Fin 340

1. Suppose a firm decides to minimize its holdings of current assets, relative to sales. Which statements are true?

Answer

	1.	The firm's expected profits will decrease.
	2.	The firm's expected profits will increase.
	3.	The risk of the firm's profits will decrease.
	4.	The risk of the firm's profits will increase.

2. A firm uses the EOQ model to detemine its optimal order quantity, but is considering adding a safety stock of 1,000 units to meet unexpected demand, or to cover demand during variations in lead time. Check all of the statements that are correct if it starts holding safety stocks.

Answer

	a.	The firm's annual total carrying cost (TCC) will increase.
	b.	The firm's annual total ordering cost (TOC) will decrease.
	c.	The firm's annual total inventory cost (TIC) will increase.

3. Match the term in the left column with the description in the right column.

credit period length of time customers are given to pay for purchases

discount reduction in amount owed if invoice is paid early

credit standard required financial strength of acceptable credit customer

collection policy procedures followed to collect past-due accounts