Question 10 Helena Furnishings wants to reduce its cash conversion cycle. Which

Question

Question 10

Helena Furnishings wants to reduce its cash conversion cycle. Which of the following actions should it take?

Answers

Increase average inventory without increasing sales.

Take steps to reduce the DSO.

Start paying its bills sooner, which would reduce the average accounts payable but not affect sales.

Sell common stock to retire long-term bonds.

Sell an issue of long-term bonds and use the proceeds to buy back some of its common stock.

Question 11

A lockbox plan is

Answers

used to protect cash, i.e., to keep it from being stolen.

used to identify inventory safety stocks.

used to slow down the collection of checks your firm writes.

used to speed up the collection of checks received.

used primarily by firms where currency is used frequently in transactions, such as fast food restaurants, and less frequently by firms that receive payments as checks.

Question 12

A lockbox plan is most beneficial to firms that

Answers

have suppliers who operate in many different parts of the country.

have widely dispersed manufacturing facilities.

have a large marketable securities portfolio and cash to protect.

receive payments in the form of currency, such as fast food restaurants, rather than in the form of checks.

have customers who operate in many different parts of the country.

Question 13

Which of the following is NOT commonly regarded as being a credit policy variable?

Answer

Credit period.

Collection policy.

Credit standards.

Cash discounts.

Payments deferral period.

Question 14

Which of the following statements is CORRECT?

Answer

Net working capital is defined as current assets minus the sum of payables and accruals, and any increase in the current ratio automatically indicates that net working capital has increased.

Although short-term interest rates have historically averaged less than long-term rates, the heavy use of short-term debt is considered to be an aggressive strategy because of the inherent risks associated with using short-term financing.

If a company follows a policy of "matching maturities," this means that it matches its use of common stock with its use of long-term debt as opposed to short-term debt.

Net working capital is defined as current assets minus the sum of payables and accruals, and any decrease in the current ratio automatically indicates that net working capital has decreased.

If a company follows a policy of "matching maturities," this means that it matches its use of short-term debt with its use of long-term debt.

Helena Furnishings wants to reduce its cash conversion cycle. Which of the following actions should it take?

Answers

Increase average inventory without increasing sales.

Take steps to reduce the DSO.

Start paying its bills sooner, which would reduce the average accounts payable but not affect sales.

Sell common stock to retire long-term bonds.

Sell an issue of long-term bonds and use the proceeds to buy back some of its common stock.

Explanation / Answer

Question 10 : Take steps to reduce the DSO. Question 11 : used primarily by firms where currency is used frequently in transactions, such as fast food restaurants, and less frequently by firms that receive payments as checks. Question 12 : receive payments in the form of currency, such as fast food restaurants, rather than in the form of checks. Question 13 : Cash discounts Question 14 : If a company follows a policy of "matching maturities," this means that it matches its use of common stock with its use of long-term debt as opposed to short-term debt. Thank you.... Question 13 : Cash discounts Question 14 : If a company follows a policy of "matching maturities," this means that it matches its use of common stock with its use of long-term debt as opposed to short-term debt. Thank you....

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