Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

What is the greatest risk associated with cash management?

Accepted Answer

A) yields 
B) insolvency 
C) holding too much cash 
D) managing float 
A) yields 
B) insolvency 
C) holding too much cash 
D) managing float B

Question 3

Because poor credit-worthy customers may cause bad debt losses,credit sales to them should not be allowed.

Accepted Answer

A) True 
 B)False  False

Question 4

If a firm with credit terms of 2/10 net 30 were to change its terms to 2/10 net 60,the result would probably be

Accepted Answer

A) more customers would take advantage of the cash discount. 
B) fewer customers would take advantage of the cash discount. 
C) increased accounts receivable turnover. 
D) a reduction in safety stock. 
A) more customers would take advantage of the cash discount. 
B) fewer customers would take advantage of the cash discount. 
C) increased accounts receivable turnover. 
D) a reduction in safety stock.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Marketable securities are only those security investments the firm can convert into cash balances within one year.

Accepted Answer

A) True 
 B)False

Question 7

Banker's acceptances have the following characteristics EXCEPT

Accepted Answer

A) typically maturities of 1 to 5 years. 
B) fully taxable at the federal,state,and local levels. 
C) are sold on a discount basis and payable to the bearer. 
D) are not "issued" in predetermined denominations. 
A) typically maturities of 1 to 5 years. 
B) fully taxable at the federal,state,and local levels. 
C) are sold on a discount basis and payable to the bearer. 
D) are not "issued" in predetermined denominations.

Question 8

Two factors that go into the determination of the appropriate order point are the deliver-time stock and the safety stock required.

Accepted Answer

A) True 
 B)False

Question 9

Determine the effective annualized cost of forgoing the trade discount on terms 2/15 net 65.

Accepted Answer

A) 11.30% 
B) 14.69% 
C) 32.6% 
D) 48.98% 
A) 11.30% 
B) 14.69% 
C) 32.6% 
D) 48.98%

Question 10

Assume that Federated Stores,whose credit card billings total $120 billion per year,were to implement a lockbox arrangement that would speed up the collection of its credit card billings by 2 full days.If Federated could earn 3.5% on its marketable securities,how much would the firm earn per year from such a lockbox arrangement? Assume a 365-day year.

Accepted Answer

A) $316.99 million 
B) $244.58 million 
C) $230.14 million 
D) $183.50 million 
A) $316.99 million 
B) $244.58 million 
C) $230.14 million 
D) $183.50 million

Question 11

A lockbox system can reduce all of the following elements of float EXCEPT

Accepted Answer

A) mail float. 
B) processing float. 
C) transit float. 
D) disbursing float. 
A) mail float. 
B) processing float. 
C) transit float. 
D) disbursing float.

Question 12

Which of the following is used to manage a firm's cash disbursements?

Accepted Answer

A) lockbox system 
B) bankers' acceptances 
C) repurchase agreements 
D) zero balance accounts 
A) lockbox system 
B) bankers' acceptances 
C) repurchase agreements 
D) zero balance accounts

Question 13

Transit float is caused by

Accepted Answer

A) the time necessary for a deposited check to clear the banking system and become usable funds to the company. 
B) the time funds are not available,through the company's bank account,until its payment check has cleared the banking system. 
C) the elapsed time from the moment a customer mails his remittance check until the firm begins to process it. 
D) the time required for the firm to process remittance checks. 
A) the time necessary for a deposited check to clear the banking system and become usable funds to the company. 
B) the time funds are not available,through the company's bank account,until its payment check has cleared the banking system. 
C) the elapsed time from the moment a customer mails his remittance check until the firm begins to process it. 
D) the time required for the firm to process remittance checks.

Question 14

Which of the following affects the precautionary motive for holding cash?

Accepted Answer

A) the cash flow predictability 
B) the firm's access to external funds 
C) both A and B 
D) none of the above 
A) the cash flow predictability 
B) the firm's access to external funds 
C) both A and B 
D) none of the above

Question 15

The funds needed to satisfy the precautionary motive are entirely held in cash.

Accepted Answer

A) True 
 B)False

Question 16

The most important reasons firms hold cash balances are the transaction and precautionary motives.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Determination of safety stock involves a tradeoff between the risk of a stock-out and increased costs of carrying additional inventory.

Accepted Answer

A) True 
 B)False

Question 19

Brett's Gift Box estimates that it will sell 30,000 porcelain figurines next year.Because porcelain figurines are so easily damaged,the average per unit carrying cost of the figurines is $25.The per order cost of ordering is $800.Assume that Brett wants a safety stock of 75 figurines.If Brett reorders the figurines based on the economic order quantity,what is Brett's average inventory of porcelain figurines?

Accepted Answer

A) 768 
B) 854 
C) 628 
D) 700 
A) 768 
B) 854 
C) 628 
D) 700

Question 20

How do interest rates affect the optimal order quantity Q*?

Accepted Answer

A) As interest rates increase,Q* decreases. 
B) As interest rates decrease,Q* decreases. 
C) As interest rates increase,Q* increases until it reaches a maximum,after which any further increase in interest causes a decline in Q*. 
D) None of the above. 
A) As interest rates increase,Q* decreases. 
B) As interest rates decrease,Q* decreases. 
C) As interest rates increase,Q* increases until it reaches a maximum,after which any further increase in interest causes a decline in Q*. 
D) None of the above.

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

What is the greatest risk associated with cash management?

Because poor credit-worthy customers may cause bad debt losses,credit sales to them should not be allowed.

If a firm with credit terms of 2/10 net 30 were to change its terms to 2/10 net 60,the result would probably be

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

Marketable securities are only those security investments the firm can convert into cash balances within one year.

Banker's acceptances have the following characteristics EXCEPT

Two factors that go into the determination of the appropriate order point are the deliver-time stock and the safety stock required.

Determine the effective annualized cost of forgoing the trade discount on terms 2/15 net 65.

A lockbox system can reduce all of the following elements of float EXCEPT

Which of the following is used to manage a firm's cash disbursements?

Transit float is caused by

Which of the following affects the precautionary motive for holding cash?

The funds needed to satisfy the precautionary motive are entirely held in cash.

The most important reasons firms hold cash balances are the transaction and precautionary motives.

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

Determination of safety stock involves a tradeoff between the risk of a stock-out and increased costs of carrying additional inventory.

How do interest rates affect the optimal order quantity Q*?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Filters

Exam 17: Cash,receivables,and Inventory Management

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

What is the greatest risk associated with cash management?

Because poor credit-worthy customers may cause bad debt losses,credit sales to them should not be allowed.

If a firm with credit terms of 2/10 net 30 were to change its terms to 2/10 net 60,the result would probably be

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

Marketable securities are only those security investments the firm can convert into cash balances within one year.

Banker's acceptances have the following characteristics EXCEPT

Two factors that go into the determination of the appropriate order point are the deliver-time stock and the safety stock required.

Determine the effective annualized cost of forgoing the trade discount on terms 2/15 net 65.

A lockbox system can reduce all of the following elements of float EXCEPT

Which of the following is used to manage a firm's cash disbursements?

Transit float is caused by

Which of the following affects the precautionary motive for holding cash?

The funds needed to satisfy the precautionary motive are entirely held in cash.

The most important reasons firms hold cash balances are the transaction and precautionary motives.

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

Determination of safety stock involves a tradeoff between the risk of a stock-out and increased costs of carrying additional inventory.

How do interest rates affect the optimal order quantity Q*?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Filters