Sure, thank you! I think I have access to both now. I will paste in the first then let me know how you want to proceed with the 2nd. I can either add money as a "tip" here, or make it another question entirely. Let me know.


Question 1
1.
Swim Suits Unlimited is in a highly seasonal business, and the following summary balance sheet data show its assets and liabilities at peak and off-peak seasons (in thousands of dollars):
Peak Off-Peak
Cash $ 50 $ 30
Marketable securities 0 20
Accounts receivable 40 20
Inventories 100 50
Net fixed assets 500 500
Total assets $690 $620

Payables and accruals $ 30 $ 10
Short-term bank debt 50 0
Long-term debt 300 300
Common equity 310 310
Total claims $690 $620

From this data we may conclude that
Answer

Swim Suits' current asset financing policy calls for exactly matching asset and liability maturities.

Swim Suits' current asset financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt.

Swim Suits follows a relatively conservative approach to current asset financing; that is, some of its short-term needs are met by permanent capital.

Without income statement data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.

Without cash flow data, we cannot determine the aggressiveness or conservatism of the company's current asset financing policy.
Question 2
1.
Which of the following statements is CORRECT?
Answer

Accruals are an expensive but commonly used way to finance working capital.

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.

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.

One cannot tell if a firm has a conservative, aggressive, or moderate current asset financing policy without an examination of its cash budget.

If a firm has a relatively aggressive current asset financing policy vis-à-vis other firms in its industry, then its current ratio will probably be relatively high.
Question 3
1.
Which of the following statements is NOT CORRECT?
Answer

Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate.

Accruals are "free" in the sense that no explicit interest is paid on these funds.

A conservative approach to working capital management will result in most if not all permanent current operating assets being financed with long-term capital.

The risk to a firm that borrows with short-term credit is usually greater than if it borrowed using long-term debt. This added risk stems from the greater variability of interest costs on short-term debt and possible difficulties with rolling over short-term debt.

Bank loans generally carry a higher interest rate than commercial paper.
Question 4
1.
Zervos Inc. had the following data for 2008 (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?
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

Answer

34.0

37.4

41.2

45.3

49.8
Question 5
1.
Ingram Office Supplies, Inc., buys on terms of 2/15, net 50 days. It does not take discounts, and it typically pays on time, 50 days after the invoice date. Net purchases amount to $450,000 per year. On average, what is the dollar amount of costly trade credit (total credit  free credit) the firm receives during the year? (Assume a 365-day year, and note that purchases are net of discounts.)
Answer

$43,151

$45,308

$47,574

$49,952

$52,450
Question 6
1.
Which of the following is NOT a situation that might lead a firm to increase its holdings of short-term marketable securities?
Answer

The firm must make a known future payment, such as paying for a new plant that is under construction.

The firm is going from its peak sales season to its slack season, so its receivables and inventories will experience a seasonal decline.

The firm is going from its slack season to its peak sales season, so its receivables and inventories will experience seasonal increases.

The firm has just sold long-term securities and has not yet invested the proceeds in operating assets.

The firm just won a product liability suit one of its customers had brought against it.
Question 7
1.
Firms generally choose to finance temporary current operating assets with short-term debt because
Answer

matching the maturities of assets and liabilities reduces risk under some circumstances, and also because short-term debt is often less expensive than long-term capital.

short-term interest rates have traditionally been more stable than long-term interest rates.

a firm that borrows heavily on a long-term basis is more apt to be unable to repay the debt than a firm that borrows short term.

the yield curve is normally downward sloping.

short-term debt has a higher cost than equity capital.
Question 8
1.
Which of the following statements is CORRECT?
Answer

Under normal conditions, a firm's expected ROE would probably be higher if it financed with short-term rather than with long-term debt, but using short-term debt would probably increase the firm's risk.

Conservative firms generally use no short-term debt and thus have zero current liabilities.

A short-term loan can usually be obtained more quickly than a long-term loan, but the cost of short-term debt is normally higher than that of long-term debt.

If a firm that can borrow from its bank at a 6% interest rate buys materials on terms of 2/10 net 30, and if it must pay by Day 30 or else be cut off, then we would expect to see zero accounts payable on its balance sheet.

If one of your firm's customers is "stretching" its accounts payable, this may be a nuisance but it will not have an adverse financial impact on your firm if the customer periodically pays off its entire balance.
Question 9
1.
Atlanta Cement, Inc. buys on terms of 2/15, net 30. It does not take discounts, and it typically pays 60 days after the invoice date. Net purchases amount to $720,000 per year. What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?
Answer

10.86%

12.07%

13.41%

14.90%

16.55%
Question 10
1.
A firm buys on terms of 3/15, net 45. It does not take the discount, and it generally pays after 60 days. What is the nominal annual percentage cost of its non-free trade credit, based on a 365-day year?
Answer

25.09%

27.59%

30.35%

33.39%

36.73%
Question 11
1.
Weiss Inc. arranged a $9,000,000 revolving credit agreement with a group of banks. The firm paid an annual commitment fee of 0.5% of the unused balance of the loan commitment. On the used portion of the revolver, it paid 1.5% above prime for the funds actually borrowed on a simple interest basis. The prime rate was 3.25% during the year. If the firm borrowed $6,000,000 immediately after the agreement was signed and repaid the loan at the end of one year, what was the total dollar annual cost of the revolver?
Answer

$285,000

$300,000

$315,000

$330,750

$347,288
Question 12
1.
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

Answer

120.6 days

126.9 days

133.6 days

140.6 days

148.0 days
Question 13
1.
Dyl Pickle Inc. had credit sales of $3,500,000 last year and its days sales outstanding was DSO = 35 days. What was its average receivables balance, based on a 365-day year?
Answer

$335,616

$352,397

$370,017

$388,518

$407,944
Question 14
1.
Which of the following statements is CORRECT?
Answer

A firm that makes 90% of its sales on credit and 10% for cash is growing at a constant rate of 10% annually. Such a firm will be able to keep its accounts receivable at the current level, since the 10% cash sales can be used to finance the 10% growth rate.

In managing a firm's accounts receivable, it is possible to increase credit sales per day yet still keep accounts receivable fairly steady, provided the firm can shorten the length of its collection period (its DSO) sufficiently.

Because of the costs of granting credit, it is not possible for credit sales to be more profitable than cash sales.

Since receivables and payables both result from sales transactions, a firm with a high receivables-to-sales ratio must also have a high payables-to-sales ratio.

Other things held constant, if a firm can shorten its DSO, this will lead to a higher current ratio.
Question 15
1.
A lockbox plan is
Answer

used to protect cash, i.e., to keep it from being stolen.

used to identify inventory safety stocks.

used to slow down the collection of checks your firm writes.

used to speed up the collection of checks received.

used primarily by firms where currency is used frequently in transactions, such as fast food restaurants, and less frequently by firms that receive payments as checks.

sounds good

1 hour 40 min

Perfect, thank you. Do you have time now or would another day/time be better? It doesn't have to be completed until Friday if you are busy tonight.

Good for you! I will send the question over as a new request. Enjoy your weekend off.

Having trouble finding the link in my online classroom. Apparently I am not the only one. Professor said it was posted but no one can find it. If he makes it available tonight I will check back with you.

Sure, Thursday would be fine. What time is best for you? I will be working from home all day so I am flexible.

Perfect. Have a good night!