Question 1

What are the main elements of working capital?

Accepted Answer

A)  Inventories, accounts receivable, cash, mortgages payable and revolving lines of credit. 
B)  Inventories, accounts receivable, cash, bonds payable and revolving lines of credit. 
C)  Equipment, accounts receivable, cash, accounts payable and revolving lines of credit. 
D)  Inventories, accounts receivable, equipment, accounts payable and revolving lines of credit. 
E)  Inventories, accounts receivable, cash, accounts payable and revolving lines of credit. 
A)  Inventories, accounts receivable, cash, mortgages payable and revolving lines of credit. 
B)  Inventories, accounts receivable, cash, bonds payable and revolving lines of credit. 
C)  Equipment, accounts receivable, cash, accounts payable and revolving lines of credit. 
D)  Inventories, accounts receivable, equipment, accounts payable and revolving lines of credit. 
E)  Inventories, accounts receivable, cash, accounts payable and revolving lines of credit.

Question 2

Which of the following typically applies to Just-in-Time (J-I-T) systems?

Accepted Answer

A)  Inventory holding costs are carried by the supplier instead of the manufacturer. 
B)  Increased inventory management costs are reflected in higher prices to the consumer. 
C)  Cost of ordering inventory is carried by the supplier and inventory holding costs are carried by the manufacturer. 
D)  Total inventory costs are carried by the supplier. 
E)  Total inventory costs are divided among the logistics carrier, the supplier and the manufacturer. 
A)  Inventory holding costs are carried by the supplier instead of the manufacturer. 
B)  Increased inventory management costs are reflected in higher prices to the consumer. 
C)  Cost of ordering inventory is carried by the supplier and inventory holding costs are carried by the manufacturer. 
D)  Total inventory costs are carried by the supplier. 
E)  Total inventory costs are divided among the logistics carrier, the supplier and the manufacturer.

Question 3

Precision Medical Instruments uses 37,500 3-inch polarized mirrors a year. For each case of 25 mirrors, the inventory holding cost is $13.00.The cost of ordering is $8.40. How often should Precision order mirrors per year?

Accepted Answer

A)  22 
B)  34 
C)  44 
D)  68 
E)  77 
A)  22 
B)  34 
C)  44 
D)  68 
E)  77

Question 4

Mirabeau Glass & Window Ltd. operates in a highly competitive environment where products are custom-designed for large, well-established, construction companies who use standard contractual terms to compare bids. Which is the best of the following methods for Mirabeau to use to minimize risk of non-payment?

Accepted Answer

A)  Require, in the terms of sale, that the construction company pays part of the value of the contract in advance. 
B)  Agree to off-set what the construction company owes for services it will provide to Mirabeau. 
C)  Agree that legal title to the windows or other glass products does not pass to the construction companies until Mirabeau is paid. 
D)  Require a third-party guarantee from a financially sound business that will pay Mirabeau if the construction company does not. 
E)  Take out insurance against the risk of non-payment. 
A)  Require, in the terms of sale, that the construction company pays part of the value of the contract in advance. 
B)  Agree to off-set what the construction company owes for services it will provide to Mirabeau. 
C)  Agree that legal title to the windows or other glass products does not pass to the construction companies until Mirabeau is paid. 
D)  Require a third-party guarantee from a financially sound business that will pay Mirabeau if the construction company does not. 
E)  Take out insurance against the risk of non-payment.

Question 5

Which of the following combination of factors may affect a firm's investment in working capital?

Accepted Answer

A)  Interest rates, market demand, executive compensation, and the state of the economy. 
B)  Interest rates, market demand, the seasons, and the state of the economy. 
C)  Interest rates, market demand, the weather, and the state of the economy. 
D)  Interest rates, market demand, the political environment, and the state of the economy. 
E)  Interest rates, market demand, new high tech inventions, and the state of the economy. 
A)  Interest rates, market demand, executive compensation, and the state of the economy. 
B)  Interest rates, market demand, the seasons, and the state of the economy. 
C)  Interest rates, market demand, the weather, and the state of the economy. 
D)  Interest rates, market demand, the political environment, and the state of the economy. 
E)  Interest rates, market demand, new high tech inventions, and the state of the economy.

Question 6

When using a cash control model which targets a specific cash balance, what is the problem associated with the cash level breaching the upper, outer limit for an unacceptable length of time?

Accepted Answer

A)  The inability to meet short term financial commitments. 
B)  The risk of theft. 
C)  The opportunity cost of foregone interest. 
D)  A rise in the cost of capital. 
E)  A negative impact on the company's credit rating. 
A)  The inability to meet short term financial commitments. 
B)  The risk of theft. 
C)  The opportunity cost of foregone interest. 
D)  A rise in the cost of capital. 
E)  A negative impact on the company's credit rating.

Question 7

The following accounts have been selected from a company's balance sheet with values in 000's: Accounts payable $205, Inventory $405, Bank Overdraft $143, Land $2,780, Bonds $2,450, and Accounts Receivable $273. What is the amount of working capital available to the company?

Accepted Answer

A)  ($75,000) 
B)  $68,000 
C)  $262,000 
D)  $330,000 
E)  $660,000 
A)  ($75,000) 
B)  $68,000 
C)  $262,000 
D)  $330,000 
E)  $660,000

Question 8

If a company faces a 60-day lead time on orders of a European faucet with an annual demand of 2,190 units, at what inventory level must it reorder to ensure sufficient supply to satisfy average demand?

Accepted Answer

A)  6 
B)  45 
C)  60 
D)  120 
E)  360 
A)  6 
B)  45 
C)  60 
D)  120 
E)  360

Question 9

Bowden Building Supply's opening inventory for the year was $810,000 and ending inventory was $625,000 on sales of $6,650,000 and cost of goods sold of $3,600,000. What was Bowden Building Supply's Average Inventory Turnover Period?

Accepted Answer

A)  63.4 
B)  72.8 
C)  82.1 
D)  343.0 
E)  393.8 
A)  63.4 
B)  72.8 
C)  82.1 
D)  343.0 
E)  393.8

Question 10

A company has sales revenue of $85,000 in January. It collects $21,250 in January, $22,813 in February, $26,500 in March and $14,437 in April. Using the pattern of credit sales cash receipts, what is the proportion of receivables outstanding at February month-end?

Accepted Answer

A)  25.0% 
B)  35.8% 
C)  48.2% 
D)  64.2% 
E)  75% 
A)  25.0% 
B)  35.8% 
C)  48.2% 
D)  64.2% 
E)  75%

Question 11

If Jonas Movers Ltd. chooses to forego the 3% discount offered by its corrugated box supplier if the invoice is paid with 15 days in favour of paying in 50 days, using the approximation formula, what will the oversight cost Jonas in terms of an annualized rate?

Accepted Answer

A)  18.3% 
B)  21.9% 
C)  31.3% 
D)  36.5% 
E)  73.0% 
A)  18.3% 
B)  21.9% 
C)  31.3% 
D)  36.5% 
E)  73.0%

Question 12

The customers of Canoe Ltd. take 60 days to pay. Canoe's annual sales are $10 million and bad debts are $35,000. To encourage earlier payment, Canoe plans to offer a cash discount of 2% for payment within 20 days. Canoe expects 60% of customers to pay early under the new plan but the remaining customers will take an average of 70 days to pay. Canoe's line of credit charges 15% interest. Bad debts will be reduced by $30,000 and and Canoe can expect to save $10,000 per year in credit administration costs. Should Canoe implement the new credit policy?

Accepted Answer

A)  Yes because it will result in annual savings of $1,096. 
B)  No because it will result in extra costs of $22,808. 
C)  Yes because it will result in annual savings of $100,822. 
D)  No because it will result in extra costs of $38,904. 
E)  Yes because it will result in annual savings of $2,192. 
A)  Yes because it will result in annual savings of $1,096. 
B)  No because it will result in extra costs of $22,808. 
C)  Yes because it will result in annual savings of $100,822. 
D)  No because it will result in extra costs of $38,904. 
E)  Yes because it will result in annual savings of $2,192.

Question 13

What is the risk in using a bank overdraft as a source of financing?

Accepted Answer

A)  The company's indebtedness will grow beyond its ability to handle it. 
B)  Its cost exceeds that of the company's weighted average cost of capital. 
C)  It will negatively impact the credit rating of the company. 
D)  Interest costs cannot be deducted from income taxes. 
E)  It may have to be paid in full with little prior notice. 
A)  The company's indebtedness will grow beyond its ability to handle it. 
B)  Its cost exceeds that of the company's weighted average cost of capital. 
C)  It will negatively impact the credit rating of the company. 
D)  Interest costs cannot be deducted from income taxes. 
E)  It may have to be paid in full with little prior notice.

Question 14

Coaxial Ltd. has an average collection period for its receivables of 50 days and an average payment period for its payables of 30 days. Depot Inc. has an average collection period for its receivables of 25 days and an average payment period for its payables of 55 days. Which of the following is the best conclusion to draw from this information?

Accepted Answer

A)  Coaxial offers payment terms of more than 50 days to its customers. 
B)  Depot sells to well-to-do customers who pay early. 
C)  Coaxial generates strong cash flows from government business. 
D)  Depot pays cash for most of its purchases because of its long payment period. 
E)  Neither company is doing a good job managing its cash flow. 
A)  Coaxial offers payment terms of more than 50 days to its customers. 
B)  Depot sells to well-to-do customers who pay early. 
C)  Coaxial generates strong cash flows from government business. 
D)  Depot pays cash for most of its purchases because of its long payment period. 
E)  Neither company is doing a good job managing its cash flow.

Question 15

A company's accounts payable total $360,960. If the company takes 60 days to pay its outstanding accounts, what is the value of the company's annual credit purchases?

Accepted Answer

A)  $2,195,840 
B)  $2,165,700 
C)  $6,016,000 
D)  $21,958,400 
E)  $21,657,600 
A)  $2,195,840 
B)  $2,165,700 
C)  $6,016,000 
D)  $21,958,400 
E)  $21,657,600

Question 16

Les Muebles Martineau is considering a credit application from Modulaire Ltee, a well established retailer whose $456,250 worth of purchases from Martineau are expected to provide Martineau with annual EBIT of $56,600 for three years. Modulaire Ltee spreads its orders evenly and would like to be invoiced quarterly with 30 days to pay, resulting in a payment period of 120 days. Martineau has a cost of capital of 9%, and views credit as a capital investment. Factoring in the credit terms, what should be done with Modulaire's application?

Accepted Answer

A)  Turn it down as the result is a net annual loss of $94,000. 
B)  Approve it as the result is a net annual gain of $10,260. 
C)  Turn it down as the NPV is ($6,728). 
D)  Approve it as the sales will provide an IRR of 12.4%. 
E)  Approve it as the NPV is $87,272. 
A)  Turn it down as the result is a net annual loss of $94,000. 
B)  Approve it as the result is a net annual gain of $10,260. 
C)  Turn it down as the NPV is ($6,728). 
D)  Approve it as the sales will provide an IRR of 12.4%. 
E)  Approve it as the NPV is $87,272.

Question 17

Which of the following is a cost of holding too low a level of inventory?

Accepted Answer

A)  The company can raise its selling prices. 
B)  Customer demand may increase. 
C)  The cost of manufacturing may increase. 
D)  Fuel costs may increase for shipping. 
E)  Sales may improve if inventory is re-stocked. 
A)  The company can raise its selling prices. 
B)  Customer demand may increase. 
C)  The cost of manufacturing may increase. 
D)  Fuel costs may increase for shipping. 
E)  Sales may improve if inventory is re-stocked.

Question 18

Which of the following is the best way to reduce a company's losses due to bad debts?

Accepted Answer

A)  Increase sales volume by lowering their prices to make their products more affordable. 
B)  Do not grant credit to companies that use a bank overdraft as a source of financing. 
C)  Manage the accounts payable so that they become an automatic source of financing. 
D)  Direct more customers to purchase from their on-line website using PayPal. 
E)  Press the customer for immediate payment when the customer exceeds its terms of credit. 
A)  Increase sales volume by lowering their prices to make their products more affordable. 
B)  Do not grant credit to companies that use a bank overdraft as a source of financing. 
C)  Manage the accounts payable so that they become an automatic source of financing. 
D)  Direct more customers to purchase from their on-line website using PayPal. 
E)  Press the customer for immediate payment when the customer exceeds its terms of credit.

Question 19

What does the materials requirement planning (MRP) system start with to determine inventory requirements?

Accepted Answer

A)  Production scheduling. 
B)  Current inventory levels. 
C)  Projected budgetary allocation. 
D)  Sales forecasts. 
E)  Shipping rates and schedules. 
A)  Production scheduling. 
B)  Current inventory levels. 
C)  Projected budgetary allocation. 
D)  Sales forecasts. 
E)  Shipping rates and schedules.

Question 20

Pomico Inc. has $350,000 of receivables on its books as of July 31ˢᵗ, 20% over the month's budget. To assist in determining whether this is due to an increase in credit sales in the month, one or two larger accounts lagging in payment, or a problem with all collections, what should the manager do?

Accepted Answer

A)  Update and analyze the cash flow statement. 
B)  Calculate the average collection period for receivables. 
C)  Review the payments of companies granted credit in July. 
D)  Create a report on the pattern of credit sale cash receipts. 
E)  Produce an aging schedule of receivables. 
A)  Update and analyze the cash flow statement. 
B)  Calculate the average collection period for receivables. 
C)  Review the payments of companies granted credit in July. 
D)  Create a report on the pattern of credit sale cash receipts. 
E)  Produce an aging schedule of receivables.

What are the main elements of working capital?

Which of the following typically applies to Just-in-Time (J-I-T) systems?

Precision Medical Instruments uses 37,500 3-inch polarized mirrors a year. For each case of 25 mirrors, the inventory holding cost is $13.00.The cost of ordering is $8.40. How often should Precision order mirrors per year?

Which of the following combination of factors may affect a firm's investment in working capital?

When using a cash control model which targets a specific cash balance, what is the problem associated with the cash level breaching the upper, outer limit for an unacceptable length of time?

The following accounts have been selected from a company's balance sheet with values in 000's: Accounts payable $205, Inventory $405, Bank Overdraft $143, Land $2,780, Bonds $2,450, and Accounts Receivable $273. What is the amount of working capital available to the company?

If a company faces a 60-day lead time on orders of a European faucet with an annual demand of 2,190 units, at what inventory level must it reorder to ensure sufficient supply to satisfy average demand?

Bowden Building Supply's opening inventory for the year was $810,000 and ending inventory was $625,000 on sales of $6,650,000 and cost of goods sold of $3,600,000. What was Bowden Building Supply's Average Inventory Turnover Period?

A company has sales revenue of $85,000 in January. It collects $21,250 in January, $22,813 in February, $26,500 in March and $14,437 in April. Using the pattern of credit sales cash receipts, what is the proportion of receivables outstanding at February month-end?

If Jonas Movers Ltd. chooses to forego the 3% discount offered by its corrugated box supplier if the invoice is paid with 15 days in favour of paying in 50 days, using the approximation formula, what will the oversight cost Jonas in terms of an annualized rate?

What is the risk in using a bank overdraft as a source of financing?

A company's accounts payable total $360,960. If the company takes 60 days to pay its outstanding accounts, what is the value of the company's annual credit purchases?

Which of the following is a cost of holding too low a level of inventory?

Which of the following is the best way to reduce a company's losses due to bad debts?

What does the materials requirement planning (MRP) system start with to determine inventory requirements?

Introduction to Financial Management

Accounting - the Language of Business

Financial Planning and Pro Forma Financial Statements

Analyzing and Interpreting Financial Statements

The Time Value of Money

Making Capital Investment Decisions

Making Capital Investment Decisions: Further Issues

Financing a Business 1: Sources of Funds

Financing a Business 2: Raising Long-Term Funds

The Cost of Capital and the Capital Structure Decision

Developing a Dividend Policy

Measuring and Managing for Shareholder Value

Mergers, Acquisitions, and the Valuation of Shares

Filters

Exam 12: Managing Working Capital

What are the main elements of working capital?

Which of the following typically applies to Just-in-Time (J-I-T) systems?

Precision Medical Instruments uses 37,500 3-inch polarized mirrors a year. For each case of 25 mirrors, the inventory holding cost is $13.00.The cost of ordering is $8.40. How often should Precision order mirrors per year?

Which of the following combination of factors may affect a firm's investment in working capital?

When using a cash control model which targets a specific cash balance, what is the problem associated with the cash level breaching the upper, outer limit for an unacceptable length of time?

The following accounts have been selected from a company's balance sheet with values in 000's: Accounts payable $205, Inventory $405, Bank Overdraft $143, Land $2,780, Bonds $2,450, and Accounts Receivable $273. What is the amount of working capital available to the company?

If a company faces a 60-day lead time on orders of a European faucet with an annual demand of 2,190 units, at what inventory level must it reorder to ensure sufficient supply to satisfy average demand?

Bowden Building Supply's opening inventory for the year was $810,000 and ending inventory was $625,000 on sales of $6,650,000 and cost of goods sold of $3,600,000. What was Bowden Building Supply's Average Inventory Turnover Period?

A company has sales revenue of $85,000 in January. It collects $21,250 in January, $22,813 in February, $26,500 in March and $14,437 in April. Using the pattern of credit sales cash receipts, what is the proportion of receivables outstanding at February month-end?

If Jonas Movers Ltd. chooses to forego the 3% discount offered by its corrugated box supplier if the invoice is paid with 15 days in favour of paying in 50 days, using the approximation formula, what will the oversight cost Jonas in terms of an annualized rate?

What is the risk in using a bank overdraft as a source of financing?

A company's accounts payable total $360,960. If the company takes 60 days to pay its outstanding accounts, what is the value of the company's annual credit purchases?

Which of the following is a cost of holding too low a level of inventory?

Which of the following is the best way to reduce a company's losses due to bad debts?

What does the materials requirement planning (MRP) system start with to determine inventory requirements?

Introduction to Financial Management

Accounting - the Language of Business

Financial Planning and Pro Forma Financial Statements

Analyzing and Interpreting Financial Statements

The Time Value of Money

Making Capital Investment Decisions

Making Capital Investment Decisions: Further Issues

Financing a Business 1: Sources of Funds

Financing a Business 2: Raising Long-Term Funds

The Cost of Capital and the Capital Structure Decision

Developing a Dividend Policy

Measuring and Managing for Shareholder Value

Mergers, Acquisitions, and the Valuation of Shares

Filters