A. What can a business that has too much working capital do to reduce it?

• a.)
• Relax its customer credit policy
• b.)
• Increase its current assets
• c.)
• Reduce its inventory
• d.)
• Decrease its current liabilities

B. Which of the following is a goal of working capital management?

• a.)
• To meet accounts payable as quickly as possible
• b.)
• To meet day to day expenses while minimizing the cost of holding cash
• c.)
• To maximize the overall cost of capital
• d.)
• To finance inventory costs with bank loans rather than supplier credit

C. A company has a 120-day operating cycle with 80 inventory days, 40 receivable days and 15 payable days.

What is their cash conversion cycle?

• a.)
• 135
• b.)
• 105
• c.)
• 25
• d.)
• 55

D. When managing its cash, a company can make use of float to __________.

• a.)
• receive the benefits of check kiting
• b.)
• hold on to cash for as long as possible
• c.)
• reduce the amount of money they must disperse
• d.)
• make payments promptly when they come due

E. Which of the following describes derivatives, rather than debt securities or equity securities?

• a.)
• They provide a company with easy access to capital.
• b.)
• Their value tracks with the performance of an underlying entity.
• c.)
• They are sold on a public exchange.
• d.)
• They usually generate the lowest returns.

F. Place the following steps for developing a credit policy in the correct order of process:

• A: The company decides that all payments must be made within 60 days.
• B: The company sets a minimum credit score for customers.
• C: The company decides it will hire a collection agency to help it recover past due accounts.
• a.)
• B, A, C
• b.)
• A, C, B
• c.)
• B, C, A
• d.)
• A, B, C