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104. What is the best level of long-term financing relative to the total capital requirement?
105. A firm sells its accounts receivables to a factor at a 1.5% discount. The average collection
period is 1 month. What is the implicit effective annual interest rate on the factoring
arrangement? Suppose the average collection period is 1.5 months. How does this affect the
implicit effective annual interest rate?
106. How do firms develop a short-term financial plan that meets their need for cash?
107. How does long-term financing policy affect short-term financing requirements?
108. Why do firms need to invest in net working capital?
109. Describe in general a firm's cash conversion cycle.
110. What is the length of the cash conversion cycle for a firm with $50,000 in inventory,
$60,000 in average receivables, $30,000 in average payables, annual sales of $700,000, and a
cost of goods sold of 75%?
111. How does the firm's sources and uses of cash relate to its need for short-term
borrowing?
112. Discuss the concept of maturities matching as that term is used in corporate financial
planning.
113. The text suggests that, of the three strategies discussed, the relaxed strategy is probably
the worst from the standpoint of managerial evaluation. Why is this thought to be the case, and
when may it be an acceptable practice?
114. Create the statement of sources and uses of cash from the following entries:
115. Show the effect of the following transactions on cash, net working capital, and the
current ratio. Assume that the current ratio exceeds 1.0 to begin.
a. The firm borrows $1,000 short term and pays $500 in accounts payable.
b. The firm factors $1,000 in receivables at a 5% discount.
c. The firm issues $1,000 in long-term bonds, using the proceeds to pay $800 in payables and
purchase $200 in marketable securities.
116. How would you develop a model to analyze the benefits and costs of stretching payables?
Assume that cash discounts will be forgone and that short-term bank funds are usually
available.
117. Firms are often known to pay commitment fees to banks for the privilege of receiving a
line of credit. Does it make sense for a firm to pay for something that, at least at the present
time, it does not know whether it will use?
118. Provide five reasons why firms may have a policy of maintaining a minimum cash balance
at all times.
