ch 22 (for final)

True

The owners of Pacific Writing Instruments are an example of how their understanding of the timing and needed investment in working capital helped them in their merger with Baumgartens.

The owners of Pacific Writing Instruments are an example of how their understanding of the timing and needed investment in working capital helped them in their merger with Baumgartens.
True or False?
True

Aging accounts receivable can indicate troublesome accounts.

Aging accounts receivable can indicate troublesome accounts.
True or False?
False

The calculation for days in payables is very similar to days sales outstanding and days in inventory.

The calculation for days in payables is very similar to cost of goods sold and days in inventory.
True or False?
True

The goal of the cash conversion period is convert paid-for inventory and accounts receivables into cash as fast as possible.

The goal of the cash conversion period is convert paid-for inventory and accounts receivables into cash as fast as possible.
True or False?
True

The management of a small firm’s long-term assets is called capital budgeting.

The management of a small firm’s long-term assets is called capital budgeting.
True or False?
False

A firm’s cost of capital is the rate of return that a firm must earn on its investments in order to satisfy its debt holders and its owners.

A firm’s cost of capital is simply the interest rate it must pay on its loans.
True or False?
True

The internal rate of return method estimates the rate of return that can be expected from a contemplated investment.

The internal rate of return method estimates the rate of return that can be expected from a contemplated investment.
True or False?
False

The payback period technique only measures how long it will take to recover the initial cash outlay.

The payback period technique measures how long it will take to recover the initial cash outlay and the total amount of interest unearned over the payback period as an opportunity cost.
True or False
True

Approximately 55% of entrepreneurs use some type of quantitative measure in making capital investments.

Approximately 55% of entrepreneurs use some type of quantitative measure in making capital investments.
True or False?
involves managing long-term assets and liabilities.
Working capital management
Capital budgeting
Which financial process is not part of managing working capital?
Accruals
Which asset is not used to calculate net operating working capital?
cash, accounts receivable, inventory, and accounts payable.
Management of working capital focuses attention on
sell the inventory for cash or credit.
The second step in the working capital cycle process is to
inventory is sold on credit.
The third day in the working capital time line is
payment of inventory.
An account that is not part of long term cash flow is
Depreciation on book binding equipment
For Eric’s book company, which item is not a cash flow?
Small businesses were averaging $1,500 in overdue customer payments monthly.
Which statement is true concerning the study on small firm’s management of accounts receivables?
a credit sale
The life cycle of receivables begins with
using a bank, lender, or other finance company.
Accounts receivable financing might include
lock box
Most companies who involve the US Postal Service in collecting customer payments use a
pledging receivables
Tres has received a large contract and has taken a loan to buy inventory. Considering the timing of the loan, Tres may be ____________ to complete the contract.
Calling
Which suggestion did Marc Levin, CEO of The United Companies, find the most useful in decreasing the company’s accounts receivables?
days in inventory.
The number of days, on average, that a company is holding inventory is called
discover how long items have been there.
The first step in monitoring inventory is
being overly optimistic about realistic sales.
Small business managers tend to overbuy inventory because of
Software programs supplemented by a required physical inventory will assist in inventory control.
Which statement is true concerning inventory management programs?
makes a large difference since a business pays a high rate.
Failure to take cash discounts offered by suppliers typically
reduce the amount of
Accounts payable ____ cash available for the firm when payment is made.
10
Assuming that cash is available, payment for an account payable with terms of 3/10, net 30 should be made on day
43 days
A company with accounts payables of $35,000 and cost of goods sold of $300,000 would have days in payables of
decrease
The goal of the cash conversion period is to _____ the number of days.
two of the above are correct
When managing working capital in relation to the cash conversion process, which dimension is the most critical?

-credit

-money

-time

-two of the above are correct

capital budgeting.
Long-term investments are the focus of
discounts to offer to customers.
The main purpose of capital budgeting is to help managers make decisions about
44%
In a study by the National Federation of Independent Business, what percentage of the respondents reported their companies had made significant investments in offerings either by extending or expanding product or business areas?
replacement and maintenance.
A study by the National Federation of Independent Business reported most of the respondents had made large investments in
Do the future benefits from the investment exceed the cost of making the investment?
Which question do all types of capital budgeting techniques try to answer?
How does the present value of future benefits from the investment compare to the investment outlay?
Discounted cash flow techniques answer the question of:
accounting return on investment.
“How many dollars in average profits are generated per dollar of average investment?” is answered using
payback period technique.
“How long will it take to recover the original investment outlay?” is answered using
discounted cash flow analysis.
“How does the present value of future benefits from the investment compare to the initial investment outlay?” is answered using
ignore the time value of money.
The payback period and accounting return on investment techniques
discounted cash flow techniques.
An understanding of the present value of a future dollar is important when one is using
quantitative measures.
In making capital budgeting decisions, the National Federation of Independent Businesses reported about 55 percent of small business owners tend to rely to a significant extent on
non-financial issues may be more important for a small firm
A reason that a small firm would not use a discounted cash flow technique in evaluating capital investments would be
over-capitalization.
All of the following reasons are why a small firm would not use a discounted cash flow technique in evaluating capital investments except for
gut feel.
The National Federation of Independent Business asked entrepreneurs to indicate the method(s) they used in analyzing capital investments. Over 25% responded
True

During the cash conversion period, the firm no longer has the benefit of the financing provided by the supplier.

During the cash conversion period, the firm no longer has the benefit of the financing provided by the supplier.
True or False?