CFC Working Capital Management 2

Question 1

If a company's DIO is 45 days, DSO is 30 days, and DPO is 25 days, what is the Cash Conversion Cycle?

Accepted Answer

50 days

Answer

40 days

Answer

75 days

Answer

100 days

Question 2

Which inventory management approach aims to minimize holding costs by receiving goods only as they are needed for production or sale?

Accepted Answer

Just-In-Time (JIT)

Answer

Economic Order Quantity (EOQ)

Answer

ABC Analysis

Answer

Safety Stock Method

Question 3

A company has $90,000 in accounts receivable and annual credit sales of $1,095,000. What is the DSO (use 365 days)?

Accepted Answer

30 days

Answer

25 days

Answer

35 days

Answer

45 days

Question 4

Which technique allows a company to sell its accounts receivable to a third party at a discount to obtain immediate cash?

Accepted Answer

Factoring

Answer

Pledging receivables

Answer

Securitization

Answer

Discounting notes payable

Question 5

What is the Economic Order Quantity (EOQ) model designed to minimize?

Accepted Answer

Total inventory ordering and holding costs combined

Answer

Total revenue from inventory sales

Answer

Days inventory outstanding

Answer

Accounts payable balance

Question 6

Which working capital financing approach matches the maturity of financing to the life of the asset being financed?

Accepted Answer

Hedging (matching) approach

Answer

Conservative approach

Answer

Aggressive approach

Answer

Flexible approach

Question 7

A company extends its credit terms from net 30 to net 45 days. What is the most likely immediate effect on the company's working capital?

Accepted Answer

Increase in accounts receivable

Answer

Decrease in accounts receivable

Answer

Increase in accounts payable

Answer

Decrease in inventory levels