SU 6: Managing Current Assets Flashcards Preview

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Flashcards in SU 6: Managing Current Assets Deck (28)
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0
Q

Optimal Cash Balance

A

Square root of 2(Fixed cost per transaction)(Total demand for cash for the period)/Interest rate on marketable securities

1
Q

Cash Management Motives

A
  1. Transactional
  2. Precautionary
  3. Speculative
2
Q

Benefit of receiving cash early

A

Daily cash receipts x Days of reduced float x Opportunity cost of funds

3
Q

Zero-Balance Account

A

At the end of each processing day, the bank transfers just enough from the firm’s master account to cover all checks presented against the ZBA that day

4
Q

Repurchase Agreement

A

A means for dealers in government securities to finance their portfolios.

5
Q

Bankers’ Acceptances

A

Drafts drawn by a non financial firm on deposits at a bank

6
Q

Average Collection Period

A

Derived by weighting the collection period for each group of receivables by it’s collection percentage

7
Q

Average Collection Period Calculation

A

Days in year/Accounts receivable turnover

8
Q

Average Balance in Receivables

A

Daily credit sales x Avg. Collection period

9
Q

Accounts receivable turnover (using dollars)

A

Annual net credit sales/Average balance in receivables

10
Q

Average Balance in Receivables for the year

A

Annual credit sales x (Avg. collection period/Days in year)

11
Q

Accounts Receivable Turnover (using days)

A

Days in year/Average collection period

12
Q

Increased Investment in Receivables

A

Incremental variable costs x Incremental avg. collection period/Days in year

13
Q

Cost of Change in Credit Terms

A

Increased investment in receivables x Opportunity cost of funds

14
Q

Benefit/Loss from a change in credit terms

A

Incremental CM - Cost of change

15
Q

Cost related to Inventory

A

Purchase costs + Carrying costs + Ordering costs + Stockout costs

16
Q

Carrying Cost of Inventory

A

Storage, insurance, opportunity costs

17
Q

Economic Order Quantity (EOQ)

A

Square root of 2(Variable cost per PO)(Periodic demand in units)/Periodic carrying costs per unit

18
Q

Reorder Point

A

(Average daily demand x Lead time in days) + Safety stock

19
Q

Cost of Inventory

A

(Invoice amount + Shipping) x Cost of capital + Insurance

20
Q

Cost of Not Taking a Discount

A

Discount %/100% - Discount % x Days in year/Total payment period - Discount period

21
Q

Cost of Carrying Safety Stock

A

Expected Stockout costs + Carrying cost

22
Q

Effective Interest Rate

A

Net interest expense/Usable funds

23
Q

Amount Needed

A

Invoice amount x (1.0 - Discount %)

24
Q

Effective Rate on Discounted Loans

A

Stated rate/(1.0-Stated rate)

25
Q

Effective Rate with Comp. Balance

A

Stated rate/(1.0-Compensating balance %)

26
Q

Total Borrowings (Comp. Balance)

A

(Invoice amount x 1.0 - Discount %)/(1.0 - Compensating balance %)

27
Q

Lines of Credit with Commitment Fees

A

(Avg. Balance x Stater rate) + [(Credit limit - Avg. Balance) x Commitment fee %]