FM C Working capital management

Inventory is held for 60 days, receivables are collected in 45 days and payables are paid in 40 days. What is the cash operating cycle?

• 1 25 days
• 2 145 days
• 3 65 days
• 4 85 days

Which of these is a sign of overtrading?

• 1 Very high liquidity ratios
• 2 A fall in payables
• 3 Falling revenue and high cash
• 4 Rapid growth in revenue with falling liquidity and a rising overdraft

A business takes a conservative approach to financing working capital. What does it do?

• 1 Uses mainly short-term finance
• 2 Pays no interest
• 3 Uses more long-term finance, which is safer but costlier
• 4 Uses no finance

Annual cash needs are $1,000,000, the cost of each transfer is $50 and the interest rate is 5 percent. What is the Baumol transfer amount, to the nearest dollar?

• 1 $10,000
• 2 $44,721
• 3 $100,000
• 4 $20,000

Which model sets upper and lower limits for cash balances when cash flows vary?

• 1 The CAPM
• 2 The Miller-Orr model
• 3 The economic order quantity model
• 4 The Baumol model

Which of these is a way of speeding up the collection of receivables?

• 1 Not following up overdue accounts
• 2 Giving longer credit terms
• 3 Offering an early settlement discount
• 4 Removing credit checks

A discount of 2 percent is offered for paying 30 days earlier. Which formula gives the annual cost of not taking it?

• 1 2/100 x 30
• 2 (1 + 2/98) to the power of 365/30, less 1
• 3 (1 + 2/100) to the power of 30/365
• 4 2 x 365/30

Factoring is:

• 1 Buying inventory
• 2 Selling receivables to a finance company or handing it the collection of debts
• 3 Paying suppliers early
• 4 Issuing shares