 2 xz77,5"16 ee : @ creme far pom hang ince er 8 agg BB Srey tenner ere He O” om Go 5 ss dye) TRE sana o 27° (23 Gan eth cle ram Da a? oy cary, nx Cn Baeind {Sie pre nd te wea calm crane satan igen Soccmeeramipecracmee Foret Sey reat peso gat nau cia of as ieee PU Panos ence ema PBiOideome A DKW gy 3a ; D. mare7rtincrne “DEAT, sys EAH 7 ‘ sapiens om geet wif te wt te econ “Saat carmel ena ican tentang maaan Sigrnuec anne emenme ner Pema ging oc ememana sisi a Sen ‘xzeRes over the year, Fees and intrest are ot deducted nae pom lon NEKION, F10% = &¢ CT6O% + tis Sage Nese ie { 7% Taramount Crpotion is ofr de cl terms of 3/15. 45. The fm os ot take avannge ofthe dacourt and ips the acount afer ‘sig 35 yer pat sth noma eating dicount? i Ba GR gee Bae 27% Dan LM f ZnB ay ae mM aisoy poi: A i ‘Whats he economic order quantity fo the following S77 pant and the Selo S00 ge of pret sex pe ee, Te se SEiyng costs pg 7 S00 er > towbar 5. 1am arian Cotas deter he faowing for ee" ris connie oder quantity (tend rds) sete ap ‘outcst spn pcan ordes for hee pony BS Gast pce pcre oder a (Cort to carry one unt fer one yest Mie seed nex aa is gina seri te mam [EEF sna 0 Compr do tna tenn a eet sep crore pe seit ater g sare Corr SM fd Rn anon mt Corr dn ane mse Sr ee hay faim ‘apes tate of 0 ape pt eek ‘ate Mart came 20% on 3 cash investment. The purchase order eid ime is two weeks, ‘Thefoliowing cost data are available: ‘Relevant ordering cot per purchase order Carrying core pe peckage per Year Relevant insurance materials ‘breakage ef. per year Whats the equied annual turn on investment per package? AL P5000 200 BP 250 P eo “For Raw Material L32, a company maintains a safety stock o 5000 pounds, te Pe apes x 2% = atu ra inact ay 100 pn, Wht wr tebpput oer unt? im a aloo Puyo “Bl 6o00its. ‘Dy 24000 bs. ae) Peeng Company utes the EOQ model for inventory contol. The company as fan annual demi of 8000 unis for part mumber 6702 and has computed sp. ‘Optimal lot siz of 6280 unite, Peri earying costs and sockou cost are 1 WD= ¥ opm M4 + 32 GID 314 sn({ Pp respectively. The following dat have been gathered in an ate an propriate safety stock level: ees aces Ww: [ey sb 3 ETE sayy EO Yfeom-19) 92x95) S09" Yiem-ay von] 810 2p teiue Beene sae + Ci x9) = co 1 Bos, con} 00 2-30 Kean gorse x. 2 80 a Nomar ner dosing GAS 4: ms (atx) = G00 nee a eos oe 7 ® Durable Furniture Company uses about 200000 yards of a partials fabric ‘each year. The fabric costs P25 per yard. The extent policy ist order the fabric four tes a year. Incremental ordering cots are shout P20 per order, snd incremental carrying costs are about PO75 per yard, much of which ‘eposunts the opportunity ost ofthe funded up in inventory, lee enc ae ney? Seances 3 isz0 4 D. reason SUB xOar 90 Sige Cong tng mich na tin, cat es Sarco pst min ces but inventory would increase from PLOOOCOO to P1a00000. Nae would haveto finance the extra inventory a cost of 105 percent ‘wnat rim inte amas level production feasible? a epee SS B Sasbecet iopet XE frm en ede te 20 9 te a hf failing to take the discount i: } FO Ome toe 74 ‘ Dwoe. — 325, 423 ® ato. “The cortf dicount mised om ret terms of 2/10/60 8) 15 pct BB BS aseit een of1/10,0/40. Abani 08 fF SA Aninvoir of «100000 pschase has cet eso 1/10 a percent can be arranged at any Sine invoue?| oh on he doy BQ, * 12.91% 7 Pyonere se © Payontheeom D. Payonthesoe sth of rar sterils fom 18 0, net 0, and payment i pl ele ga oe 20 gto eam eae TE 7 intorest rate on this Ian is 12%, what wil be the net peso savings Or Te ‘mercial Racin ee na ee eos very 15 days @ company receives F10,000 wot apples. The eet tars for these purchases ae2/1 G2 A company tas scouts payable of 5 millon with tems of 2% dscant SEES lage nent days G79 et 30, ean boo funds rom bak rey tn anual ae of 12%, or can wt ol the Sh day when tw mat borrows funda ome last day of the Tevenues to cover the payment. Hf # borre cat “Renan prod order cnn hp doar OY AP sift ies ese psmies M0? oe 8 Pucseotes Be msvaenGneaee |i AS ee tent ni pet @ ‘of high selling products for the coming year. 1s exppierquoed Ee seer inate ie, Seer rt we soe ce Sear scopes aay cheng 90 ante ahg mpg eh ea SO pbisnb alan manana ria 70 ot SO Paso B P135/000) G09. 5 x. 38. You plan to borrow P1000 from your ata 10 percent nominal, o stated, {strech oan trnk, eich ofes to lend you the money von a one-year oan. What ste effective See Bae Pls Company borowed from a bak an amount of P0000. The bank Treg ea stated rate nan addon arangemen, payable sn 12 equal sont instalinent Iinx\2%7 }220— = Cimy(B\) = FAUT 316 7 ans (Fring ton a. vs Q ars < sue ee, D. 12.70% wes 18% discounted oan for 50 des, PDO. wit | Menger ore 10, HP Rime Bae CPS OO ina. ao ‘Gone tc ait tis bona for tenet 6 maths. The Sanya a of cet with a ban hat awe the oro fad laren ae sje compay to ths 10% 1s fas po fonds coger Carey, Cape sm funds on dept wth the bank and wil reed the loa to cover he ‘compasatngbalice as wellas their other arcing onde ow mech Calon ned oro? el Fenn ‘c. F25600 7 © receno ©. sam eee coporge io what wi be, oc APE for hs olay © (AOL) (toons 0%) Rink “Gaevey gp Bt 2 300 Gy) prong. he leaking scheme smrang he mere i Ps hein SCS a YOY DE _ 91g a D. mio (yay-ane) ey) (44 The Premiere Company obtaaed a shorter bark lawn for FLEIO000 at an 14.2% ‘al not at 2h. As cndion ie oy Pre i ued 1 "aa » Gopaceng bre € POLGD in Gucig wc Te sesking acount cans terest Taal te of 98, Premiere woud =a i cing nt or Sas a crseitelons IHU é © 630% aK 7 ib @yuss > So Bae cA ia : ay -19 > Sb 45. The Perna Cone Barkan Mand Corton peed he flowing, los propo * Stat intrest tec 10% on one yea dscouted oa; and +! 15% of he loanascompencatingtalance on aero nirest current acount ‘bemainnined by lsd Corporation with Perrsla Comercial Bark. ‘The ean requires a net proceeds of PS milion. Whats the principal amount flo applied foras pr ofthe oun agreement? ame =sl0xX- ee 00 ag 7 a7“ ©. @ se rises Peto 5. Puisom ‘The Ce Company ha evan oe fet of F200 witha neat Ge Spektor leet rand 2 poco comaitnent ee we acel pote af he nee The average an lace dug the Siatoes look Tear gt parc eangenent a meas Pin Bream mets* BL rr (0s Janay 1, Ricblaea Corporation rocivd a P0200 ine of credit at an Inert ae of 12% from ESQ Bank and drew down the ene amount on Fatrnry 1 Thelin of dit areent requires haan amount ua 015% of the lane deposits ino a compersoing nance econt. Whats he effective sera cot of red for thi oan . ae peron FwK = sy a + 25 no ere, OM ‘eho rowed P1000 from an ona aneyer 8% term oan with interest and p> What the eetve anual interest on the an? * ok ‘The Friendly Bank fs AB Unite a 7200000 ln of red with an interes rate 0f 225 perce per qure. The ert Sng aia rgues that 2 percent ofthe ‘unused portion of thee line be depeted ina nvr bearing account 8 compensating alace. AB United's shorter investment ar paying 1.5 percent per quer. Arum any funds borrowed or invested we compound What hte anal nr ten his range if eine of cet eee? os sos © cos tos oy Sans Neve Town Bank offers «725,00 ine af erot with an interest rate of 2 percent ‘er quarter, The loan agreement aso equines tat 5 percent of Ge ane orton of the credit line be dapasted in’ norintrest bean secoun ae a ‘omperating balance, Short ser investments ae carenly paying 1 parent er quarer. “Assume any fans borrowed or invested use compeu inter tt isthe fictive ann inteest rte on the tne of exe fa customer Sones he tie P00 fo ae ya? A 85% Ti bis4y 9am a8 ocieeee omnes tee eee pie en Pre ia Aa a sax ture x a% male Si Lay Cay a etonatasnqenenes bree hon te pl ene egy fas teppei ect er eu Tee i vet he money a ‘Spend on te everge or eve cack ‘Pevenion ochand es What he al SR Soy a ear = " Zar x45 ream Paavo — D. Pass 108 53 ef borows FS te ciectvetumcraes TN SPASEM OFA eer counted oan what i 800 penne 7 . oees a Sx 5. Rao a 5 Ula te sane mi Ue capa Soros PID on 2 6 pet inthe cnpyting bane at eae) Tape © Sofa 6 cance QWEX GX + wo \2 . (20 WA) - yy = AMF