Question 1

In the basic EOQ model the optimal inventory level is the point at which

Accepted Answer

A) total cost is minimized. 
B) total revenue is maximized. 
C) carrying costs are minimized. 
D) ordering costs are minimized. 
A) total cost is minimized. 
B) total revenue is maximized. 
C) carrying costs are minimized. 
D) ordering costs are minimized.

Question 2

A zero balance account permits divisions to disburse funds while maintaining centralized control of several bank accounts.

Accepted Answer

A) True 
 B)False

Question 3

When a corporation designs an investment strategy for investing temporary excess cash balances in marketable securities,it must consider a variety of factors.Which of the following is the most important?

Accepted Answer

A) maintaining the safety of principal 
B) maintaining the greatest float 
C) achieving the highest yield 
D) illiquidity 
A) maintaining the safety of principal 
B) maintaining the greatest float 
C) achieving the highest yield 
D) illiquidity

Question 4

The minimum denomination of U.S.Treasury bills is $100,000.

Accepted Answer

A) True 
 B)False

Question 5

A company is technically insolvent when

Accepted Answer

A) cash outflows in a given period are greater than cash inflows. 
B) earnings before interest payments are less than the interest payments. 
C) it lacks the necessary liquidity to promptly pay its current debt obligations. 
D) current ratio is less than 1.0. 
A) cash outflows in a given period are greater than cash inflows. 
B) earnings before interest payments are less than the interest payments. 
C) it lacks the necessary liquidity to promptly pay its current debt obligations. 
D) current ratio is less than 1.0.

Question 6

The industry in which a firm operates has relatively little effect on the relative amounts of transaction cash held.

Accepted Answer

A) True 
 B)False

Question 7

The PMI,Inc.processes an estimated 200,000 checks per year from its customers.Total revenue collected by check is $40,000,000.The average float time until the funds are credited to PMI's checking account is 6 days.For an extra cost of $ .06/check,PMI's bank will install a lock-box system that will reduce float time from 6 days to 2.5 days.If PMI earns 3.5% on its checking account,how much per check will PMI make if it uses the lock-box system?

Accepted Answer

A) $.005 
B) $.006 
C) $.007 
D) $.008 
A) $.005 
B) $.006 
C) $.007 
D) $.008

Question 8

Premium Seed Sales,Inc.expects to generate sales of $22,000,000 in the coming year.All sales are done on a credit basis,net 45 days.Premium Seed has estimated that it takes an average of three days for payments to reach their central office and an additional two days to process the payments.What is the opportunity cost of the funds tied up in the mail and processing? Premium Seed uses a 360-day year in all calculations and can invest free funds at 6.5%.

Accepted Answer

Daily collections =

Question 9

Which of the following would be an example of the "precautionary motive" for a firm holding cash balances?

Accepted Answer

A) purchase of inventory 
B) anticipating a strike 
C) purchase fixed assets 
D) make dividend payments 
A) purchase of inventory 
B) anticipating a strike 
C) purchase fixed assets 
D) make dividend payments

Question 10

EOQ model recommendations may be replaced by anticipatory buying during periods of high inflation.

Accepted Answer

A) True 
 B)False

Question 11

Lockbox arrangements may reduce mail float,processing float,and transit float.

Accepted Answer

A) True 
 B)False

Question 12

Newtown Manufacturing,Inc.uses semi-hex joints in its manufacturing process.If Stein's total demand for the joints for next year is estimated to be 57,000 units,and if the cost per order is $225,what is Newtown's economic order quantity of semi-hex joints? Assume that carrying costs for semi-hex joints are $0.75 per unit.

Accepted Answer

A) 3,729 
B) 3,987 
C) 4,944 
D) 5,848 
A) 3,729 
B) 3,987 
C) 4,944 
D) 5,848

Question 13

Speculative cash balances are held to take advantage of uncertain profit-making opportunities.

Accepted Answer

A) True 
 B)False

Question 14

Inflation affects the EOQ model in all of the following ways EXCEPT

Accepted Answer

A) changing the investment in accounts receivable. 
B) encourages anticipatory buying. 
C) increased carrying costs. 
D) encourages buying early to avoid price increases. 
A) changing the investment in accounts receivable. 
B) encourages anticipatory buying. 
C) increased carrying costs. 
D) encourages buying early to avoid price increases.

Question 15

Transaction balances are used to meet the regular cash needs of the firm,not irregular outflows that will be handled with speculative balances.

Accepted Answer

A) True 
 B)False

Question 16

The objectives of a zero balance account system for the firm include

Accepted Answer

A) reduce disbursing float. 
B) achieve better control over its cash payments. 
C) increase cash balances in regional rather than national banks. 
D) all of the above are correct. 
A) reduce disbursing float. 
B) achieve better control over its cash payments. 
C) increase cash balances in regional rather than national banks. 
D) all of the above are correct.

Question 17

Which of the following is the least liquid?

Accepted Answer

A) U.S.Treasury bills 
B) commercial paper 
C) money market mutual funds 
D) federal agency securities 
A) U.S.Treasury bills 
B) commercial paper 
C) money market mutual funds 
D) federal agency securities

Question 18

Payable-through drafts look like checks but are not drawn on a bank.

Accepted Answer

A) True 
 B)False

Question 19

A trade credit discount such as 2/10 net 40 means

Accepted Answer

A) a 2 percent penalty is due after 40 days. 
B) a 2 percent discount if payment is made within 10 days,otherwise,the total amount is due in 40 days. 
C) a 2 percent discount for payment within 10 days,and a 3 percent penalty if payment is made after 40 days. 
D) 10 percent discount for cash on delivery and a 2 percent discount for payment within 40 days. 
A) a 2 percent penalty is due after 40 days. 
B) a 2 percent discount if payment is made within 10 days,otherwise,the total amount is due in 40 days. 
C) a 2 percent discount for payment within 10 days,and a 3 percent penalty if payment is made after 40 days. 
D) 10 percent discount for cash on delivery and a 2 percent discount for payment within 40 days.

Question 20

Motives for holding stocks of cash include transaction,precautionary,and speculative.

Accepted Answer

A) True 
 B)False

In the basic EOQ model the optimal inventory level is the point at which

A zero balance account permits divisions to disburse funds while maintaining centralized control of several bank accounts.

When a corporation designs an investment strategy for investing temporary excess cash balances in marketable securities,it must consider a variety of factors.Which of the following is the most important?

The minimum denomination of U.S.Treasury bills is $100,000.

A company is technically insolvent when

The industry in which a firm operates has relatively little effect on the relative amounts of transaction cash held.

Which of the following would be an example of the "precautionary motive" for a firm holding cash balances?

EOQ model recommendations may be replaced by anticipatory buying during periods of high inflation.

Lockbox arrangements may reduce mail float,processing float,and transit float.

Speculative cash balances are held to take advantage of uncertain profit-making opportunities.

Inflation affects the EOQ model in all of the following ways EXCEPT

Transaction balances are used to meet the regular cash needs of the firm,not irregular outflows that will be handled with speculative balances.

The objectives of a zero balance account system for the firm include

Which of the following is the least liquid?

Payable-through drafts look like checks but are not drawn on a bank.

A trade credit discount such as 2/10 net 40 means

Motives for holding stocks of cash include transaction,precautionary,and speculative.

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

In the basic EOQ model the optimal inventory level is the point at which

A zero balance account permits divisions to disburse funds while maintaining centralized control of several bank accounts.

When a corporation designs an investment strategy for investing temporary excess cash balances in marketable securities,it must consider a variety of factors.Which of the following is the most important?

The minimum denomination of U.S.Treasury bills is $100,000.

A company is technically insolvent when

The industry in which a firm operates has relatively little effect on the relative amounts of transaction cash held.

Which of the following would be an example of the "precautionary motive" for a firm holding cash balances?

EOQ model recommendations may be replaced by anticipatory buying during periods of high inflation.

Lockbox arrangements may reduce mail float,processing float,and transit float.

Speculative cash balances are held to take advantage of uncertain profit-making opportunities.

Inflation affects the EOQ model in all of the following ways EXCEPT

Transaction balances are used to meet the regular cash needs of the firm,not irregular outflows that will be handled with speculative balances.

The objectives of a zero balance account system for the firm include

Which of the following is the least liquid?

Payable-through drafts look like checks but are not drawn on a bank.

A trade credit discount such as 2/10 net 40 means

Motives for holding stocks of cash include transaction,precautionary,and speculative.

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