Question 1

In the Baumol model,the optimal sale amount is _____ with higher interest rates and ______ with a higher cost of selling securities.

Accepted Answer

A)  increased; increased 
B)  decreased; increased 
C)  decreased; decreased 
D)  increased; decreased 
A)  increased; increased 
B)  decreased; increased 
C)  decreased; decreased 
D)  increased; decreased B

Question 2

What is the bank's ledger balance?

Accepted Answer

The bank's ledger balance is $1,880 + $200 = $2,080.The bank is aware of the cheque you deposited but is not aware of the cheque you wrote.

Question 3

While many firms may hold too much cash,it is virtually impossible to hold too little cash.

Accepted Answer

A) True 
 B)False  False

Question 4

Which of the following would not be included in inventory carrying cost?

Accepted Answer

A)  insurance expense for the inventory 
B)  opportunity cost of capital for inventory investment 
C)  cost of inventory 
D)  cost of shelf space 
A)  insurance expense for the inventory 
B)  opportunity cost of capital for inventory investment 
C)  cost of inventory 
D)  cost of shelf space

Question 5

Short-term securities have high interest-rate risk.

Accepted Answer

A) True 
 B)False

Question 6

Money market securities usually have a maturity of:

Accepted Answer

A)  more than one year. 
B)  less than one year. 
C)  one to three years. 
D)  less than 91 days. 
A)  more than one year. 
B)  less than one year. 
C)  one to three years. 
D)  less than 91 days.

Question 7

A firm with unpredictable cash flows is trying to set upper and lower limits for cash balances.Which of the following factors will result in upper and lower limits being closer to each other?

Accepted Answer

A)  variance of the cash flows is low 
B)  cost of trading securities is high 
C)  interest rate is low 
D)  current cash balance is low 
A)  variance of the cash flows is low 
B)  cost of trading securities is high 
C)  interest rate is low 
D)  current cash balance is low

Question 8

What is the average inventory level,based on EOQ,for a firm that has annual sales of 2,500 units,costs per order of $45,and carrying costs of $5 per unit?

Accepted Answer

A)  35 
B)  75 
C)  106 
D)  237 
A)  35 
B)  75 
C)  106 
D)  237

Question 9

How much money can be saved annually by setting up a lock-box system that will process 500 cheques per day at a cost of $0.20 per cheque if each cheque averages $220,collection float is reduced by three days,and the annual interest rate is 8 percent?

Accepted Answer

A)  ($27,700) 
B)  ($10,100) 
C)  $10,000 
D)  $16,400 
A)  ($27,700) 
B)  ($10,100) 
C)  $10,000 
D)  $16,400

Question 10

The Quick Corp.has implemented procedures to cut 1.5 days from their cash collection process.Annual sales (all charge sales)are $30 million and the opportunity cost of funds is 9 percent.What is the value of the annual savings,and how much would the savings be worth if the speed-up in collections can be considered permanent?

Accepted Answer

Daily sales × number of days s

Question 11

Preauthorized payments allow customers to do one of the following.

Accepted Answer

A)  pay the bills using a credit card 
B)  arrange with their bank to have the account debited directly 
C)  allow creditors to charge their credit card directly 
D)  agree to pay the loan in fixed installments, with interest 
A)  pay the bills using a credit card 
B)  arrange with their bank to have the account debited directly 
C)  allow creditors to charge their credit card directly 
D)  agree to pay the loan in fixed installments, with interest

Question 12

The economic order quantity does not account for delivery lags in its reorder points.

Accepted Answer

A) True 
 B)False

Question 13

As the number of inventory orders per year increases,the total order costs increase.

Accepted Answer

A) True 
 B)False

Question 14

Thrifty Corp.is establishing a lock-box system to reduce time in the collection process.They anticipate saving two days of mail time and .75 days of processing time through the system.Six hundred payments are expected to be collected daily,at an average size of $200.The appropriate interest rate is 6 percent per year.What is the break-even charge per item that you could consider paying to a bank for providing this service?

Accepted Answer

Number of daily items × size of each ite

Question 15

Recent interest rate increases have increased the cost of carrying the inventory.What will be the effect of this on EOQ,if the sales and order costs remain the same?

Accepted Answer

A)  EOQ will not change 
B)  EOQ will increase 
C)  EOQ will decrease 
D)  EOQ will increase slightly 
A)  EOQ will not change 
B)  EOQ will increase 
C)  EOQ will decrease 
D)  EOQ will increase slightly

Question 16

The economic order quantity for a product is 500 units.However,new orders require five working-days lead time during which time 60 units will be used.Given this information,the correct economic order quantity is:

Accepted Answer

A)  440 units. 
B)  500 units. 
C)  507 units. 
D)  560 units. 
A)  440 units. 
B)  500 units. 
C)  507 units. 
D)  560 units.

Question 17

Show that your ledger balance plus payment float equals the bank's ledger balance,which in turn equals the available balance plus availability float.

Accepted Answer

Ledger balance plus payment float = $2,0

Question 18

The economic order quantity is that order quantity that minimizes total order costs.

Accepted Answer

A) True 
 B)False

Question 19

Find the break-even size of wire transfer if the cost of wire transfer is $20,the daily interest rate is 0.02 percent and the reduction in float is three days.

Accepted Answer

A)  $1,000 
B)  $25,000 
C)  $33,333 
D)  $100,000 
A)  $1,000 
B)  $25,000 
C)  $33,333 
D)  $100,000

Question 20

If the volatility of the daily cash flows decreases,a firm will:

Accepted Answer

A)  increase the cash balance. 
B)  decrease the cash balance. 
C)  not change the cash balance. 
D)  increase the return point. 
A)  increase the cash balance. 
B)  decrease the cash balance. 
C)  not change the cash balance. 
D)  increase the return point.

Exam 21: Cash and Inventory Management

In the Baumol model,the optimal sale amount is _____ with higher interest rates and ______ with a higher cost of selling securities.

What is the bank's ledger balance?

While many firms may hold too much cash,it is virtually impossible to hold too little cash.

Which of the following would not be included in inventory carrying cost?

Short-term securities have high interest-rate risk.

Money market securities usually have a maturity of:

A firm with unpredictable cash flows is trying to set upper and lower limits for cash balances.Which of the following factors will result in upper and lower limits being closer to each other?

What is the average inventory level,based on EOQ,for a firm that has annual sales of 2,500 units,costs per order of $45,and carrying costs of $5 per unit?

How much money can be saved annually by setting up a lock-box system that will process 500 cheques per day at a cost of $0.20 per cheque if each cheque averages $220,collection float is reduced by three days,and the annual interest rate is 8 percent?

Preauthorized payments allow customers to do one of the following.

The economic order quantity does not account for delivery lags in its reorder points.

As the number of inventory orders per year increases,the total order costs increase.

Recent interest rate increases have increased the cost of carrying the inventory.What will be the effect of this on EOQ,if the sales and order costs remain the same?

The economic order quantity for a product is 500 units.However,new orders require five working-days lead time during which time 60 units will be used.Given this information,the correct economic order quantity is:

Show that your ledger balance plus payment float equals the bank's ledger balance,which in turn equals the available balance plus availability float.

The economic order quantity is that order quantity that minimizes total order costs.

Find the break-even size of wire transfer if the cost of wire transfer is $20,the daily interest rate is 0.02 percent and the reduction in float is three days.

If the volatility of the daily cash flows decreases,a firm will:

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, IPOs, and Seasoned Offerings

Debt and Payout Policy

Leasing

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters

In the Baumol model,the optimal sale amount is _ with higher interest rates and __ with a higher cost of selling securities.