Question 1

Given that short-term interest rates typically fluctuate less than long-term rates,interest rate risk is least for

Accepted Answer

A)  treasury bills. 
B)  common stock. 
C)  long-term government bonds. 
D)  medium-term corporate bonds. 
A)  treasury bills. 
B)  common stock. 
C)  long-term government bonds. 
D)  medium-term corporate bonds.

Question 2

In the EOQ model,carrying costs of inventory include

Accepted Answer

A)  the required rate of return on inventory. 
B)  wages for warehouse workers. 
C)  costs associated with inventory shrinkage. 
D)  B and C. 
E)  all of the above. 
A)  the required rate of return on inventory. 
B)  wages for warehouse workers. 
C)  costs associated with inventory shrinkage. 
D)  B and C. 
E)  all of the above.

Question 3

The decision to forgo the discount available to those customers who pay early has an advantage as well as a disadvantage.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Which of the following is not an underlying assumption of the EOQ?

Accepted Answer

A)  uniform demand 
B)  constant unit price 
C)  variable carrying cost 
D)  instantaneous delivery 
A)  uniform demand 
B)  constant unit price 
C)  variable carrying cost 
D)  instantaneous delivery

Question 6

Assume that liquid funds can be invested to yield 4.5 percent.If annual remittance checks total $2 billion,what is it worth for the firm to reduce float by 1 day?

Accepted Answer

A)  $388,349 
B)  $246,575 
C)  $257,534 
D)  $24,658 
A)  $388,349 
B)  $246,575 
C)  $257,534 
D)  $24,658

Question 7

The interest earned on U.S.Treasury bills is subject to state and local income taxes.

Accepted Answer

A) True 
 B)False

Question 8

All of the following elements of a cash management program will likely contribute to an increase in the value of the firm except:

Accepted Answer

A)  collect cash more quickly. 
B)  slow down cash disbursements. 
C)  prepare more accurate cash flow forecasts. 
D)  increase cash balances for precautionary reasons. 
A)  collect cash more quickly. 
B)  slow down cash disbursements. 
C)  prepare more accurate cash flow forecasts. 
D)  increase cash balances for precautionary reasons.

Question 9

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 10

Safety stock may be included into the EOQ model to alleviate problems caused by violation of the assumptions of constant demand and instantaneous delivery.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Which of the following is not a motive for a corporation to hold cash balances?

Accepted Answer

A)  transactions 
B)  float 
C)  precautionary 
D)  speculative 
A)  transactions 
B)  float 
C)  precautionary 
D)  speculative

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

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

Accepted Answer

A) True 
 B)False

Question 16

The Yardscape Corp 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 Yardscape's checking account is 6 days.For an extra cost of $ .06/check,Yardscape's bank will install a lock-box system that will reduce float time from 6 days to 2.5 days.If Yardscape earns 3.5% on its checking account,how much per check will Yardscape 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 17

Martin Inc.is negotiating with the bank for a lockbox system that is expected to reduce check collection time by 4 days.Martin's average check size is $1,200 and any funds freed up by the new system will be invested in a money market account that is currently paying 2.5% annually.What is the most Martin should be willing to pay the bank for the lockbox service,assuming the bank charges a per-check processing fee?

Accepted Answer

A)  20.500 cents 
B)  29.767 cents 
C)  30.726 cents 
D)  32.877 cents 
A)  20.500 cents 
B)  29.767 cents 
C)  30.726 cents 
D)  32.877 cents

Question 18

Total float consists of each of the following elements except:

Accepted Answer

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

Question 19

Considerations in the selection of a proper marketable-securities mix include all of the following except:

Accepted Answer

A)  financial risk. 
B)  interest rate risk. 
C)  maturity. 
D)  liquidity. 
A)  financial risk. 
B)  interest rate risk. 
C)  maturity. 
D)  liquidity.

Question 20

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

Accepted Answer

A) True 
 B)False

Given that short-term interest rates typically fluctuate less than long-term rates,interest rate risk is least for

In the EOQ model,carrying costs of inventory include

The decision to forgo the discount available to those customers who pay early has an advantage as well as a disadvantage.

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

Which of the following is not an underlying assumption of the EOQ?

Assume that liquid funds can be invested to yield 4.5 percent.If annual remittance checks total $2 billion,what is it worth for the firm to reduce float by 1 day?

The interest earned on U.S.Treasury bills is subject to state and local income taxes.

All of the following elements of a cash management program will likely contribute to an increase in the value of the firm except:

Safety stock may be included into the EOQ model to alleviate problems caused by violation of the assumptions of constant demand and instantaneous delivery.

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

Which of the following is not a motive for a corporation to hold cash balances?

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

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

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

Total float consists of each of the following elements except:

Considerations in the selection of a proper marketable-securities mix include all of the following except:

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

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 16: Current Asset Management

Given that short-term interest rates typically fluctuate less than long-term rates,interest rate risk is least for

In the EOQ model,carrying costs of inventory include

The decision to forgo the discount available to those customers who pay early has an advantage as well as a disadvantage.

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

Which of the following is not an underlying assumption of the EOQ?

Assume that liquid funds can be invested to yield 4.5 percent.If annual remittance checks total $2 billion,what is it worth for the firm to reduce float by 1 day?

The interest earned on U.S.Treasury bills is subject to state and local income taxes.

All of the following elements of a cash management program will likely contribute to an increase in the value of the firm except:

Safety stock may be included into the EOQ model to alleviate problems caused by violation of the assumptions of constant demand and instantaneous delivery.

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

Which of the following is not a motive for a corporation to hold cash balances?

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

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

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

Total float consists of each of the following elements except:

Considerations in the selection of a proper marketable-securities mix include all of the following except:

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

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