Question 1

Which of the following statements is not true?

Accepted Answer

A)  optimal inventory levels involve a trade-off between carrying costs and order costs 
B)  carrying costs include the cost of storing goods as well as the cost of capital tied up in inventory 
C)  inventory levels will be lower when storage or interest costs are high and will be higher when restocking costs are high 
D)  inventory level does not rise in direct proportion to sales. as sales increase, the optimal inventory level rises, but more than proportionately 
A)  optimal inventory levels involve a trade-off between carrying costs and order costs 
B)  carrying costs include the cost of storing goods as well as the cost of capital tied up in inventory 
C)  inventory levels will be lower when storage or interest costs are high and will be higher when restocking costs are high 
D)  inventory level does not rise in direct proportion to sales. as sales increase, the optimal inventory level rises, but more than proportionately

Question 2

Which of the following statements is true regarding repurchase agreements?

Accepted Answer

A)  their maturity is greater than one year 
B)  they are an unsecured form of borrowing 
C)  treasury bills serve as their collateral 
D)  they make explicit, rather than implicit, interest payments 
A)  their maturity is greater than one year 
B)  they are an unsecured form of borrowing 
C)  treasury bills serve as their collateral 
D)  they make explicit, rather than implicit, interest payments

Question 3

The cost of holding inventory is the interest paid on the money used to buy the inventory.

Accepted Answer

A) True 
 B)False

Question 4

Suppose rate of interest increases from 5% to 9% per year.How would firms' cash balance change relative to sales? What would happen when interest rates change from 9% to 5%?

Accepted Answer

With an increase in the rate of interest

Question 5

The Green Transfer Co.utilizes a concentration banking system and is determining whether to request wire transfers or depository transfer cheques.What would you suggest,given the following: wire transfer saves three days of float but increases costs by $45.The current interest rate is 10 percent annually.Next year,however,technological changes will occur that reduce the float savings to two days from three,and the incremental costs will be reduced to $35.

Accepted Answer

Daily interest savings × number of days

Question 6

Your cash manager is currently using wire transfer to obtain collections from distant locations each time that the cash accumulates to $50,000.Evaluate the financial logic of this policy if the wire transfer costs $20,saves three days of mail time,and interest rates average 7 percent annually.

Accepted Answer

A)  Stop the policy; $8.77 is lost with each transfer. 
B)  Stop the policy unless the transfer amount is increased to approximately $65,200. 
C)  Continue the policy at the current transfer amount. 
D)  Improve policy by reducing transfer amount to $34,800. 
A)  Stop the policy; $8.77 is lost with each transfer. 
B)  Stop the policy unless the transfer amount is increased to approximately $65,200. 
C)  Continue the policy at the current transfer amount. 
D)  Improve policy by reducing transfer amount to $34,800.

Question 7

If the marginal reduction in order costs exceeds the marginal carrying cost of inventory,then:

Accepted Answer

A)  the firm has minimized its total carrying costs. 
B)  the firm should increase its order size. 
C)  the firm should decrease its order size. 
D)  the firm has maximized its order costs. 
A)  the firm has minimized its total carrying costs. 
B)  the firm should increase its order size. 
C)  the firm should decrease its order size. 
D)  the firm has maximized its order costs.

Question 8

A firm has estimated that it will need $3,000,000 net cash during the year.Current interest rate on money market securities is 6 percent per year and the cost of buying and selling securities cost $50 per transaction.What is the optimal transaction size of securities?

Accepted Answer

A)  $70,710.68 
B)  $25,100.00 
C)  $65,285.21 
D)  $92,511.11 
A)  $70,710.68 
B)  $25,100.00 
C)  $65,285.21 
D)  $92,511.11

Question 9

What are some tactics to increase net float?

Accepted Answer

You can manage the float by speeding col

Question 10

If cash flows change unpredictably,then management should allow the cash balance to move within limits.What three factors determine how far apart these limits? How far should the firm adjust its cash balance when it reaches this upper or lower limit?

Accepted Answer

Factors that determine these limits are

Question 11

Which of the following is correct about wire transfer of funds,given that wire transfer saves three days,the annual interest rate is 6 percent,and the cost of wire transfer is $20?

Accepted Answer

A)  wire transfers should be preferred for amounts exceeding $2,400 
B)  depository transfer cheques should be preferred for amounts under $121,667 
C)  wire transfers should be preferred for amounts exceeding $40,556 
D)  depository transfers should be preferred for amounts exceeding $121,667 
A)  wire transfers should be preferred for amounts exceeding $2,400 
B)  depository transfer cheques should be preferred for amounts under $121,667 
C)  wire transfers should be preferred for amounts exceeding $40,556 
D)  depository transfers should be preferred for amounts exceeding $121,667

Question 12

Just-in-time inventory management is suitable for an aircraft manufacturer,like Boeing,whose production schedules are known well in advance.

Accepted Answer

A) True 
 B)False

Question 13

FastBucks Inc.has offered to set up a concentration banking system that will save three days of mail float and one day of presentation float.Your receivables average $20,000 per day and the opportunity cost of funds is 6 percent.How much would you be willing to pay FastBucks annually to administer the system perpetually?

Accepted Answer

A)  $2,400 
B)  $4,800 
C)  $40,000 
D)  $80,000 
A)  $2,400 
B)  $4,800 
C)  $40,000 
D)  $80,000

Question 14

How much value would be added to a firm that could permanently reduce its collection period by two days if daily collections average $10,000 and the opportunity cost is 5 percent annually?

Accepted Answer

A)  $1,000 
B)  $1,200 
C)  $10,000 
D)  $20,000 
A)  $1,000 
B)  $1,200 
C)  $10,000 
D)  $20,000

Question 15

Shamba Corporation writes cheques that average $90,000 and take on average 5 days to clear.Cheques are received with an average value of $45,000 and take 9 days to clear.Determine the net float.

Accepted Answer

A)  $45,000 
B)  $60,000 
C)  $855,000 
D)  $135,000 
A)  $45,000 
B)  $60,000 
C)  $855,000 
D)  $135,000

Question 16

Which of the following conditions would make a lockbox system potentially more attractive to a firm?

Accepted Answer

A)  the interest rate declines 
B)  mail time saved is lower 
C)  payment size is higher 
D)  processing time saved is lower 
A)  the interest rate declines 
B)  mail time saved is lower 
C)  payment size is higher 
D)  processing time saved is lower

Question 17

An East Coast firm should establish a lock-box service on the West Coast:

Accepted Answer

A)  if the firm has a large number of customers. 
B)  if it has banking facilities in west coast. 
C)  if West Coast customers are currently mailing their cheques to an East Coast address. 
D)  if West Coast banks are more efficient. 
A)  if the firm has a large number of customers. 
B)  if it has banking facilities in west coast. 
C)  if West Coast customers are currently mailing their cheques to an East Coast address. 
D)  if West Coast banks are more efficient.

Question 18

Baumol's model is not suitable for a firm that experiences:

Accepted Answer

A)  high cost of selling securities. 
B)  low level of annual cash disbursements. 
C)  increased variability of cash flow. 
D)  high average cash balance. 
A)  high cost of selling securities. 
B)  low level of annual cash disbursements. 
C)  increased variability of cash flow. 
D)  high average cash balance.

Question 19

What is the availability float?

Accepted Answer

Availability float i

Question 20

One way of handling uncertain cash flows is to set an upper and lower limit for cash balances and a return point to which the cash balance is brought to when the upper or lower limit is reached.

Accepted Answer

A) True 
 B)False

Exam 21: Cash and Inventory Management

Which of the following statements is not true?

Which of the following statements is true regarding repurchase agreements?

The cost of holding inventory is the interest paid on the money used to buy the inventory.

Suppose rate of interest increases from 5% to 9% per year.How would firms' cash balance change relative to sales? What would happen when interest rates change from 9% to 5%?

Your cash manager is currently using wire transfer to obtain collections from distant locations each time that the cash accumulates to $50,000.Evaluate the financial logic of this policy if the wire transfer costs $20,saves three days of mail time,and interest rates average 7 percent annually.

If the marginal reduction in order costs exceeds the marginal carrying cost of inventory,then:

A firm has estimated that it will need $3,000,000 net cash during the year.Current interest rate on money market securities is 6 percent per year and the cost of buying and selling securities cost $50 per transaction.What is the optimal transaction size of securities?

What are some tactics to increase net float?

If cash flows change unpredictably,then management should allow the cash balance to move within limits.What three factors determine how far apart these limits? How far should the firm adjust its cash balance when it reaches this upper or lower limit?

Which of the following is correct about wire transfer of funds,given that wire transfer saves three days,the annual interest rate is 6 percent,and the cost of wire transfer is $20?

Just-in-time inventory management is suitable for an aircraft manufacturer,like Boeing,whose production schedules are known well in advance.

How much value would be added to a firm that could permanently reduce its collection period by two days if daily collections average $10,000 and the opportunity cost is 5 percent annually?

Shamba Corporation writes cheques that average $90,000 and take on average 5 days to clear.Cheques are received with an average value of $45,000 and take 9 days to clear.Determine the net float.

Which of the following conditions would make a lockbox system potentially more attractive to a firm?

An East Coast firm should establish a lock-box service on the West Coast:

Baumol's model is not suitable for a firm that experiences:

What is the availability float?

One way of handling uncertain cash flows is to set an upper and lower limit for cash balances and a return point to which the cash balance is brought to when the upper or lower limit is reached.

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