Question

1.In what industries would you have a seasonal variation in your inventory?

A

Grocery stores

B

College textbook store

C

Landscaping firm

D

Building supply store

2.How do you compute the operating cycle and the cash cycle?

3.What are the differences between a flexible short-term financing policy and a restrictive one? What are the pros and cons of each?

4.What are the key components of a cash budget?

5.What are the major forms of short-term borrowing?

Answer 1

1. .In what industries would you have a seasonal variation in your inventory? Answer: College Textbook store (because student would purchase textbooks only at the beginning of each semester)

2. operating cycle = Days inventory outstanding + Days receivable outstanding

Cash cycle = Days inventory outstanding + Days receivable outstanding - Days Payable outstanding

3. In flexible short term financing policy, there is flexibility on the amount you want to borrow based on the availability of short term current assets or cash. In restrictive, there is a limit of the short term borrowing that the firm can indulge in.

4. Key components of cash budget are amount of cash received from customers, cash paid to supplier, cash paid as wages, cash paid for rent, taxes and cash payment of interest on debt.

5. Forms of short term borrowing are payday loans, line of credit and cash advances