Question

1) An increase in days sales outstanding (DSO), all other things equal, would ________ the cash conversion period and reflect _________ liquidity.

a) increase, increased

b) increase, decreased

c) decrease, increased

d) decrease, decreased

2) Torque Manufacturing forecasts that its production will require 250,000 tons of bauxite over its planning period. Demand for Torque's products is stable over time. Ordering costs amount to an average of $25 per order. Holding costs are estimated at $2 per ton of bauxite. EOQ for Torque is

a) 1,815 tons

b) 2,500 tons

c) 3,333 tons

d) 4,082 tons

e) 5,123 tons

3) The ________ motive for holding inventory links the level of inventory to ongoing anticipated demand.

a) speculative

b) precautionary

c) transaction

d) just-in-time

4) What is the cash conversion period for Apollo Corp?

Balance sheet:

Assets

cash 60

A/R 100

Inventory 80

Fixed Asset 100

(Accum Depr) -25

Total 315

Liabilities

AP 40

Accruals 10

Notes Pay 15

L-T Debt 150

Total Debt 215

Equity 100

Total Liab & Equity 315

Income Statement:

Sales $700

COGS $315

Gross Profit $385

Operating Expense 125

Depreciation 30

EBIT $230

Interest 20

Taxes 75

Net Profit $135

Dividends 30

5) What is the financial manager's main concern with inventory management?

a) the total cost of capital tied up in inventory

b) costs of holding inventory

c) ordering costs

d) the sales effect of the company's inventory.

Answer 1

1)

DSO is the number of days sales outstanding before firm is collecting them. it has to be as low as possible to increase the firm’s liquidity and number of cash cycles increase.

Hence, correct option is b) increase, decreased.