Current Asset Management 1

Current Asset Management 1 - Your company is considering a...

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Old Exam Questions - Current Asset Management Page 1 of 12 Pages Current Asset Management 1. Your company has annual sales of $36,500,000 ($100,000 a day on a 365-day basis). On average, the company has $12,000,000 in inventory and $8,000,000 in accounts receivable. The company is looking for ways to shorten its cash conversion cycle (calculated on a 365-day basis). The CFO has proposed new policies that would result in a 20 percent reduction in both average inventories and accounts receivables. The company anticipates that these policies will also reduce sales by 10 percent. Accounts payable will remain unchanged. What effect would these policies have on the company's cash conversion cycle? A. 40 days shorter B. 22 days shorter C. 13 days shorterD. 22 days longer E. 40 days longer 2. Your company currently fills mail orders from all over the U.S. and receipts come in to headquarters in Gainesville, Florida. The firm's average accounts receivable (A/R) is $2.5 million and is financed by a bank loan with 11 percent annual interest.
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Unformatted text preview: Your company is considering a regional lockbox system to speed up collections which it believes will reduce A/R by 20 percent. The annual cost of the system is $15,000. What is the estimated net annual savings to the firm from implementing the lockbox system? A. $500,000 B. $ 30,000 C. $ 60,000 D. $ 55,000 E. $ 40,000 3. The accounts of your company indicate the following changes in long-term assets and capital for the past year: (1) Fifty thousand (50,000) shares of common stock were sold at $25 per share. (2) Two million dollars ($2 million) in bonds matured and were retired. (3) Dividends of $1 million were paid. (4) Net fixed assets declined by $200,000. (5) Net income was $2 million. (6) Depreciation expense was $1.5 million. What was the increase or decrease in net working capital? (Hint: Changes in net fixed assets incorporate changes in both gross fixed assets and accumulated depreciation.) A. $ 450,000 B. -$ 250,000 C. -$1,950,000 D. $1,950,000 E. $3,300,000...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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