Exam 17: Cash,receivables,and Inventory Management

The benefits of a lockbox system include all of the following EXCEPT

The corporate treasurer of Wooden Furniture Inc.is considering the purchase of either a municipal obligation with a 6.1% coupon or a corporate bond with a 9.5% return.Both bonds have a $1,000 par value.The company is currently in the 35% marginal tax bracket.Which security should the treasurer recommend?

The PMI,Inc.processes an estimated 200,000 checks per year from its customers.Total revenue collected by check is $40,000,000.The average float time until the funds are credited to PMI's checking account is 6 days.For an extra cost of $ .06/check,PMI's bank will install a lock-box system that will reduce float time from 6 days to 2.5 days.If PMI earns 3.5% on its checking account,how much per check will PMI make if it uses the lock-box system?

Inflation affects the EOQ model in all of the following ways EXCEPT

When a corporation designs an investment strategy for investing temporary excess cash balances in marketable securities,it must consider a variety of factors.Which of the following is the most important?

What assumptions underlie the EOQ formula?

If you were a treasurer for a Fortune 1,000 corporation who has responsibility for investing "excess cash balances," which of the following alternatives would you be least likely to select?

Assume that liquid funds can be invested to yield 4.5 percent.If annual remittance checks total $2 billion,what is it worth for the firm to reduce float by 1 day?

A company trying to optimize the use of float will try to

If the variables in the EOQ inventory model are defined as: S = total units demanded during the planning period,O = ordering costs per order,C = carrying costs per unit and Q = inventory order size in units,then the average level of inventory which a company should have during the planning period is

Centralized control over disbursements is assisted by which of the following cash management techniques?

Salamander Insurance Company tries to settle claims as quickly as possible.In certain cases,agents can present payments to claimants which are cleared through the banking system like a check,but must be passed through the Insurance Company for approved prior to payment.This is an example of a(n)

The EOQ model assumes constant demand and constant unit price.

Terms of sale are frequently changed by the financial manager in order to increase sales.

Commercial paper is much more liquid than money-market mutual funds because commercial paper is available to only the most creditworthy corporations.

If current interest rates are low,and therefore expected to increase in the future,a firm wanting to reduce its interest rate risk would hold debt with longer maturities.

A security is considered liquid if it can be sold,regardless of the time it takes to make the sale.

In terms of trade credit,default costs vary indirectly with the quality of the customer.

Companies with the largest cash balances reduce their risk of insolvency and thus maximize the value of the companies for their shareholders.

You purchase $10,000 worth of supplies every 90 days and never take the trade discount of 2/10 net 30.How much could you save each (360-day)year if you took the discount?