Question 1

The operating cycle is the inventory conversion period plus the accounts receivable period.

Accepted Answer

A) True 
 B)False

Question 2

The accounts payable period would be added to the operating cycle to get the cash conversion cycle.

Accepted Answer

A) True 
 B)False

Question 3

One type of investment that would not be suitable for marketable securities would be:

Accepted Answer

A) bankers' acceptances 
B) short-term notes of U.S.government agencies 
C) negotiable CD's 
D) mortgages

Question 4

The size of the accounts payable is affected by the level of the firm's cost of goods sold and the average payment period.

Accepted Answer

A) True 
 B)False

Question 5

A firm can reduce its cash conversion cycle by

Accepted Answer

A) increasing its average age of inventory 
B) increasing its average collection period 
C) decreasing its average payment period 
D) none of the above

Question 6

Cash receipts may include all of the following except

Accepted Answer

A) dividends received from other firms 
B) collections of accounts receivable 
C) cash sales 
D) interest income 
E) all of the above

Question 7

A (n)________ in current liabilities ________ net working capital,thereby ________ the risk of technical insolvency.

Accepted Answer

A) decrease;increases;increasing 
B) decrease;decreases;reducing 
C) increase;decreases;increasing 
D) increase;increases;reducing

Question 8

Cash disbursements may include all of the following EXCEPT

Accepted Answer

A) tax payments 
B) rent payments 
C) wage payments 
D) fixed asset outlays 
E) all of the above

Question 9

Cash disbursements may include all of the following EXCEPT

Accepted Answer

A) tax payments 
B) rent payments 
C) depreciation expense 
D) fixed asset outlays

Question 10

In June,Erie Plastics had an ending cash balance of $35,000.In July,the firm had total cash receipts of $40,000 and total cash disbursements of $50,000.The minimum cash balance required by the firm is $25,000.At the end of July,Erie Plastics had

Accepted Answer

A) an excess cash balance of $25,000 
B) An excess cash balance of $0 
C) required financing of $10,000 
D) required financing of $25,000 
E) none of the above

Question 11

The level of investment in accounts receivable depends on:

Accepted Answer

A) credit analysis 
B) credit terms 
C) collection efforts 
D) all the above 
E) none of the above

Question 12

One way a firm can reduce the amount of cash it needs in any one month is to

Accepted Answer

A) slow down the payment of receivables 
B) speed up the payment of payables 
C) speed up the payment of taxes 
D) speed up the payment of wages 
E) none of the above

Question 13

Which one of the following is a private firm that operates as a credit-reporting agency?

Accepted Answer

A) National Credit Interchange Bureau 
B) Foreign Credit Interchange Bureau 
C) Dun & Bradstreet 
D) Merrill-Lynch

Question 14

Ithaca Iron has annual operating outlays of $1,800,000 and a cash conversion cycle of 60 days.If the firm currently pays 12 percent for negotiated financing and reduces its cash conversion cycle to 50 days,the annual savings is

Accepted Answer

A) $60,000. 
B) $10,000. 
C) $26,000. 
D) $16,000. 
E) none of above are correct

Question 15

The ________ of a firm is the amount of time that elapses from the point when the firm makes an outlay to purchase raw materials to the point when cash is collected from bad debt.

Accepted Answer

A) cash conversion cycle 
B) operating cycle 
C) average age of inventory 
D) average collection period 
E) none of the above

Question 16

A negative cash conversion cycle indicates that the

Accepted Answer

A) operating cycle exceeds the average payment period. 
B) average payment period is less than the operating cycle. 
C) firm is shortening its average payment period and lengthening its average collection period. 
D) lengthening its average collection period and lengthening its inventory period. 
E) none of above are correct

Question 17

Credit extended on purchases to a firm's customers is called trade credit.

Accepted Answer

A) True 
 B)False

Question 18

Taking advantage of unusual cash discounts or price bargains is an example of the:

Accepted Answer

A) transactions motive 
B) precautionary motive 
C) speculative motive 
D) leverage motive

Question 19

Sources of short-term financing such as accounts payable,notes payable,and accruals should be used to finance:

Accepted Answer

A) all current assets 
B) all fixed assets 
C) a portion of the current assets needed to support nonseasonal sales levels plus all of the seasonal build-up in current assets 
D) a portion of the fixed assets plus all of the seasonal build-up in current assets

Question 20

An increase in the cash conversion cycle would lead to an increase in the firm's short-term needs and financing costs.

Accepted Answer

A) True 
 B)False

Exam 15: Managing Working Capital

The operating cycle is the inventory conversion period plus the accounts receivable period.

The accounts payable period would be added to the operating cycle to get the cash conversion cycle.

One type of investment that would not be suitable for marketable securities would be:

The size of the accounts payable is affected by the level of the firm's cost of goods sold and the average payment period.

A firm can reduce its cash conversion cycle by

Cash receipts may include all of the following except

A (n) in current liabilities net working capital,thereby the risk of technical insolvency.

Cash disbursements may include all of the following EXCEPT

Cash disbursements may include all of the following EXCEPT

In June,Erie Plastics had an ending cash balance of $35,000.In July,the firm had total cash receipts of $40,000 and total cash disbursements of $50,000.The minimum cash balance required by the firm is $25,000.At the end of July,Erie Plastics had

The level of investment in accounts receivable depends on:

One way a firm can reduce the amount of cash it needs in any one month is to

Which one of the following is a private firm that operates as a credit-reporting agency?

Ithaca Iron has annual operating outlays of $1,800,000 and a cash conversion cycle of 60 days.If the firm currently pays 12 percent for negotiated financing and reduces its cash conversion cycle to 50 days,the annual savings is

The ________ of a firm is the amount of time that elapses from the point when the firm makes an outlay to purchase raw materials to the point when cash is collected from bad debt.

A negative cash conversion cycle indicates that the

Credit extended on purchases to a firm's customers is called trade credit.

Taking advantage of unusual cash discounts or price bargains is an example of the:

Sources of short-term financing such as accounts payable,notes payable,and accruals should be used to finance:

An increase in the cash conversion cycle would lead to an increase in the firm's short-term needs and financing costs.

Exam 15: Managing Working Capital

The operating cycle is the inventory conversion period plus the accounts receivable period.

The accounts payable period would be added to the operating cycle to get the cash conversion cycle.

One type of investment that would not be suitable for marketable securities would be:

The size of the accounts payable is affected by the level of the firm's cost of goods sold and the average payment period.

A firm can reduce its cash conversion cycle by

Cash receipts may include all of the following except

A (n) ________ in current liabilities ________ net working capital,thereby ________ the risk of technical insolvency.

Cash disbursements may include all of the following EXCEPT

Cash disbursements may include all of the following EXCEPT

In June,Erie Plastics had an ending cash balance of $35,000.In July,the firm had total cash receipts of $40,000 and total cash disbursements of $50,000.The minimum cash balance required by the firm is $25,000.At the end of July,Erie Plastics had

The level of investment in accounts receivable depends on:

One way a firm can reduce the amount of cash it needs in any one month is to

Which one of the following is a private firm that operates as a credit-reporting agency?

Ithaca Iron has annual operating outlays of $1,800,000 and a cash conversion cycle of 60 days.If the firm currently pays 12 percent for negotiated financing and reduces its cash conversion cycle to 50 days,the annual savings is

The ________ of a firm is the amount of time that elapses from the point when the firm makes an outlay to purchase raw materials to the point when cash is collected from bad debt.

A negative cash conversion cycle indicates that the

Credit extended on purchases to a firm's customers is called trade credit.

Taking advantage of unusual cash discounts or price bargains is an example of the:

Sources of short-term financing such as accounts payable,notes payable,and accruals should be used to finance:

An increase in the cash conversion cycle would lead to an increase in the firm's short-term needs and financing costs.

A (n) in current liabilities net working capital,thereby the risk of technical insolvency.