Question 1

Which of the following conditions must exist for a firm to make a change in its existing credit policy?

Accepted Answer

A) Days sales outstanding (DSO) must decline if the new policy is implemented. 
B) Bad debts must decrease if the new policy is implemented. 
C) The new policy's net present value (NPV) must be both positive and greater than the existing policy's NPV. 
D) Sales must increase if the new policy is implemented. 
E) The firm's variable costs should decrease if the new policy is implemented. 
A) Days sales outstanding (DSO) must decline if the new policy is implemented. 
B) Bad debts must decrease if the new policy is implemented. 
C) The new policy's net present value (NPV) must be both positive and greater than the existing policy's NPV. 
D) Sales must increase if the new policy is implemented. 
E) The firm's variable costs should decrease if the new policy is implemented. C

Question 2

The primary purpose of a lockbox arrangement is to:

Accepted Answer

A) provide for the safe-keeping of the firm's marketable securities. 
B) identify inventory safety stocks. 
C) slow down (delay) cash disbursements to the firm's customers. 
D) speed up a firm's collections on checks received from customers. 
E) speed up a firm's disbursement of checks to its suppliers. 
A) provide for the safe-keeping of the firm's marketable securities. 
B) identify inventory safety stocks. 
C) slow down (delay) cash disbursements to the firm's customers. 
D) speed up a firm's collections on checks received from customers. 
E) speed up a firm's disbursement of checks to its suppliers. D

Question 3

The _____ current asset investment policy calls for relatively large amounts of current assets to be carried by a company.

Accepted Answer

A) relaxed 
B) restricted 
C) moderate 
D) lean-and-mean 
E) speculative 
A) relaxed 
B) restricted 
C) moderate 
D) lean-and-mean 
E) speculative A

Question 4

If a firm's credit terms are 2/10 net 30 days, then customers settling their bills within 30 days of the beginning of the billing cycle will receive a 2 percent discount from the total invoice price.

Accepted Answer

A) True 
 B)False

Question 5

______ float represents the value of checks that have been received and deposited in the bank but have not yet been made available to the account in which they were deposited.

Accepted Answer

A) Disbursement 
B) Net 
C) Collections 
D) Receivables 
E) Deposit 
A) Disbursement 
B) Net 
C) Collections 
D) Receivables 
E) Deposit

Question 6

A firm that offers credit with terms of 2/10 net 30 gives its customers a:

Accepted Answer

A) 2 percent discount from the full invoice price if the bill is paid on or before Day 30; otherwise an additional cost of 10 percent of invoice price must be paid. 
B) 20 percent discount from the full invoice price if the bill is paid on or before Day 10; otherwise the entire bill is due by Day 30. 
C) 30 percent discount from the full invoice price if the bill is paid on or before Day 10; otherwise the entire bill is due by Day 2 of the month following the sale. 
D) 10 percent discount from the full invoice price if the bill is paid on or before Day 2; otherwise the entire bill is due by Day 30. 
E) 2 percent discount from the full invoice price if the bill is paid on or before Day 10; otherwise the entire bill is due by Day 30. 
A) 2 percent discount from the full invoice price if the bill is paid on or before Day 30; otherwise an additional cost of 10 percent of invoice price must be paid. 
B) 20 percent discount from the full invoice price if the bill is paid on or before Day 10; otherwise the entire bill is due by Day 30. 
C) 30 percent discount from the full invoice price if the bill is paid on or before Day 10; otherwise the entire bill is due by Day 2 of the month following the sale. 
D) 10 percent discount from the full invoice price if the bill is paid on or before Day 2; otherwise the entire bill is due by Day 30. 
E) 2 percent discount from the full invoice price if the bill is paid on or before Day 10; otherwise the entire bill is due by Day 30.

Question 7

The primary reason that companies provide cash discounts to customers who pay for their credit purchases on or before a specified date is to speed up the collection period.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following current asset investment policies emphasizes holding minimal current assets?

Accepted Answer

A) Relaxed current asset investment policy 
B) Restricted current asset investment policy 
C) Moderate current asset investment policy 
D) Fat cat current asset investment policy 
E) Precautionary current asset investment policy 
A) Relaxed current asset investment policy 
B) Restricted current asset investment policy 
C) Moderate current asset investment policy 
D) Fat cat current asset investment policy 
E) Precautionary current asset investment policy

Question 9

Jumpdisk Company writes checks averaging $15,000 a day, and it takes 5 days for these checks to clear. The firm also receives checks in the amount of $17,000 per day, but the firm loses three days while its receipts are being deposited and cleared. What is Jumpdisk's net float?

Accepted Answer

A) $126,000 
B) $75,000 
C) $4,000 
D) $24,000 
E) $51,000 
A) $126,000 
B) $75,000 
C) $4,000 
D) $24,000 
E) $51,000

Question 10

Orangetree Pharma's demand for test tubes is 72,000 units per year. If the lead time for placing an order is five (5) days, at what level of inventory should Orangetree place an order for raw materials? In your computations, assume a 360-day year.

Accepted Answer

A) 0 units. 
B) 40 units. 
C) 20 units. 
D) 1,000 units. 
E) 200 units. 
A) 0 units. 
B) 40 units. 
C) 20 units. 
D) 1,000 units. 
E) 200 units.

Question 11

______ float represents the value of checks that have been written and disbursed but have not been deducted from the account on which they were written.

Accepted Answer

A) Disbursement 
B) Net 
C) Collections 
D) Payables 
E) Deposit 
A) Disbursement 
B) Net 
C) Collections 
D) Payables 
E) Deposit

Question 12

Sunshine Inc. recently tightened its credit policy. The credit policy change resulted in an increase of $10 per day on a net present value (NPV) basis. Sunshine's required rate of return is 8 percent. What was the effect of the credit policy change on the firm's value? In your computations, assume a 360-day year.

Accepted Answer

A) $288 
B) $12,500 
C) $36,000 
D) $45,000 
E) $3,600 
A) $288 
B) $12,500 
C) $36,000 
D) $45,000 
E) $3,600

Question 13

Which of the following securities is an appropriate investment to include in the marketable securities account?

Accepted Answer

A) Common stock 
B) Long-term corporate bonds 
C) Preferred stock 
D) Mortgages 
E) Treasury bills 
A) Common stock 
B) Long-term corporate bonds 
C) Preferred stock 
D) Mortgages 
E) Treasury bills

Question 14

Concentration banking is a cash management arrangement that is used to mobilize funds from decentralized receiving locations, whether they are lockboxes or decentralized company locations, into one or more central cash pools.

Accepted Answer

A) True 
 B)False

Question 15

The aging schedule of a firm shows that 40 percent of the receivables are collected in 18 days and the remaining 60 percent of the receivables are collected in 50 days. As a result, the firm's days sales outstanding (DSO) is _____.

Accepted Answer

A) 34.0 days 
B) 30.8 days 
C) 40.8 days 
D) 42.0 days 
E) 37.2 days 
A) 34.0 days 
B) 30.8 days 
C) 40.8 days 
D) 42.0 days 
E) 37.2 days

Question 16

Which of the following arrangements helps a firm both to accelerate the collection of its customers' payments and to convert those payments into cash?

Accepted Answer

A) Lockbox arrangement 
B) Controlled disbursement accounts 
C) Economic ordering quantity 
D) Payables concentration 
E) Zero-balance accounts 
A) Lockbox arrangement 
B) Controlled disbursement accounts 
C) Economic ordering quantity 
D) Payables concentration 
E) Zero-balance accounts

Question 17

The primary reason a firm holds marketable securities is because they:

Accepted Answer

A) substitute for its long-term debt. 
B) offer a place to temporarily invest cash balances to earn high rates of return. 
C) are useful for managing credit sales. 
D) can be used to help speed up collections of its accounts payable. 
E) permit the firm to earn positive returns on cash that is not needed to pay bills in thecurrent period. 
A) substitute for its long-term debt. 
B) offer a place to temporarily invest cash balances to earn high rates of return. 
C) are useful for managing credit sales. 
D) can be used to help speed up collections of its accounts payable. 
E) permit the firm to earn positive returns on cash that is not needed to pay bills in thecurrent period.

Question 18

Many foreign governments attempt to restrict the ability of foreign companies to compete with domestic companies by imposing ______, which often substantially increase the prices of products that are imported by multinational companies compared to domestic products.

Accepted Answer

A) stockout limitations 
B) tariffs 
C) foreign tax refunds 
D) quantity discounts 
E) inventory expropriations 
A) stockout limitations 
B) tariffs 
C) foreign tax refunds 
D) quantity discounts 
E) inventory expropriations

Question 19

A ______ balance is cash that a firm holds in reserve for unforeseen fluctuations in its cash flows.

Accepted Answer

A) transactions 
B) compensating 
C) precautionary 
D) speculative 
E) lockbox 
A) transactions 
B) compensating 
C) precautionary 
D) speculative 
E) lockbox

Question 20

Chovita Marbles purchases $1,500 in raw material each month to support sales of $2,500 that occur in the following month. In addition, Chovita pays wages, rent, and taxes that total $700 each month. What is Chovita's total monthly cash disbursements?

Accepted Answer

A) $300 
B) $4,700 
C) $700 
D) $1,000 
E) $2,200 
A) $300 
B) $4,700 
C) $700 
D) $1,000 
E) $2,200

Which of the following conditions must exist for a firm to make a change in its existing credit policy?

The primary purpose of a lockbox arrangement is to:

The _____ current asset investment policy calls for relatively large amounts of current assets to be carried by a company.

If a firm's credit terms are 2/10 net 30 days, then customers settling their bills within 30 days of the beginning of the billing cycle will receive a 2 percent discount from the total invoice price.

______ float represents the value of checks that have been received and deposited in the bank but have not yet been made available to the account in which they were deposited.

A firm that offers credit with terms of 2/10 net 30 gives its customers a:

The primary reason that companies provide cash discounts to customers who pay for their credit purchases on or before a specified date is to speed up the collection period.

Which of the following current asset investment policies emphasizes holding minimal current assets?

Jumpdisk Company writes checks averaging $15,000 a day, and it takes 5 days for these checks to clear. The firm also receives checks in the amount of $17,000 per day, but the firm loses three days while its receipts are being deposited and cleared. What is Jumpdisk's net float?

Orangetree Pharma's demand for test tubes is 72,000 units per year. If the lead time for placing an order is five (5) days, at what level of inventory should Orangetree place an order for raw materials? In your computations, assume a 360-day year.

______ float represents the value of checks that have been written and disbursed but have not been deducted from the account on which they were written.

Which of the following securities is an appropriate investment to include in the marketable securities account?

Concentration banking is a cash management arrangement that is used to mobilize funds from decentralized receiving locations, whether they are lockboxes or decentralized company locations, into one or more central cash pools.

The aging schedule of a firm shows that 40 percent of the receivables are collected in 18 days and the remaining 60 percent of the receivables are collected in 50 days. As a result, the firm's days sales outstanding (DSO) is _____.

Which of the following arrangements helps a firm both to accelerate the collection of its customers' payments and to convert those payments into cash?

The primary reason a firm holds marketable securities is because they:

Many foreign governments attempt to restrict the ability of foreign companies to compete with domestic companies by imposing ______, which often substantially increase the prices of products that are imported by multinational companies compared to domestic products.

A ______ balance is cash that a firm holds in reserve for unforeseen fluctuations in its cash flows.

Chovita Marbles purchases $1,500 in raw material each month to support sales of $2,500 that occur in the following month. In addition, Chovita pays wages, rent, and taxes that total $700 each month. What is Chovita's total monthly cash disbursements?

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debt Characteristics and Valuation

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Financial Planning and Control

Filters

Exam 15: Managing Short-Term Assets

Which of the following conditions must exist for a firm to make a change in its existing credit policy?

The primary purpose of a lockbox arrangement is to:

The _____ current asset investment policy calls for relatively large amounts of current assets to be carried by a company.

If a firm's credit terms are 2/10 net 30 days, then customers settling their bills within 30 days of the beginning of the billing cycle will receive a 2 percent discount from the total invoice price.

______ float represents the value of checks that have been received and deposited in the bank but have not yet been made available to the account in which they were deposited.

A firm that offers credit with terms of 2/10 net 30 gives its customers a:

The primary reason that companies provide cash discounts to customers who pay for their credit purchases on or before a specified date is to speed up the collection period.

Which of the following current asset investment policies emphasizes holding minimal current assets?

Jumpdisk Company writes checks averaging $15,000 a day, and it takes 5 days for these checks to clear. The firm also receives checks in the amount of $17,000 per day, but the firm loses three days while its receipts are being deposited and cleared. What is Jumpdisk's net float?

Orangetree Pharma's demand for test tubes is 72,000 units per year. If the lead time for placing an order is five (5) days, at what level of inventory should Orangetree place an order for raw materials? In your computations, assume a 360-day year.

______ float represents the value of checks that have been written and disbursed but have not been deducted from the account on which they were written.

Which of the following securities is an appropriate investment to include in the marketable securities account?

Concentration banking is a cash management arrangement that is used to mobilize funds from decentralized receiving locations, whether they are lockboxes or decentralized company locations, into one or more central cash pools.

The aging schedule of a firm shows that 40 percent of the receivables are collected in 18 days and the remaining 60 percent of the receivables are collected in 50 days. As a result, the firm's days sales outstanding (DSO) is _____.

Which of the following arrangements helps a firm both to accelerate the collection of its customers' payments and to convert those payments into cash?

The primary reason a firm holds marketable securities is because they:

Many foreign governments attempt to restrict the ability of foreign companies to compete with domestic companies by imposing ______, which often substantially increase the prices of products that are imported by multinational companies compared to domestic products.

A ______ balance is cash that a firm holds in reserve for unforeseen fluctuations in its cash flows.

Chovita Marbles purchases $1,500 in raw material each month to support sales of $2,500 that occur in the following month. In addition, Chovita pays wages, rent, and taxes that total $700 each month. What is Chovita's total monthly cash disbursements?

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debt Characteristics and Valuation

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Financial Planning and Control

Filters