Question 1

The conversion of current assets ________.

Accepted Answer

A)  from cash to receivables to inventory provides the cash used to pay non-current liabilities 
B)  from inventory to receivables to marketable securities provides the cash used to buy plant and equipment 
C)  from inventory to receivables to cash provides the cash used to pay current liabilities 
D)  from cash to receivables to inventory provides the cash used to repurchase stock 
A)  from cash to receivables to inventory provides the cash used to pay non-current liabilities 
B)  from inventory to receivables to marketable securities provides the cash used to buy plant and equipment 
C)  from inventory to receivables to cash provides the cash used to pay current liabilities 
D)  from cash to receivables to inventory provides the cash used to repurchase stock

Question 2

Playing the float involves the strategic use of mailing points and bank accounts to lengthen mail float and clearing float, respectively.

Accepted Answer

A) True 
 B)False

Question 3

The cash conversion cycle is the sum of average age of the inventory and average collection period minus average payment period.

Accepted Answer

A) True 
 B)False

Question 4

A firm has an average age of inventory of 20 days, an average collection period of 30 days, and an average payment period of 60 days. The firm's cash conversion cycle is ________ days.

Accepted Answer

A)  70 
B)  50 
C)  -10 
D)  110 
A)  70 
B)  50 
C)  -10 
D)  110

Question 5

________ refers to funds that have been dispatched by a payer but are not in a form that can be spent by the payee.

Accepted Answer

A)  Banker's acceptance 
B)  Float 
C)  A direct send 
D)  Lockbox 
A)  Banker's acceptance 
B)  Float 
C)  A direct send 
D)  Lockbox

Question 6

A firm's operating cycle (OC) is simply the sum of the average age of inventory (AAI) and the average payment period (APP).

Accepted Answer

A) True 
 B)False

Question 7

Table 15.1
Irish Air Services has determined several factors relative to its asset and financing mix.
(a) The firm earns 10 percent annually on its current assets.
(b) The firm earns 20 percent annually on its fixed assets.
(c) The firm pays 13 percent annually on current liabilities.
(d) The firm pays 17 percent annually on long-term funds.
(e) The firm's monthly current, fixed, and total asset requirements for the previous year are summarized in the table below:  
-The firm's annual financing costs of conservative financing strategy are ________. (See Table 15.1)

Accepted Answer

A)  $22,775 
B)  $26,075 
C)  $26,775 
D)  $21,175 
A)  $22,775 
B)  $26,075 
C)  $26,775 
D)  $21,175

Question 8

A security experiencing little or no loss in value over time is said to have a ________.

Accepted Answer

A)  safety of return 
B)  safety of principal 
C)  safety of maturity 
D)  risk of payments 
A)  safety of return 
B)  safety of principal 
C)  safety of maturity 
D)  risk of payments

Question 9

Which of the following is true of a Eurodollar deposit?

Accepted Answer

A)  Eurodollar deposits tend to provide yields below nearly all other marketable securities with similar maturities due to their low risk. 
B)  Eurodollar deposits are non-negotiable and pay interest only at maturity, hence the yield is higher than on other marketable securities with similar maturities. 
C)  Eurodollar deposits tend to provide yields above nearly all other marketable securities with similar maturities due to the higher risk. 
D)  Eurodollar deposits tend to provide higher yields above nearly all other marketable securities with similar maturities due to the absence of an active secondary market. 
A)  Eurodollar deposits tend to provide yields below nearly all other marketable securities with similar maturities due to their low risk. 
B)  Eurodollar deposits are non-negotiable and pay interest only at maturity, hence the yield is higher than on other marketable securities with similar maturities. 
C)  Eurodollar deposits tend to provide yields above nearly all other marketable securities with similar maturities due to the higher risk. 
D)  Eurodollar deposits tend to provide higher yields above nearly all other marketable securities with similar maturities due to the absence of an active secondary market.

Question 10

A popular extension of materials requirement planning that integrates data from numerous areas such as accounting, finance, engineering, and manufacturing using a sophisticated computer system is called ________.

Accepted Answer

A)  computerized materials integration II 
B)  manufacturing resource planning II 
C)  inventory allocation planning II 
D)  inventory integration planning II 
A)  computerized materials integration II 
B)  manufacturing resource planning II 
C)  inventory allocation planning II 
D)  inventory integration planning II

Question 11

Which of the following is true of changes in cash discount period?

Accepted Answer

A)  If a firm increases its cash discount period, the sales are expected to decrease, the bad debts are expected to decrease, and the profit per unit is expected to increase. 
B)  If a firm decreases its cash discount period, the sales are expected to decrease, the bad debts are expected to decrease, and the profit per unit is expected to increase. 
C)  If a firm increases its cash discount period, the sales are expected to increase, the bad debts are expected to decrease, and the profit per unit is expected to decrease. 
D)  If a firm decreases its cash discount period, the sales are expected to decrease, the bad debts are expected to increase, and the profit per unit is expected to decrease. 
A)  If a firm increases its cash discount period, the sales are expected to decrease, the bad debts are expected to decrease, and the profit per unit is expected to increase. 
B)  If a firm decreases its cash discount period, the sales are expected to decrease, the bad debts are expected to decrease, and the profit per unit is expected to increase. 
C)  If a firm increases its cash discount period, the sales are expected to increase, the bad debts are expected to decrease, and the profit per unit is expected to decrease. 
D)  If a firm decreases its cash discount period, the sales are expected to decrease, the bad debts are expected to increase, and the profit per unit is expected to decrease.

Question 12

The reorder point is an inventory management system that compares production needs to available inventory balances and determines when orders should be placed for various items on a firm's bill of materials.

Accepted Answer

A) True 
 B)False

Question 13

Short-term financial management is concerned with management of a firm's current assets and current liabilities to achieve a balance between profitability and risk.

Accepted Answer

A) True 
 B)False

Question 14

________ are established to evaluate a customer's creditworthiness and to determine the minimum requirements for extending credit to a customer.

Accepted Answer

A)  Lines of credit 
B)  Credit limits 
C)  Collection agencies 
D)  Credit standards 
A)  Lines of credit 
B)  Credit limits 
C)  Collection agencies 
D)  Credit standards

Question 15

Which of the following is an example of carrying cost?

Accepted Answer

A)  insurance of goods in transit 
B)  transportation cost 
C)  insurance cost 
D)  cost of inventory 
A)  insurance of goods in transit 
B)  transportation cost 
C)  insurance cost 
D)  cost of inventory

Question 16

The ________ is the time period that elapses from the point when a firm sells a finished good on account to the point when the receivable is collected.

Accepted Answer

A)  cash conversion cycle 
B)  average payment period 
C)  average age of inventory 
D)  average collection period 
A)  cash conversion cycle 
B)  average payment period 
C)  average age of inventory 
D)  average collection period

Question 17

The aggressive financing strategy is a ________ method while the conservative financing strategy is a ________ method.

Accepted Answer

A)  high-profit, high-risk; low-profit, low-risk 
B)  high-profit, low-risk; low-profit, high-risk 
C)  low-profit, high-risk; high-profit, low-risk 
D)  low-profit, low-risk; high-profit, high-risk 
A)  high-profit, high-risk; low-profit, low-risk 
B)  high-profit, low-risk; low-profit, high-risk 
C)  low-profit, high-risk; high-profit, low-risk 
D)  low-profit, low-risk; high-profit, high-risk

Question 18

A firm has an average age of inventory of 60 days, an average collection period of 45 days, and an average payment period of 30 days. The firm's operating cycle is ________ days.

Accepted Answer

A)  75 
B)  105 
C)  90 
D)  135 
A)  75 
B)  105 
C)  90 
D)  135

Question 19

A firm with a cash conversion cycle of 175 days can stretch its average payment period from 30 days to 45 days. This will result in a/an ________.

Accepted Answer

A)  decrease of 30 days in the cash conversion cycle 
B)  increase of 15 days in the cash conversion cycle 
C)  decrease of 15 days in the cash conversion cycle 
D)  increase of 30 days in the cash conversion cycle 
A)  decrease of 30 days in the cash conversion cycle 
B)  increase of 15 days in the cash conversion cycle 
C)  decrease of 15 days in the cash conversion cycle 
D)  increase of 30 days in the cash conversion cycle

Question 20

Which of the following is true of current assets?

Accepted Answer

A)  The time of conversion of current assets to more liquid form is relatively unpredictable. 
B)  They are used to fund long-term operations and pay long-term expenses. 
C)  They are more profitable because they add more value to the product than that provided by fixed assets. 
D)  They are sources of short-term financing for a firm. 
A)  The time of conversion of current assets to more liquid form is relatively unpredictable. 
B)  They are used to fund long-term operations and pay long-term expenses. 
C)  They are more profitable because they add more value to the product than that provided by fixed assets. 
D)  They are sources of short-term financing for a firm.

The conversion of current assets ________.

Playing the float involves the strategic use of mailing points and bank accounts to lengthen mail float and clearing float, respectively.

The cash conversion cycle is the sum of average age of the inventory and average collection period minus average payment period.

A firm has an average age of inventory of 20 days, an average collection period of 30 days, and an average payment period of 60 days. The firm's cash conversion cycle is ________ days.

________ refers to funds that have been dispatched by a payer but are not in a form that can be spent by the payee.

A firm's operating cycle (OC) is simply the sum of the average age of inventory (AAI) and the average payment period (APP).

A security experiencing little or no loss in value over time is said to have a ________.

Which of the following is true of a Eurodollar deposit?

A popular extension of materials requirement planning that integrates data from numerous areas such as accounting, finance, engineering, and manufacturing using a sophisticated computer system is called ________.

Which of the following is true of changes in cash discount period?

The reorder point is an inventory management system that compares production needs to available inventory balances and determines when orders should be placed for various items on a firm's bill of materials.

Short-term financial management is concerned with management of a firm's current assets and current liabilities to achieve a balance between profitability and risk.

________ are established to evaluate a customer's creditworthiness and to determine the minimum requirements for extending credit to a customer.

Which of the following is an example of carrying cost?

The ________ is the time period that elapses from the point when a firm sells a finished good on account to the point when the receivable is collected.

The aggressive financing strategy is a method while the conservative financing strategy is a method.

A firm has an average age of inventory of 60 days, an average collection period of 45 days, and an average payment period of 30 days. The firm's operating cycle is ________ days.

A firm with a cash conversion cycle of 175 days can stretch its average payment period from 30 days to 45 days. This will result in a/an ________.

Which of the following is true of current assets?

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters

Exam 15: Working Capital and Current Assets Management

The conversion of current assets ________.

Playing the float involves the strategic use of mailing points and bank accounts to lengthen mail float and clearing float, respectively.

The cash conversion cycle is the sum of average age of the inventory and average collection period minus average payment period.

A firm has an average age of inventory of 20 days, an average collection period of 30 days, and an average payment period of 60 days. The firm's cash conversion cycle is ________ days.

________ refers to funds that have been dispatched by a payer but are not in a form that can be spent by the payee.

A firm's operating cycle (OC) is simply the sum of the average age of inventory (AAI) and the average payment period (APP).

A security experiencing little or no loss in value over time is said to have a ________.

Which of the following is true of a Eurodollar deposit?

A popular extension of materials requirement planning that integrates data from numerous areas such as accounting, finance, engineering, and manufacturing using a sophisticated computer system is called ________.

Which of the following is true of changes in cash discount period?

The reorder point is an inventory management system that compares production needs to available inventory balances and determines when orders should be placed for various items on a firm's bill of materials.

Short-term financial management is concerned with management of a firm's current assets and current liabilities to achieve a balance between profitability and risk.

________ are established to evaluate a customer's creditworthiness and to determine the minimum requirements for extending credit to a customer.

Which of the following is an example of carrying cost?

The ________ is the time period that elapses from the point when a firm sells a finished good on account to the point when the receivable is collected.

The aggressive financing strategy is a ________ method while the conservative financing strategy is a ________ method.

A firm has an average age of inventory of 60 days, an average collection period of 45 days, and an average payment period of 30 days. The firm's operating cycle is ________ days.

A firm with a cash conversion cycle of 175 days can stretch its average payment period from 30 days to 45 days. This will result in a/an ________.

Which of the following is true of current assets?

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Current Liabilities Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters

The aggressive financing strategy is a method while the conservative financing strategy is a method.