Strayer FIN534 Week 9 Homework Assignment Chapter 16

FIN 534 Week 9 Homework
Assignment Chapter 16
1.
Summary balance sheet data for Greener Gardens Co. isshown below (in thousands ofdollars).
The company is in a highly seasonal business, and the data show its assets and
liabilities at peak and off-peak seasons:
a. Greener
Gardens’ current asset financing policy is relatively aggressive; that is, the
company finances some of its permanent assets with short-term discretionary
debt.
b. Greener
Gardens follows a relatively conservative approach to current asset financing;
that is, some of its short-term needs are met by permanent capital.
c. Without
income statement data, we cannot determine the aggressiveness or conservatism
of the company’s current asset financing policy.
d. Without
cash flow data, we cannot determine the aggressiveness or conservatism of the
company’s current asset financing policy.
e. Greener
Gardens’ current asset financing policy calls for exactly matching asset and
liability maturities.
2. Which of
the following statements is CORRECT?
a. 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.
b. 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.
c. 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.
d. 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.
e. 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.
3. Other
things held constant, which of the following would tend to reduce the cash
conversion cycle?
a. Place
larger orders for raw materials to take advantage of price breaks.
b. Take all
discounts that are offered.
c. Continue to
take all discounts that are offered and pay on the net date.
d. Offer
longer payment terms to customers.
e. Carry a
constant amount of receivables as sales decline.
4. Which of
the following actions would be likely to shorten the cash conversion cycle?
a. Change the
credit terms offered to customers from 3/10 net 30 to 1/10 net 50.
b. Begin to
take discounts on inventory purchases; we buy on terms of 2/10 net 30.
c. Adopt a new
manufacturing process that saves some labor costs but slows down the conversion
of raw materials to finished goods from 10 days to 20 days.
d. Change the
credit terms offered to customers from 2/10 net 30 to 1/10 net 60.
e. Adopt a new
manufacturing process that speeds up the conversion of raw materials to
finished goods from 20 days to 10 days.
5. Which of
the following is NOT directly reflected in the cash budget of a firm that is in
the zero tax bracket?
a.
Depreciation.
b. Cumulative
cash.
c. Repurchases
of common stock.
d. Payment for
plant construction.
e. Payments
lags.