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104. What information can the financial manager obtain from an aging schedule of accounts
receivable?
105. Describe the
Z
score suggested by Edward Altman.
Firms use several statistical techniques to separate the creditworthy customers from those who
are less likely to pay. One common method employs multiple discriminant analysis to produce a
measure of solvency called a
Z
score. A study by Edward Altman suggested the following
relationship between a firm's financial ratios and its creditworthiness (
Z
):
106. Following the
Z
score proposed by Edward Altman, calculate the
Z
score of a firm with
the following financial ratios:
107. The Quick Corp. has implemented procedures to cut 1.5 days from its cash collection
process. Annual credit sales are $30 million and the opportunity cost of funds is 9%. What is the
value of the annual savings, and how much would the savings be worth if the speed-up in
collections can be considered permanent?
108. A corporation has excess cash that does not appear to be needed for several months.
How can it evaluate the differences between parking the funds in commercial paper versus
repurchase agreements?
109. In general, has bank float been increasing or decreasing on a per item basis over the past
few years?
110. With rates of return so low on money market instruments, does it actually benefit a firm
to pay close attention to cash balances?
111. Small face-to-face purchases are commonly paid for in cash. Briefly explain some other
ways that you can pay your bills.
112. What are some popular tactics for decreasing collection float?
113. What are the costs and benefits of holding cash?
114. What would be the gain from a lock-box system given the following information?
115. A firm currently offers terms of sale of 3/20, net 40. What effect will the following actions
have on the implicit interest rate charged to customers that pass up the cash discount? State
whether the implicit interest rate will increase or decrease.
a. The terms are changed to 4/20, net 40.
b. The terms are changed to 3/30, net 40.
116. What are some of the ways that companies receive payments?
117. Explain how financial ratios may be used to predict bankruptcy.
118. What essential features of inventory management are successfully captured by the
economic order quantity model?
