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17 Cards in this Set
- Front
- Back
"permanent" current assets |
current assets that will not be reduced or converted to cash within the normal operating cycle of the firm. Though from a strict accounting standpoint the assets should be removed from the current assets category, they generally are not. |
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term structure of interest rates |
The term structure shows the relative level of short-term and long-term interest rates at a point of time. |
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What is the manager's primary concern in managing cash and marketable securities? |
Safety and Liquidity |
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What are the reasons for holding cash? |
Transaction balances - payments toward planned expenses Compensating balances for banks - compensating a bank for services provided rather than paying directly for them Precautionary needs - emergency purposes |
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Why does float exist? |
Float is the difference between a corporation's recorded account balance and the amount credited to the corporation by the bank. This difference is caused by the time (usually a few days) it takes to mail a check and the check clearing process. With the wide implementation of electronic payments, floats are becoming less common and will eventually be eliminated altogether. |
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How does a multinational company determine where to hold cash balances? |
See pgs. 198-200 for detailed information Financial managers try to keep cash in a country with a strong currency. |
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What are the different categories of inventory? |
Raw Materials - used in the product Work in Process - partially finished products Finished Goods - ready for sale |
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What are the costs associated with carrying inventory? |
Carrying costs - interest on funds tied up in inventory and costs of warehouse space, insurance premiums, and material handling expenses. There is also an implicit cost associated with the dangers of obsolescence or perishability and rapid price change. |
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Calculate the profit generated from new sales from credit. |
see page 210 |
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What is generally the largest source of short-term credit for small firms? |
Trade Credit/Accounts Payable |
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Calculate the cost of not taking the discount. |
see page 228 |
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Why are compensating balances used? |
Borrowers use them to avoid fees
Lenders use them as collateral |
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How can accounts receivable be used as a source of financing? |
Receivables can be pledged as collateral or sold outright to the lending firm
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Calculate the effective rate of interest with a compensating balance. |
see pg. 234
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Economic Order Quantity |
See page 213
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Average Inventory |
See page 214
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How many orders to place in a year |
Units ÷ Order Size
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