ProLogic Chips Ltd

question 5

Multiple Choice

ProLogic Chips Ltd. has an average inventory turnover period of 30 days, an average payment period of 40 days, and an average collection period of 50 days. SoftChip Inc. has an average inventory turnover period of 50 days, an average payment period of 70 days, and an average collection period of 40 days. Which company is likely to have greater financial risks?

• A) SoftChip because it has a longer operating cash cycle.
• B) ProLogic because its operating cash cycle is twice as long as SoftChip.
• C) Softchip because there are 30 days between paying it bills and collecting its receivables.
• D) ProLogic because there are 10 days between paying it bills and collecting its receivables.
• E) SoftChip because the ratio of payment period to collection period is greater.

---

Definitions:

Bond

A fixed income investment in which an investor loans money to an entity (corporate or governmental) which borrows the funds for a defined period at a variable or fixed interest rate.

American Options

Financial derivatives that give the holder the right to buy or sell an asset at a set price at any time before the expiration date.

Expiration Date

The specific date after which a product is considered no longer usable or effective, often found on perishable goods and medications.

Convertible Bonds

Bonds that can be converted into a predetermined number of the issuing company's shares, usually at the discretion of the bondholder.