Exam 16: Current Asset Management

A company that has an unpredictable cash flow,and is holding cash because of things that might happen due to this uncertainty,is holding a larger minimum cash balance due to which type of motive?

The just-in-time inventory control system is just a new approach to the EOQ model which tries to produce the lowest average inventory possible.

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

U.S.Treasury Bills are exempt from federal,state,and local income taxes.

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

A company trying to optimize the use of float will try to

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

Generally,the least important motive for holding liquid assets for a typical company is the speculative motive.

The financial manager typically cannot control the level of credit sales,and hence the company's investment in accounts receivable,as the level of credit sales is determined in large part by the nature of the business enterprise.

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

Float is best described by which of the below?

Assume that Biggie-Mart,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 Biggie-Mart 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.

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

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

Marketable securities are purchased when excess cash is temporarily available and sold when cash is needed.

If a firm with credit terms of 1/10 net 30 were to change its terms to 3/10 net 30,the result would probably be

The main purpose of using a payable-through draft system is to gain effective control over field payments.

Yields on various financial instruments tend to be positively correlated with maturity.

If you compare the yield of a municipal bond with that of a negotiable certificate of deposit,what is the equivalent before-tax yield of the certificate of deposit if the municipal bond has a yield of 8% per year and the investor has a marginal tax rate of 28%?

Crimson Plumbing Supplies expects total sales of $9,000,000 this year.Ten percent of the company's sales are paid in cash; credit sales are usually paid by check.The average check size is $3,000.Second National Bank is offering the company a lock-box system.The fees are $800 per month plus $.60 per check.Short-term marketable securities are currently earning 8 percent per year.What reduction in check collection time is necessary for Carrollton Plumbing Supplies to be neither better nor worse off from adopting the proposed system? Use a 365-day year.