1. Outdoor Adventures Inc. 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
Spontaneous liabilities	$ 30	$ 10
Short-term bank debt	50	0
Long-term debt	300	300
Common equity	310	310
Total claims	$690	$620

What can we conclude from this data?

a.

Ski Lifts follows a relatively conservative approach to working capital financing; that is, some of its short-term needs are met by permanent capital.

b.

Without income statement data, we cannot determine the aggressiveness or conservatism of the companys working capital financing policy.

c.

Ski Liftss working capital financing policy calls for exactly matching asset and liability maturities.

d.

Ski Liftss working capital financing policy is relatively aggressive; that is, the company finances some of its permanent assets with short-term discretionary debt.

2. Bramble Companys average age of accounts receivable is 50 days, the average age of accounts payable is 45 days, and the average age of inventory is 72 days. Assuming a 365-day year, what is the length of its cash conversion cycle?

a.

66

b.

69

c.

77

d.

73

3. Filbeck Company buys on terms of 3/15, net 30 days. It does not take discounts, and it typically pays 30 days after the invoice date. Net purchases amount to $650,000 per year. On average, how much free trade credit does the firm receive during a 365-day year?

a.

$25,575

b.

$26,712

c.

$28,787

d.

$27,654