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Good Luck!!!: 3. Define Each of The Following Terms

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15 views

Good Luck!!!: 3. Define Each of The Following Terms

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Sintu Talefe
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© © All Rights Reserved
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FM-II: Group Assignment (10%) for 2nd year AcFn regular students- Submission

date: 04/04/13 E.c


1. Discuss the main arguments of the two schools of thought on dividend policy
decisions.
2. What are some pros and cons of holding high levels of current assets in relation
to sales?
3. Define each of the following terms:
 Working capital; net working capital
 Relaxed current asset policy; restricted current asset policy; moderate
current asset policy
 Permanent current assets; temporary current assets
 Current asset financing policy; maturity matching (self-liquidating) approach
to financing working capital
 Cash conversion cycle; inventory conversion period; average collection
period; payables deferral period
4. XYZ Company has experienced a stochastic demand for its product, which
results in fluctuating cash balances randomly. The following information is
supplied from the company’s information: Fixed cost of securities transactions is
Br.100; Variance of daily net cash flows is Br. 1,000; and daily interest rate on
securities is 6%.

Required: Determine the optimal cash balance, upper and lower limit of cash need,
and average cash balance. (Use the Miller-Orr Model)

5. Lamar Lumber Company has sales of $10 million per year, 80% of sales are on
credit terms calling for payment within 30 days. What is Lamar’s DSO?
6. Zocco Corporation has an inventory conversion period of 75 days, an average
collection period of 38 days, and a payables deferral period of 30 days.

a. What is the length of the cash conversion cycle?

b. If Zocco’s annual sales are $3,421,875 and all sales are on credit, what is the
investment in accounts receivable?

c. How many times per year does Zocco turn over its inventory?

Good luck!!!
RVU, CBE, Department of Accounting & Finance Page 1

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