Question 1

Motives for holding stocks of cash include transaction,precautionary,and speculative.

Accepted Answer

A) True 
 B)False

Question 2

Jay's Lumber Supplies earns 2.5 percent on its investment in marketable securities.A draft disbursing system has been proposed that will increase disbursement float by 4 days.Purchases next year are expected to total $18 million.Individual payments average $1,000.Use a 365-day year.
a.If the draft system is adopted,what amount of funds can the firm expect to release during the year?
b.If each issue draft costs the firm $0.30,should the draft system be adopted?
c.Should the firm consider any other factors?

Accepted Answer

a. @#IMG-DLM& (4.0)= $197,260
b. @#IMG-DLM& = 49.3 drafts is

Question 3

The decision to forgo the discount available to those customers who pay early has an advantage as well as a disadvantage.

Accepted Answer

A) True 
 B)False

Question 4

The objective of managing cash inflows is to decrease the float while the objective of managing cash outflows is to increase the float.

Accepted Answer

A) True 
 B)False

Question 5

Payable-through drafts

Accepted Answer

A)  provide for effective control over field payments. 
B)  are not legal instruments. 
C)  cannot be cleared through the banking system. 
D)  are a form of commercial paper. 
A)  provide for effective control over field payments. 
B)  are not legal instruments. 
C)  cannot be cleared through the banking system. 
D)  are a form of commercial paper.

Question 6

Lock-box arrangements yield benefits for all companies regardless of the size of sales or customer remittance checks.

Accepted Answer

A) True 
 B)False

Question 7

Efficient collection of accounts receivable helps to determine both the profitability and the liquidity of the firm.

Accepted Answer

A) True 
 B)False

Question 8

The more difficult it is to estimate a firm's cash flow needs,the greater the need to carry higher precautionary balances.

Accepted Answer

A) True 
 B)False

Question 9

Determine the effective annualized cost of forgoing the trade discount on terms 2/15 net 65.

Accepted Answer

A)  11.30% 
B)  14.69% 
C)  32.6% 
D)  48.98% 
A)  11.30% 
B)  14.69% 
C)  32.6% 
D)  48.98%

Question 10

A company is technically insolvent when

Accepted Answer

A)  cash outflows in a given period are greater than cash inflows. 
B)  earnings before interest payments are less than the interest payments. 
C)  it lacks the necessary liquidity to promptly pay its current debt obligations. 
D)  current ratio is less than 1.0. 
A)  cash outflows in a given period are greater than cash inflows. 
B)  earnings before interest payments are less than the interest payments. 
C)  it lacks the necessary liquidity to promptly pay its current debt obligations. 
D)  current ratio is less than 1.0.

Question 11

Flashbinder Guitars,Inc.is considering a lockbox system that will increase its check processing cost by $.20 per check.The company estimates an average check size of $900 and expects any funds freed up by the new lockbox system can be invested in an account that earns 4% per year before taxes.What reduction in collection time is necessary for the lockbox to be beneficial to Flashbinder Guitars,Inc.?

Accepted Answer

A)  1.96 days 
B)  2.03 days 
C)  1.73 days 
D)  2.15 days 
A)  1.96 days 
B)  2.03 days 
C)  1.73 days 
D)  2.15 days

Question 12

A company's investment in accounts receivable is determined by the company's level of sales,percent of credit sales to total sales,and credit and collection policies.

Accepted Answer

A) True 
 B)False

Question 13

Accounts receivable variables under control of the financial manager include the terms of credit sales and the quality of credit customers.

Accepted Answer

A) True 
 B)False

Question 14

What is the greatest risk associated with cash management?

Accepted Answer

A)  yields 
B)  insolvency 
C)  holding too much cash 
D)  managing float 
A)  yields 
B)  insolvency 
C)  holding too much cash 
D)  managing float

Question 15

A corporation that is short on cash will take a trade discount of 2/10 net 30 only if the corporation's cost of funds is less than 2%.

Accepted Answer

A) True 
 B)False

Question 16

Funds that are available in a company's bank account until its payment check has cleared refers to

Accepted Answer

A)  mail float. 
B)  processing float. 
C)  transit float. 
D)  disbursing float. 
A)  mail float. 
B)  processing float. 
C)  transit float. 
D)  disbursing float.

Question 17

U.S.Treasury bills are extremely liquid due to excellent secondary markets.

Accepted Answer

A) True 
 B)False

Question 18

Safety stock may be included into the EOQ model to alleviate problems caused by violation of the assumptions of constant demand and instantaneous delivery.

Accepted Answer

A) True 
 B)False

Question 19

Cash management system objectives include

Accepted Answer

A)  maintaining sufficient cash to meet disbursal needs. 
B)  maintaining idle cash balances at "doomsday event" levels. 
C)  maintaining accounts payable balances at zero by early bill payment. 
D)  All of the above are objectives of the system. 
A)  maintaining sufficient cash to meet disbursal needs. 
B)  maintaining idle cash balances at "doomsday event" levels. 
C)  maintaining accounts payable balances at zero by early bill payment. 
D)  All of the above are objectives of the system.

Question 20

U.S.Treasury bills,bankers' acceptances and commercial paper are all sold on a discount basis.

Accepted Answer

A) True 
 B)False

Motives for holding stocks of cash include transaction,precautionary,and speculative.

The decision to forgo the discount available to those customers who pay early has an advantage as well as a disadvantage.

The objective of managing cash inflows is to decrease the float while the objective of managing cash outflows is to increase the float.

Payable-through drafts

Lock-box arrangements yield benefits for all companies regardless of the size of sales or customer remittance checks.

Efficient collection of accounts receivable helps to determine both the profitability and the liquidity of the firm.

The more difficult it is to estimate a firm's cash flow needs,the greater the need to carry higher precautionary balances.

Determine the effective annualized cost of forgoing the trade discount on terms 2/15 net 65.

A company is technically insolvent when

A company's investment in accounts receivable is determined by the company's level of sales,percent of credit sales to total sales,and credit and collection policies.

Accounts receivable variables under control of the financial manager include the terms of credit sales and the quality of credit customers.

What is the greatest risk associated with cash management?

A corporation that is short on cash will take a trade discount of 2/10 net 30 only if the corporation's cost of funds is less than 2%.

Funds that are available in a company's bank account until its payment check has cleared refers to

U.S.Treasury bills are extremely liquid due to excellent secondary markets.

Safety stock may be included into the EOQ model to alleviate problems caused by violation of the assumptions of constant demand and instantaneous delivery.

Cash management system objectives include

U.S.Treasury bills,bankers' acceptances and commercial paper are all sold on a discount basis.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Filters

Exam 17: Cash,receivables,and Inventory Management

Motives for holding stocks of cash include transaction,precautionary,and speculative.

The decision to forgo the discount available to those customers who pay early has an advantage as well as a disadvantage.

The objective of managing cash inflows is to decrease the float while the objective of managing cash outflows is to increase the float.

Payable-through drafts

Lock-box arrangements yield benefits for all companies regardless of the size of sales or customer remittance checks.

Efficient collection of accounts receivable helps to determine both the profitability and the liquidity of the firm.

The more difficult it is to estimate a firm's cash flow needs,the greater the need to carry higher precautionary balances.

Determine the effective annualized cost of forgoing the trade discount on terms 2/15 net 65.

A company is technically insolvent when

A company's investment in accounts receivable is determined by the company's level of sales,percent of credit sales to total sales,and credit and collection policies.

Accounts receivable variables under control of the financial manager include the terms of credit sales and the quality of credit customers.

What is the greatest risk associated with cash management?

A corporation that is short on cash will take a trade discount of 2/10 net 30 only if the corporation's cost of funds is less than 2%.

Funds that are available in a company's bank account until its payment check has cleared refers to

U.S.Treasury bills are extremely liquid due to excellent secondary markets.

Safety stock may be included into the EOQ model to alleviate problems caused by violation of the assumptions of constant demand and instantaneous delivery.

Cash management system objectives include

U.S.Treasury bills,bankers' acceptances and commercial paper are all sold on a discount basis.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Filters