🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
Finance
1
answer
0
watching
583
views

INSTRUCTION: Answer all questions in this section. Each question carries 2 marks. Answer True or False to the following questions.

1. The cash conversion cycle of a firm is the length of time between the actual cash outflow for materials and the actual cash inflow from sales. To calculate this cycle, we need all the information used to calculate the operating cycle plus Days Payables Outstanding (DPO).

2. Net working capital is defined as current liabilities minus current assets.

3. Sales volume and collection period will be affected by a firm's credit policy.

4. Accounts payable, or trade credit, increases net working capital.

5. Efficient cash management is often concerned with speeding up the collection of cheques received and slowing down the payment of cheques issued.

Choose the letter a, b, c, or d that carries the best response.

6. The income statement reports the results of operations during the past year, the most important item being:

Net Income

Interest Expense

Earnings Before Interest and Taxes

Earnings Per Share

7. Which would represent claims against assets in the balance sheet:

Liabilities

Liabilities and stockholders' equity

Common stockholders' equity

Both common and preferred stockholders' equity

8. The two accounts that normally make up the common equity section of the balance sheet are and

accounts payable; accruals

common stock; retained earnings

long-term bonds; common stock

equity; liabilities

9. Accounting profits is different from net cash flow because

Net cash flow includes profits from operations.

Non-cash items are not included in the accounting profits

Net-cash flows take account of all non-cash items

Accounting profits overlooks depreciation and taxes

MGMT2023

Page 3

10. Which of the following represents an investing cash outflow?

An increase in holdings of stocks of other companies

A decrease in accounts payable

A decrease in gross property, plant and equipment

A decrease in accumulated depreciation

11. Which group of ratios show the combined effect of liquidity, asset management and debt on operating results?

Liquidity ratios

Debt ratios

Coverage ratios

Profitability ratios

12. Cottler Ltd. has current. assets equal to $4.5 million. The company's current ratio is 1.25,

and its quick ratio is 0.75. What is the firm's level of current liabilities in millions

$3.6

$0.18

$2.4

$2.9

13. You are given the following cash flows. What is the present value (t = 0) if the discount rate is 12 percent?

Time

0

1

2

3

4

5

6

Cash flows

0

1,000

2,000

2,000

2,000

0

-2,000

PV= ?

$3,277

$4,169

$5,302

$4,289

14. You invest $5,000 today. You will earn 8% interest. How much will you have in 4 years? (Pick the closest answer.)

$6,802

$6,843

$3,675

$3,475

15. You are buying your first house for $220,000 and are paying $30,000 as a down payment. You have arranged a 30-year mortgage loan With a 7% nominal interest rate and monthly payments. What are the equal monthly payments you must make?

$1,513

$1,464

$1,264

$6,922

Watch
1
answer
0
watching
583
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Lelia Lubowitz
Lelia LubowitzLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

Cash conversion cycle

The text identifies three principal components that jointly comprise the cash conversion cycle. The cash conversion cycle is defined as the average length of time a dollar is tied up in current assets, and it is determined by the interaction between the inventory conversion period, receivables collection period, and the payables deferral period. Ideally, a company wants to minimize the cash conversion cycle as much as possible. In some circumstances, a firm has a comparative advantage in working capital management because of the nature of its business. We will look at the cash conversion cycles of companies and their implications.

In your initial response to the topic you have to answer all 6 questions.

You are expected to make your own contribution in a main topic as well as respond with value added comments to at least two of your classmates as well as to your instructor.

Go to http://finance.yahoo.com and get a quote for one company of your choice. On the left column, scroll down and select “Income Statement.” Write down the annual sales and cost of goods sold for the most recent two years.

Select the firm's Balance Sheet. Write down the balances shown for the firm's inventories, accounts receivable, and accounts payable.

Using the information from parts a and b, calculate its inventory turnover, accounts receivable turnover, and accounts payable turnover. You should show your work!

Calculate production cycle, collection cycle, and accounts payable cycle. You should show your work!

What is the company’s cash conversion cycle? You should show your work!

Discuss the results that you receive in one paragraph. Should the company decrease cash conversion cycle? Please explain your answer.

In your responses to other students compare the cash conversion cycles of your company with the cash conversion cycle in another student’s posting. What factors are responsible for these differences? Are these differences firm specific or are they consequences of the nature of the businesses in which these firms operate? Please explain your answers.

2.0 Working Capital Management is key to maximising the profitability of a business. Identify a common benchmark for Working Capital, and explain the implications of moving away from this benchmark.

The following are the financial information of David Bookshop as at December 2015:

David’s Book Shop:

Current Assets

(at 31 Dec 2015)

Current Assets Current Liabilities

Cash at bank 2,500 Accounts payable 35,500

Accounts receivable 16,500 Other current liabilities 1,800

Inventory 34,000 Total Current Liabilities 37,300

Supplies on hand 600

Total Current Assets 53,600

Income Statement (extract)

(for the year to 31 Dec 2015)

Sales revenue 225,500

Less: Cost of Sales (136,800)

Gross Profit 88,700

2.1 Calculate the Inventory Turnover (times), and the Days Sales in Inventory.

2.2 Half of David’s sales are for cash, and half on credit terms. Calculate the Debtors Turnover (times), and the Days Sales Outstanding.

2.3 All of David’s purchases are on credit terms. If we assume that the value of David’s opening inventory is the same as his closing inventory we can conclude that Cost of Sales represents purchases for the year.

Calculate the Accounts Payable Turnover (times), and the Days Payables Outstanding.

2.4 Calculate David’s:

• Operating Cycle; and

• Cash Conversion Cycle.

Based on a number of operational challenges experienced over the last few years, Mitsubishi Technology is considering a review of its working capital policy. This will improve its cash flow cycle. Mitsubishi’s sales for last year were R3 250 000 (all on credit), and the net profit margin was at 7%. It had an inventory turnover of 6.0 times during the year and a DSO of 41 days. Its annual cost of goods sold was R1 800 000. Mitsubishi had a fixed assets of R535 000 and a payables deferral period of 45 days.

2.1. Calculate Mitsubishi’s cash conversion cycle. (6)

2.2. Assuming Mitsubishi holds negligible amount of cash and market securities, calculate its total assets turnover and ROA. (5)

2.3. Suppose Mitsubishi’s managers believe the annual inventory turnover can be raised to 9 times without affecting sales or profit margins. What would Mitsubishi’s cash conversion cycle, total assets turnover, and ROA have been if inventory turnover had been 9 times for the year? (9)

Weekly leaderboard

Home
Homework Help 3,900,000
Finance 370,000
Start filling in the gaps now
Log in