Question 1

Which of the following is NOT a fundamental factor ignored by the target cash balance models?

Accepted Answer

A) Firms have the option to borrow short-term to meet unexpected demands for cash. 
B) The costs and delays of trading securities have fallen dramatically since the advent of the Internet. 
C) Many large firms habitually use all or the majority of their available cash to purchase overnight securities. 
D) Models take into account that many firms must keep compensating balances in their deposit accounts as part of borrowing agreements with their banks. 
A) Firms have the option to borrow short-term to meet unexpected demands for cash. 
B) The costs and delays of trading securities have fallen dramatically since the advent of the Internet. 
C) Many large firms habitually use all or the majority of their available cash to purchase overnight securities. 
D) Models take into account that many firms must keep compensating balances in their deposit accounts as part of borrowing agreements with their banks.

Question 2

Everything else held constant, will an increase in the amount of inventory on hand increase or decrease the firm's profitability?

Accepted Answer

A) Decrease the profitability. 
B) Increase the profitability. 
C) It could either increase or decrease the profitability depending on net profit margins. 
D) It could either increase or decrease the profitability depending on the debt ratio. 
A) Decrease the profitability. 
B) Increase the profitability. 
C) It could either increase or decrease the profitability depending on net profit margins. 
D) It could either increase or decrease the profitability depending on the debt ratio.

Question 3

Reese's Resources faces a smooth annual demand for cash of $15 million; incurs transaction costs of $125 every time they sell marketable securities, and can earn 4.5 percent on their marketable securities. What will be their optimal cash replenishment level?

Accepted Answer

A) $28,867.51 
B) $288,675.13 
C) $61,237.24 
D) $6,123.72 
A) $28,867.51 
B) $288,675.13 
C) $61,237.24 
D) $6,123.72

Question 4

For most businesses, particularly smaller ones, the most common way to cover a short-term financing need is to apply at a bank for which of the following?

Accepted Answer

A) Commercial loan 
B) Line of credit 
C) Asset-based loan 
D) Inventory loan 
A) Commercial loan 
B) Line of credit 
C) Asset-based loan 
D) Inventory loan

Question 5

What effect does decreasing the standard deviation in daily cash flows have on the cash return point in the Miller-Orr model?

Accepted Answer

A) It will cause the cash return point to increase. 
B) It will cause the cash return point to decrease. 
C) It has no impact on the cash return point. 
D) It will cause the cash return point to first decrease, then increase. 
A) It will cause the cash return point to increase. 
B) It will cause the cash return point to decrease. 
C) It has no impact on the cash return point. 
D) It will cause the cash return point to first decrease, then increase.

Question 6

Which of the following is a checking account that the firm sets up so that the bank agrees to automatically transfer funds from an interest-bearing account to pay off any checks presented?

Accepted Answer

A) Lockbox system 
B) Concentration banking 
C) Wire transfers 
D) Zero-balance account 
A) Lockbox system 
B) Concentration banking 
C) Wire transfers 
D) Zero-balance account

Question 7

If a firm has a cash cycle of 10 days and an operating cycle of 43 days, what is its payables turnover?

Accepted Answer

A) 11.06 
B) 36.5 
C) 8.48 
D) 33 
A) 11.06 
B) 36.5 
C) 8.48 
D) 33

Which of the following is NOT a fundamental factor ignored by the target cash balance models?

Everything else held constant, will an increase in the amount of inventory on hand increase or decrease the firm's profitability?

Reese's Resources faces a smooth annual demand for cash of $15 million; incurs transaction costs of $125 every time they sell marketable securities, and can earn 4.5 percent on their marketable securities. What will be their optimal cash replenishment level?

For most businesses, particularly smaller ones, the most common way to cover a short-term financing need is to apply at a bank for which of the following?

What effect does decreasing the standard deviation in daily cash flows have on the cash return point in the Miller-Orr model?

Which of the following is a checking account that the firm sets up so that the bank agrees to automatically transfer funds from an interest-bearing account to pay off any checks presented?

If a firm has a cash cycle of 10 days and an operating cycle of 43 days, what is its payables turnover?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Filters

Exam 14: Working Capital Management and Policies

Which of the following is NOT a fundamental factor ignored by the target cash balance models?

Everything else held constant, will an increase in the amount of inventory on hand increase or decrease the firm's profitability?

Reese's Resources faces a smooth annual demand for cash of $15 million; incurs transaction costs of $125 every time they sell marketable securities, and can earn 4.5 percent on their marketable securities. What will be their optimal cash replenishment level?

For most businesses, particularly smaller ones, the most common way to cover a short-term financing need is to apply at a bank for which of the following?

What effect does decreasing the standard deviation in daily cash flows have on the cash return point in the Miller-Orr model?

Which of the following is a checking account that the firm sets up so that the bank agrees to automatically transfer funds from an interest-bearing account to pay off any checks presented?

If a firm has a cash cycle of 10 days and an operating cycle of 43 days, what is its payables turnover?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Filters