Working Capital Management Practice Quiz

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for New Venture Finance, New Venture Development, and Related Courses

1. Each of the following is a category of current assets, EXCEPT

1 point

marketable securities

cash

inventory

accounts payable

accounts receivable

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2. The component of cash management that is used to pay for small daily items such as minor supplies is

1 point

petty cash

cash in bank, savings

cash on hand

cash in bank, checking

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3. The ratio of current assets to current liabilities is called the

1 point

factoring ratio

current ratio

currency ratio

working capital management ratio

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4. Morning Joe serves upscale coffee by brewing only the best beans. He goes through 40 bags of coffee a day and keeps a safety stock of 200 in case there is a coffee apocalypse. UPS deliveries give Joe a lead time of two days. What is Joe's re-ordering point?

1 point

200

240

280

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5. Joe's accountant told him it's a good idea to establish a line of credit with his bank. He sets up a line of credit for $50,000. What does this new line of credit do to his balance sheet?

1 point

He has $50,000 in cash (current asset), and an off-setting $50,000 in notes payable (current liability).

Nothing.

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6. The table below shows Build-A-Bear Workshop's current assets. Does Build-A-Bear potentially have a working capital management problem? What kind?

1 point

Too much cash: they need to generate some income by putting some of that cash to use in short-term investments

Too much inventory; they need to sell more stuff

Too low accounts receivable; they need to offer more favorable credit terms to customers.

Build-A-Bear has *no* working capital management problem. Go about your business, people.

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7. Briefly explain why the goals of inventory management "appear to be contradictory."

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