Multiple Choice Answers

The inventory conversion period (ICP) refers to the
length of time it takes to produce and sell inventory; that is, the amount of time a product remains in inventory.
average amount of time it takes the firm to pay its suppliers.
total length of time it takes the firm to produce inventory, sell the inventory, and collect for the sale when inventory is sold on credit.
average dollar amount of product that a firm normally holds in inventory.

Everything else the same, a firm normally prefers a lower cash conversion cycle to a higher one.
________ are current asset balances that remain stable no matter the seasonal or economic conditions.
Accounts payable
Permanent current assets
Temporary current assets
Working capital management refers to the management of a firm’s
total assets
total assets and total liabilities
short-term assets and short-term liabilities
short-term assets and total liabilities and equity

Everything else equal, a firm can shorten its cash conversion cycle be increasing its
inventory conversion period (ICP)
days sales outstanding (DSO)
days payables outstanding (DPO)
average collection period (ACP)

With which of the following current asset investment policies does a firm face the least risk?
restricted current asset investment policy
moderate current asset investment policy
relaxed current asset investment policy

Which of the following current asset financing policies is riskiest?
moderate approach
aggressive approach
maturity matching, or “self-liquidating,” approach

Which of the following is not an advantage of using short-term financing that is mentioned in the book?
cost, versus long-term debt (financing)
risk, versus long-term debt (financing)

The cash conversion cycle represents the length of time from when the firm pays for its raw materials until it
sells on credit the inventory associated with the raw materials.
receives the raw materials for which it paid.
receives payment for the sale of the inventory associated with the raw materials.
receives new inventory items from the same supplier.

Net working capital equals ________ minus ________.
current assets; current liabilities
current liabilities; current assets
total assets; total liabilities
current assets; total liabilities
total assets; current liabilities