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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.

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.

What is the manager's primary concern in managing cash and marketable securities?

Safety and Liquidity

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

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.

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.

What are the different categories of inventory?

Raw Materials - used in the product


Work in Process - partially finished products


Finished Goods - ready for sale

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.

Calculate the profit generated from new sales from credit.

see page 210

What is generally the largest source of short-term credit for small firms?

Trade Credit/Accounts Payable

Calculate the cost of not taking the discount.

see page 228

Why are compensating balances used?

Borrowers use them to avoid fees

Lenders use them as collateral

How can accounts receivable be used as a source of financing?

Receivables can be pledged as collateral or sold outright to the lending firm

Calculate the effective rate of interest with a compensating balance.

see pg. 234

Economic Order Quantity

See page 213

Average Inventory

See page 214

How many orders to place in a year

Units ÷ Order Size