Question 1

Jerome Industries has inventory days of 31,accounts payable days of 28,and a cash conversion cycle of 56 days.What is its accounts receivable days?

Accepted Answer

A)  28 days 
B)  25 days 
C)  56 days 
D)  53 days 
E)  59 days 
A)  28 days 
B)  25 days 
C)  56 days 
D)  53 days 
E)  59 days

Question 2

Which of the following is a firm's cash cycle?

Accepted Answer

A)  the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product 
B)  the average length of time between when a firm pays cash to purchase its initial inventory and when it receives cash from the sale of the product produced from that inventory 
C)  the average length of time between when a firm pays cash to purchase its initial inventory and when it sells that product 
D)  the average length of time between when a firm originally purchases its inventory and when it sells the product produced from that inventory 
E)  the average length of time between when a firm receives cash for its current inventory and uses that cash to purchase new inventory 
A)  the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product 
B)  the average length of time between when a firm pays cash to purchase its initial inventory and when it receives cash from the sale of the product produced from that inventory 
C)  the average length of time between when a firm pays cash to purchase its initial inventory and when it sells that product 
D)  the average length of time between when a firm originally purchases its inventory and when it sells the product produced from that inventory 
E)  the average length of time between when a firm receives cash for its current inventory and uses that cash to purchase new inventory

Question 3

Which of the following best describes short-term debt issued by banks that are insured up to $100,000?

Accepted Answer

A)  certificates of deposit 
B)  repurchase agreements 
C)  banker's acceptances 
D)  commercial paper 
E)  bearer deposit notes 
A)  certificates of deposit 
B)  repurchase agreements 
C)  banker's acceptances 
D)  commercial paper 
E)  bearer deposit notes

Question 4

What are the three reasons why a firm holds cash?

Accepted Answer

1.To meet its day-to-day needs

Question 5

A firm has an average accounts payable balance of $132,000.The average number of days that the firm takes to pay its debt is 22 days.What is its average daily cost of goods sold?

Accepted Answer

A)  $4,000 
B)  $132,000 
C)  $126,000 
D)  $6,000 
E)  $6,600 
A)  $4,000 
B)  $132,000 
C)  $126,000 
D)  $6,000 
E)  $6,600

Question 6

Gencom International has inventory days of 12,and accounts receivable days of 33.If its cash conversion cycle is 21 days,what is Gencom's accounts payable days?

Accepted Answer

A)  0 days 
B)  30 days 
C)  12 days 
D)  66 days 
E)  24 days 
A)  0 days 
B)  30 days 
C)  12 days 
D)  66 days 
E)  24 days

Question 7

Effective inventory management builds up assets through increases in inventory and thus increases a firm's value.

Accepted Answer

A) True 
 B)False

Question 8

What should a firm do after establishing a credit policy?

Accepted Answer

A)  Decide what should be done for those customers who do not pay their accounts on time. 
B)  Monitor its accounts receivable to analyze whether its credit policy is effective. 
C)  Decide on the length of the period before payment must be made. 
D)  Determine what percent of monthly sales are collected in the month after that sale. 
E)  Encourage as many customers as possible to use credit. 
A)  Decide what should be done for those customers who do not pay their accounts on time. 
B)  Monitor its accounts receivable to analyze whether its credit policy is effective. 
C)  Decide on the length of the period before payment must be made. 
D)  Determine what percent of monthly sales are collected in the month after that sale. 
E)  Encourage as many customers as possible to use credit.

Question 9

A firm has an average accounts payable balance of $180,000.Its average daily cost of goods sold is $12,000.What is the average number of days that the firm takes to pay its debt?

Accepted Answer

A)  2 days 
B)  8 days 
C)  15 days 
D)  21 days 
E)  30 days 
A)  2 days 
B)  8 days 
C)  15 days 
D)  21 days 
E)  30 days

Question 10

The Holiday Corporation had sales of $450 million this year.Its accounts receivable balance averaged $30 million.How long,on average,does it take the firm to collect on its sales?

Accepted Answer

A)  15.0 days 
B)  24.3 days 
C)  12.2 days 
D)  16.7 days 
E)  19.2 days 
A)  15.0 days 
B)  24.3 days 
C)  12.2 days 
D)  16.7 days 
E)  19.2 days

Question 11

The level of cash a firm holds is irrelevant; it can never be short of cash since a firm is able to raise new money instantly at a fair rate,while it can never have surplus cash since the firm can invest excess cash at a fair rate to earn a net present value (NPV)of zero.

Accepted Answer

A) True 
 B)False

Question 12

Jerome Industries has a cash conversion cycle of 73 days,accounts receivable days of 43,and accounts payable days of 25.What is its inventory days?

Accepted Answer

A)  5 days 
B)  55 days 
C)  30 days 
D)  48 days 
E)  91 days 
A)  5 days 
B)  55 days 
C)  30 days 
D)  48 days 
E)  91 days

Question 13

LeokLee Industries has an average accounts payable balance of $720,000.Its average annual cost of goods sold is $8,760,000.It receives terms of 1/10 net 30 from its suppliers.Is LeokLee managing its accounts payables well?

Accepted Answer

A)  Yes, since it, on average, chooses not to take the discount, but pays when payment is due. 
B)  Yes, since it, on average, takes the discount, and pays at the end of the discount period. 
C)  Yes, since it, on average, stretches payment beyond the due payment date. 
D)  No, since it, on average, does not take advantage of the discount period and pays well before payment is due. 
E)  No, since it, on average, does not make payment before it is due. 
A)  Yes, since it, on average, chooses not to take the discount, but pays when payment is due. 
B)  Yes, since it, on average, takes the discount, and pays at the end of the discount period. 
C)  Yes, since it, on average, stretches payment beyond the due payment date. 
D)  No, since it, on average, does not take advantage of the discount period and pays well before payment is due. 
E)  No, since it, on average, does not make payment before it is due.

Question 14

Gencom International has inventory days of 33,accounts receivable days of 24,and accounts payable days of 41.What is its cash conversion cycle?

Accepted Answer

A)  17 days 
B)  118 days 
C)  22 days 
D)  50 days 
E)  16 days 
A)  17 days 
B)  118 days 
C)  22 days 
D)  50 days 
E)  16 days

Question 15

Use the table for the question(s) below.
Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2006.
A simplified balance sheet for the firm appears below:
Luther Industries
Balance Sheet
As of December 31, 2011
(millions of dollars)
  
-Luther's cash conversion cycle is closest to:

Accepted Answer

A)  51 days 
B)  66 days 
C)  71 days 
D)  129 days 
E)  89 days 
A)  51 days 
B)  66 days 
C)  71 days 
D)  129 days 
E)  89 days

Question 16

A firm should choose to borrow using accounts payable only if trade credit is the cheapest source of funding.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following money market investments is a short-term,unsecured debt obligation issued by a large corporation? The minimum denomination is $25,000,but most have a face value of $100,000 or more.

Accepted Answer

A)  banker's acceptances 
B)  commercial paper 
C)  repurchase agreements 
D)  certificates of deposit 
E)  Treasury bills 
A)  banker's acceptances 
B)  commercial paper 
C)  repurchase agreements 
D)  certificates of deposit 
E)  Treasury bills

Question 18

Which of the following short-term securities would a firm invest in if they wanted to invest cash for a term of only a few days?

Accepted Answer

A)  Treasury bills 
B)  repurchase agreements 
C)  banker's acceptances 
D)  commercial paper 
E)  term deposits 
A)  Treasury bills 
B)  repurchase agreements 
C)  banker's acceptances 
D)  commercial paper 
E)  term deposits

Question 19

What is the cash discount?

Accepted Answer

The cash discount is

Question 20

SwenCorp had sales of $154 million this year and an average accounts receivable of $18 million per day.Its credit terms specify "2/14 net 40." On average,how long does it take to collect on its sales?

Accepted Answer

A)  8.5 days 
B)  13 days 
C)  28 days 
D)  43 days 
E)  40 days 
A)  8.5 days 
B)  13 days 
C)  28 days 
D)  43 days 
E)  40 days

Exam 19: Working Capital Management

Jerome Industries has inventory days of 31,accounts payable days of 28,and a cash conversion cycle of 56 days.What is its accounts receivable days?

Which of the following is a firm's cash cycle?

Which of the following best describes short-term debt issued by banks that are insured up to $100,000?

What are the three reasons why a firm holds cash?

A firm has an average accounts payable balance of $132,000.The average number of days that the firm takes to pay its debt is 22 days.What is its average daily cost of goods sold?

Gencom International has inventory days of 12,and accounts receivable days of 33.If its cash conversion cycle is 21 days,what is Gencom's accounts payable days?

Effective inventory management builds up assets through increases in inventory and thus increases a firm's value.

What should a firm do after establishing a credit policy?

A firm has an average accounts payable balance of $180,000.Its average daily cost of goods sold is $12,000.What is the average number of days that the firm takes to pay its debt?

The Holiday Corporation had sales of $450 million this year.Its accounts receivable balance averaged $30 million.How long,on average,does it take the firm to collect on its sales?

The level of cash a firm holds is irrelevant; it can never be short of cash since a firm is able to raise new money instantly at a fair rate,while it can never have surplus cash since the firm can invest excess cash at a fair rate to earn a net present value (NPV)of zero.

Jerome Industries has a cash conversion cycle of 73 days,accounts receivable days of 43,and accounts payable days of 25.What is its inventory days?

LeokLee Industries has an average accounts payable balance of $720,000.Its average annual cost of goods sold is $8,760,000.It receives terms of 1/10 net 30 from its suppliers.Is LeokLee managing its accounts payables well?

Gencom International has inventory days of 33,accounts receivable days of 24,and accounts payable days of 41.What is its cash conversion cycle?

A firm should choose to borrow using accounts payable only if trade credit is the cheapest source of funding.

Which of the following money market investments is a short-term,unsecured debt obligation issued by a large corporation? The minimum denomination is $25,000,but most have a face value of $100,000 or more.

Which of the following short-term securities would a firm invest in if they wanted to invest cash for a term of only a few days?

What is the cash discount?

SwenCorp had sales of $154 million this year and an average accounts receivable of $18 million per day.Its credit terms specify "2/14 net 40." On average,how long does it take to collect on its sales?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Short Term Financial Planning

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

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