Question 1

The economic order quantity is that order quantity that minimizes total order costs.

Accepted Answer

A) True 
 B)False

Question 2

Suppose rate of interest increases from 5% to 9% per year.How would firms' cash balance change relative to sales? What would happen when interest rates change from 9% to 5%?

Accepted Answer

With an increase in the rate of interest

Question 3

Your bank account currently shows a balance of $1,880.You deposit $200 into the account and write a cheque for $80.
What is the bank's ledger balance?

Accepted Answer

The bank's ledger balance is $

Question 4

A firm has estimated that it will need $3,000,000 net cash during the year.Current interest rate on money market securities is 6 percent per year and the cost of buying and selling securities cost $50 per transaction.What is the optimal transaction size of securities?

Accepted Answer

A) $70,710.68 
B) $25,100.00 
C) $65,285.21 
D) $92,511.11 
A) $70,710.68 
B) $25,100.00 
C) $65,285.21 
D) $92,511.11

Question 5

What is the economic order quantity for an automobile dealer selling 2,000 cars per year, at a cost of $750 per order, and a carrying cost of $300 per automobile?

Accepted Answer

A) 40 cars 
B) 71 cars 
C) 100 cars 
D) 126 cars 
A) 40 cars 
B) 71 cars 
C) 100 cars 
D) 126 cars

Question 6

Bang Corporation expects to sell 60,000 toys this year.The cost of placing an order is $75 per order, while the carrying cost per unit is $1.25.Given this information, calculate the company's EOQ, carrying cost, ordering cost and total cost.

Accepted Answer

The answer of Bang Corporation expects to sell 60,000 toys...

Question 7

Assuming that the firm can either hold cash paying no interest or invest in marketable securities, which of the following might induce the manager to hold higher cash balances?

Accepted Answer

A) the cost of borrowing is high relative to interest rates on marketable securities 
B) future cash flows are relatively predictable 
C) the cost of cash balances is relatively high 
D) bank interest rates are expected to increase 
A) the cost of borrowing is high relative to interest rates on marketable securities 
B) future cash flows are relatively predictable 
C) the cost of cash balances is relatively high 
D) bank interest rates are expected to increase

Question 8

In the Baumol model, the optimal sale amount is _____ with higher interest rates and ______ with a higher cost of selling securities.

Accepted Answer

A) increased; increased 
B) decreased; increased 
C) decreased; decreased 
D) increased; decreased 
A) increased; increased 
B) decreased; increased 
C) decreased; decreased 
D) increased; decreased

Question 9

A firm's safety stock represents the:

Accepted Answer

A) inventory having passed quality-control inspection. 
B) largest order size that retains minimum order costs. 
C) inventory of most frequently ordered items. 
D) reorder point that considers lags and uncertainties. 
A) inventory having passed quality-control inspection. 
B) largest order size that retains minimum order costs. 
C) inventory of most frequently ordered items. 
D) reorder point that considers lags and uncertainties.

Question 10

What is the total carrying cost for an inventory of 200 widgets if the per-widget carrying cost is $4, the cost per order is $14, and there are 5 orders per year?

Accepted Answer

A) $400 
B) $470 
C) $800 
D) $870 
A) $400 
B) $470 
C) $800 
D) $870

Question 11

A firm with unpredictable cash flows is trying to set upper and lower limits for cash balances.Which of the following factors will result in upper and lower limits being closer to each other?

Accepted Answer

A) variance of the cash flows is low 
B) cost of trading securities is high 
C) interest rate is low 
D) current cash balance is low 
A) variance of the cash flows is low 
B) cost of trading securities is high 
C) interest rate is low 
D) current cash balance is low

Question 12

As the number of inventory orders per year increases, the total order costs increase.

Accepted Answer

A) True 
 B)False

Question 13

In concentration banking, a firm directs customers to make payments to a local branch office of a bank.

Accepted Answer

A) True 
 B)False

Question 14

If the marginal reduction in order costs exceeds the marginal carrying cost of inventory, then:

Accepted Answer

A) the firm has minimized its total carrying costs. 
B) the firm should increase its order size. 
C) the firm should decrease its order size. 
D) the firm has maximized its order costs. 
A) the firm has minimized its total carrying costs. 
B) the firm should increase its order size. 
C) the firm should decrease its order size. 
D) the firm has maximized its order costs.

Question 15

Major international banks in London lend dollars to one another at the

Accepted Answer

A) LIBOR 
B) LIBO 
C) LIBR 
D) LIBRE 
A) LIBOR 
B) LIBO 
C) LIBR 
D) LIBRE

Question 16

Your corporate financial manager has decided to liquidate securities to provide for cash needs in units of $50,000.Is that amount of cash consistent with annual cash needs of $2,500,000, costs per sale of $30, and annual T-bill rate of 6 percent?

Accepted Answer

A) yes, that amount is appropriate 
B) no, sales amount should be increased to $60,000 
C) no, sales amount should be decreased to $35,000 
D) no, sales amount should be decreased to $5,000 
A) yes, that amount is appropriate 
B) no, sales amount should be increased to $60,000 
C) no, sales amount should be decreased to $35,000 
D) no, sales amount should be decreased to $5,000

Question 17

A common characteristic of money market instruments is their high degree of liquidity.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is true for a "repurchase agreement"?

Accepted Answer

A) Non-collateralized loan 
B) Long-term borrowing agreement 
C) Uses Bills as collateral for loan 
D) Borrows money from government 
A) Non-collateralized loan 
B) Long-term borrowing agreement 
C) Uses Bills as collateral for loan 
D) Borrows money from government

Question 19

How much money can be saved annually by setting up a lock-box system that will process 500 cheques per day at a cost of $0.20 per cheque if each cheque averages $220, collection float is reduced by three days, and the annual interest rate is 8 percent?

Accepted Answer

A) ($27,700) 
B) ($10,100) 
C) $10,000 
D) $16,400 
A) ($27,700) 
B) ($10,100) 
C) $10,000 
D) $16,400

Question 20

Baumol's model is not suitable for a firm that experiences:

Accepted Answer

A) high cost of selling securities. 
B) low level of annual cash disbursements. 
C) increased variability of cash flow. 
D) high average cash balance. 
A) high cost of selling securities. 
B) low level of annual cash disbursements. 
C) increased variability of cash flow. 
D) high average cash balance.

Exam 21: Cash and Inventory Management

The economic order quantity is that order quantity that minimizes total order costs.

Suppose rate of interest increases from 5% to 9% per year.How would firms' cash balance change relative to sales? What would happen when interest rates change from 9% to 5%?

Your bank account currently shows a balance of $1,880.You deposit $200 into the account and write a cheque for $80. What is the bank's ledger balance?

A firm has estimated that it will need $3,000,000 net cash during the year.Current interest rate on money market securities is 6 percent per year and the cost of buying and selling securities cost $50 per transaction.What is the optimal transaction size of securities?

What is the economic order quantity for an automobile dealer selling 2,000 cars per year, at a cost of $750 per order, and a carrying cost of $300 per automobile?

Bang Corporation expects to sell 60,000 toys this year.The cost of placing an order is $75 per order, while the carrying cost per unit is $1.25.Given this information, calculate the company's EOQ, carrying cost, ordering cost and total cost.

Assuming that the firm can either hold cash paying no interest or invest in marketable securities, which of the following might induce the manager to hold higher cash balances?

In the Baumol model, the optimal sale amount is _____ with higher interest rates and ______ with a higher cost of selling securities.

A firm's safety stock represents the:

What is the total carrying cost for an inventory of 200 widgets if the per-widget carrying cost is $4, the cost per order is $14, and there are 5 orders per year?

A firm with unpredictable cash flows is trying to set upper and lower limits for cash balances.Which of the following factors will result in upper and lower limits being closer to each other?

As the number of inventory orders per year increases, the total order costs increase.

In concentration banking, a firm directs customers to make payments to a local branch office of a bank.

If the marginal reduction in order costs exceeds the marginal carrying cost of inventory, then:

Major international banks in London lend dollars to one another at the

Your corporate financial manager has decided to liquidate securities to provide for cash needs in units of $50,000.Is that amount of cash consistent with annual cash needs of $2,500,000, costs per sale of $30, and annual T-bill rate of 6 percent?

A common characteristic of money market instruments is their high degree of liquidity.

Which of the following is true for a "repurchase agreement"?

How much money can be saved annually by setting up a lock-box system that will process 500 cheques per day at a cost of $0.20 per cheque if each cheque averages $220, collection float is reduced by three days, and the annual interest rate is 8 percent?

Baumol's model is not suitable for a firm that experiences:

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters

In the Baumol model, the optimal sale amount is _ with higher interest rates and __ with a higher cost of selling securities.