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FIN 534 ? HW Chapter 16 Assignment

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Question;1. Summary balance sheet data for Greener Gardens Co. is shown below (in thousands of dollars).The company is in a highly seasonal business, and the data show its assets a nd liabilities at peakand off-peak seasons:PeakOff-Peak$ 50$ 30Marketable securities020Accounts receivable4020Inventories10050Net fixed assets500500Total assets$690$620$ 30$ 10500Long-term debt300300Common equity310310Total claims$690$620CashPayables and accrualsShort-term bank debtFrom this data we may conclude thata. Greener Gardens' current asset financing policy is relatively aggressive, that is, thecompany finances some of its permanent assets with short-term discretionary debt.b. Greener Gardens follows a relatively conservative approach to current asset financing,that is, some of its short-term needs are met by permanent capital.c. W ithout income statement data, we cannot determine the aggressiveness orconservatism of the company's current asset financing policy.d. W ithout cash flow data, we cannot determine the aggressiveness or conservatism of thecompany's current asset financing policy.e. Greener Gardens' current asset financing policy calls for exactly matching asset andliability maturities.? 2013 Strayer University. All Rights Reserved. This document contains Strayer University Confidential and Proprietary informationand may not be copied, further distributed, or otherwise disclosed in whole or in part, without the expressed written permiss ion ofStrayer University.FIN 534 Homework Chapter 16Page 1 of 2FIN 534 ? Homework Chapter 162. W hich of the following statements is CORRECT?a. Although short-term interest rates have historically averaged less than long-term rates,the heavy use of short-term debt is considered to be an aggressive strategy because ofthe inherent risks associated with using short-term financing.b. If a company follows a policy of "matching maturities," this means that it matches its useof common stock with its use of long-term debt as opposed to short-term debt.c. Net working capital is defined as current assets minus the sum of payables and accruals,and any decrease in the current ratio automatically indicates that net working capital hasdecreased.d. If a company follows a policy of "matching maturities," this means that it matches its useof short-term debt with its use of long-term debt.e. Net working capital is defined as current assets minus the sum of payables and accruals,and any increase in the current ratio automatically indicates that net working capi tal hasincreased.3. Other things held constant, which of the following would tend to reduce the cash conversioncycle?a. Place larger orders for raw materials to take advantage of price breaks.b. Take all discounts that are offered.c. Continue to take all discounts that are offered and pay on the net date.d. Offer longer payment terms to customers.e. Carry a constant amount of receivables as sales decline.4. W hich of the following actions would be likely to shorten the cash conversion cycle?a. Change the credit terms offered to customers from 3/10 net 30 to 1/10 net 50.b. Begin to take discounts on inventory purchases, we buy on terms of 2/10 net 30.c. Adopt a new manufacturing process that saves some labor costs but slows down theconversion of raw materials to finished goo ds from 10 days to 20 days.d. Change the credit terms offered to customers from 2/10 net 30 to 1/10 net 60.e. Adopt a new manufacturing process that speeds up the conversion of raw materials tofinished goods from 20 days to 10 days.5. W hich of the following is NOT directly reflected in the cash budget of a firm that is in the zero taxbracket?a. Depreciation.b. Cumulative cash.c. Repurchases of common stock.d. Payment for plant construction.e. Payments lags.

 

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