Finance Quiz

However, this will have no effect on Net Working Capital since both current liability and the current assets will decrease.The cash in hand will increase by $5 million. However, there will be no change in Net Working Capitalas the transaction involves only the conversion of an already existing asset from one form to another.Forecasting Payments: If a firm pays its bills with a 30-day delay, what fraction of its purchases will be paid for: in the current quarter. and in the following quarter? What if its payment delay is 60 days?Lock Boxes: Anne Teak, the financial manager of a furniture manufacturer, is considering operating a lock-box system. She forecasts that 400 payments a day will be made to lockboxes with an average payment size of $2,000. The bank’s charge for operating the lockboxes is $.40 a check. The interest rate is .015 percent per day.Use these data to compute accounts receivable turnover ratios and average collection periods for 2005 and 2006. Based on your analysis, is Hickory Company managing its receivables better or worse in 2006 than it did in 2005?The president, vice president, and sales manager of Moorer Corporation were discussing the company’s present credit policy. The sales manager suggested that potential sales were being lost to competitors because of Moorer Corporations’ tight restrictions on granting credit to consumers. He stated that if credit policies were loosened, the current year’s estimated credit sales of $3,000,000 could be increased by at least 20% next year with an increase in uncollectible accounts receivable of only $10,000 over this year’s amount of $37,500. He argued that because the company’s cost of sales is only 25% of revenues, the company would certainly come out ahead.The vice president, however, suggested that a better alternative to easier credit terms would be to accept consumer credit cards such as VISA or MASTERCARD. She argued that this alternative could increase sales by 40%. The credit card finance charges to Moorer Corporation would be 4% of the additional sales.

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