Question 1

The threat of expropriation creates an incentive for a multinational firm to minimize inventory holdings and to bring in goods only as needed.

Accepted Answer

A) True 
 B)False

Question 2

What type of system allows a customer's bank to periodically transfer funds from its account to a selling firm's bank account for payment of bills?

Accepted Answer

A)  Disbursement agreement 
B)  Preauthorized debit system 
C)  Lockbox agreement 
D)  Concentration banking system 
E)  Zero-balance account

Question 3

Fullerton's total carrying cost is $210 and total ordering cost is $150. Fullerton's total inventory cost is _____.

Accepted Answer

A)  $210 
B)  $360 
C)  $450 
D)  $300 
E)  $150

Question 4

A lockbox arrangement is:

Accepted Answer

A)  a method for the safe-keeping of marketable securities. 
B)  used to identify inventory safety stocks. 
C)  a system for slowing down cash disbursements. 
D)  a system for speeding up a firm's collections of checks received. 
E)  a system for speeding up a firm's disbursement of checks to the customers.

Question 5

All else equal, firms that hold greater amounts of short-term assets are considered riskier than firms that hold greater amounts of long-term securities.

Accepted Answer

A) True 
 B)False

Question 6

The lower the level of current assets that is required to support operations, the closer the firm can follow a _____ current asset investment policy.

Accepted Answer

A)  relaxed 
B)  restricted 
C)  moderate 
D)  lean-and-mean 
E)  precautionary

Question 7

The value of checks that have been written and given to the customers but have not been deducted from the account on which they were written is the _____ float.

Accepted Answer

A)  disbursement 
B)  net 
C)  collections 
D)  balance 
E)  deposit

Question 8

Total cash receipts for Zinc Corporation in a month is $15,000 and total cash disbursements in a month is $10,000. Which of the following is true about Zinc's cash position if it aims to maintain minimum cash balance of $8,000?

Accepted Answer

A)  Zinc has surplus cash of $8,000. 
B)  Zinc has a cash shortfall of $3,000. 
C)  Zinc has surplus cash of $6,000. 
D)  Zinc has a cash shortfall of $23,000. 
E)  Zinc has surplus cash of $20,000.

Question 9

Marketable securities:

Accepted Answer

A)  are extremely liquid investments. 
B)  are long-term investments. 
C)  provide much higher yields than other assets. 
D)  held by a firm depend upon its long-term needs. 
E)  will be held by a firm when inventories and receivables are high.

Question 10

Which of the following will help a firm accelerate the collection of customers' payments and the conversion of those payments into cash?

Accepted Answer

A)  Lockbox arrangement 
B)  Controlled disbursement accounts 
C)  Economic order quantity 
D)  Payables concentration 
E)  Zero-balance accounts

Question 11

The target cash balance is the difference between total cash receipts and total cash disbursements.

Accepted Answer

A) True 
 B)False

Question 12

Aberwald Corporation expects to order 126,000 memory chips for inventory during the coming year and has calculated its economic order quantity as 3000 units. If the cost per order is $5, the total ordering cost incurred by Aberwald is:

Accepted Answer

A)  $500. 
B)  $425. 
C)  $210. 
D)  $310. 
E)  $620.

Question 13

A moderate current asset investment policy is one:

Accepted Answer

A)  under which the level of accounts receivable is always greater than the level of accounts payable. 
B)  which emphasizes on holding equal amount of current assets and current liabilities. 
C)  that calls for relatively large amounts of current assets to be carried. 
D)  under which holdings of cash and marketable securities, inventories, and receivables are minimized. 
E)  that lies between the relaxed and restrictive current asset investment policies.

Question 14

If a firm's credit terms are 2/10 net 30 days, then customers settling their bills within 30 days will get a 2% discount.

Accepted Answer

A) True 
 B)False

Question 15

_____ are the products that are ready for sale.

Accepted Answer

A)  Reorder stock 
B)  Safety stock 
C)  Raw materials 
D)  Work-in-process 
E)  Finished goods

Question 16

Which of the following investments is an example of marketable securities?

Accepted Answer

A)  Accounts payable 
B)  Long-term bonds 
C)  Long-term loans 
D)  Equity 
E)  Treasury bills

Question 17

Which of the following is minimized when a company uses the economic order quantity (EOQ) model?

Accepted Answer

A)  Outsourcing 
B)  Total inventory cost 
C)  Purchase price 
D)  Safety stock 
E)  Quantity discount

Question 18

Trust Chemicals is considering changing its credit policy. It conducted a net present value (NPV) analysis for both its existing credit policy and proposed credit policy. The net change in NPV on a daily basis is $20 and the expected return is 10%. Assuming there are 360 days in a year, the increase in the firm's value is _____.

Accepted Answer

A)  $50,000 
B)  $72,000 
C)  $43,000 
D)  $20,000 
E)  $67,000

Question 19

Companies provide cash discounts to customers for early payments to speed up the collection period.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is true about inventory management?

Accepted Answer

A)  The economic order quantity is the quantity at which the total inventory cost will be maximized. 
B)  A quantity discount is the level of inventory at which an order should be placed. 
C)  Safety stock is the additional inventory carried to guard against unexpected changes in sales. 
D)  The reorder point is the discount from the purchase price that is offered when inventory is ordered in large quantities 
E)  Outsourcing is the practice of ordering inventory from the supplier just when they are needed for production.

Exam 15: Managing Short-Term Assets

The threat of expropriation creates an incentive for a multinational firm to minimize inventory holdings and to bring in goods only as needed.

What type of system allows a customer's bank to periodically transfer funds from its account to a selling firm's bank account for payment of bills?

Fullerton's total carrying cost is $210 and total ordering cost is $150. Fullerton's total inventory cost is _____.

A lockbox arrangement is:

All else equal, firms that hold greater amounts of short-term assets are considered riskier than firms that hold greater amounts of long-term securities.

The lower the level of current assets that is required to support operations, the closer the firm can follow a _____ current asset investment policy.

The value of checks that have been written and given to the customers but have not been deducted from the account on which they were written is the _____ float.

Total cash receipts for Zinc Corporation in a month is $15,000 and total cash disbursements in a month is $10,000. Which of the following is true about Zinc's cash position if it aims to maintain minimum cash balance of $8,000?

Marketable securities:

Which of the following will help a firm accelerate the collection of customers' payments and the conversion of those payments into cash?

The target cash balance is the difference between total cash receipts and total cash disbursements.

Aberwald Corporation expects to order 126,000 memory chips for inventory during the coming year and has calculated its economic order quantity as 3000 units. If the cost per order is $5, the total ordering cost incurred by Aberwald is:

A moderate current asset investment policy is one:

If a firm's credit terms are 2/10 net 30 days, then customers settling their bills within 30 days will get a 2% discount.

_____ are the products that are ready for sale.

Which of the following investments is an example of marketable securities?

Which of the following is minimized when a company uses the economic order quantity (EOQ) model?

Companies provide cash discounts to customers for early payments to speed up the collection period.

Which of the following statements is true about inventory management?