Working Capital Management

Question 1

Economic Order Quantity

Answer 1

How many orders you should place at once

Question 2

concentration banking

Answer 2

Speeds up cash collections by instructing customer payments to a local bank rather than headquarters

Question 3

factoring

Answer 3

sale of accounts receivable at a discount so that immediate cash is raised rather than waiting for collection

Question 4

sale of A/R

Answer 4

will also transfer the costs associated with cash collection process to the factor

Question 5

Examples of Money Market Securities

Answer 5

Commercial paper
Bankers acceptance
Negotiable certificate of deposit

Question 6

what are the forms of inventory loans?

Answer 6

Blanket inventory loan
Trust receipt loan
Warehouse financing

Question 7

blanket lien

Answer 7

covers an entire group of usually low cost homogeneous items (tires)

Question 8

trust receipt

Answer 8

lender holds title and the borrower keeps possession of the collateral (automobile dealers)

Question 9

warehouse receipts

Answer 9

lender controls title and takes possession of the collateral

Question 10

Credit policy has 4 components

Answer 10

(1) Credit period–when the payment is due
(2) Credit standards–criteria as to which customers are granted credit
(3) Collection policy–enforcement of the collection process
(4) Discount–reductions offered to speed up payments