Question 1

Each of the following instruments demonstrates the safety of principal characteristic common to marketable securities EXCEPT

Accepted Answer

A)  Treasury bills. 
B)  Treasury notes. 
C)  banker's acceptances. 
D)  common stock. 
A)  Treasury bills. 
B)  Treasury notes. 
C)  banker's acceptances. 
D)  common stock.

Question 2

The aggressive strategy operates with minimum net working capital since only the permanent portion of the firm's current assets is being financed with long-term funds.

Accepted Answer

A) True 
 B)False

Question 3

The firm's credit ________ defines the minimum criteria for the extension of credit to a customer.

Accepted Answer

A)  scoring 
B)  terms 
C)  policy 
D)  standards 
A)  scoring 
B)  terms 
C)  policy 
D)  standards

Question 4

Studio San, a dealer in contemporary art, has forecasted its seasonal financing needs for the next six months as follows:   (a) The firm projects short-term funds will cost 11 percent and long-term funds will cost 13 percent annually.
(b) The firm's permanent funds requirement is $500,000.
Calculate financing costs for the first six months using the aggressive and conservative strategies.

Accepted Answer

Average monthly seasonal funds requireme

Question 5

2/15 net 45 translates as

Accepted Answer

A)  15 percent cash discount if paid in 2 days, net 45-day credit period. 
B)  45 percent of account due in 15 days, payment prior to day 15 receives a 2 percent discount. 
C)  2 percent cash discount if paid prior to 15 days, if customer does not take a cash discount, the balance is due in 45 days. 
D)  2 percent of the balance is due in 15 days, the remaining balance is due in 45 days. 
A)  15 percent cash discount if paid in 2 days, net 45-day credit period. 
B)  45 percent of account due in 15 days, payment prior to day 15 receives a 2 percent discount. 
C)  2 percent cash discount if paid prior to 15 days, if customer does not take a cash discount, the balance is due in 45 days. 
D)  2 percent of the balance is due in 15 days, the remaining balance is due in 45 days.

Question 6

Danny's Distributing, Inc. has completed an analysis of check-clearing times of five key suppliers. On a weekly basis, the firm has a $50,000 check disbursed to each of these suppliers, totaling $250,000. In examining the check-clearing times of each supplier, the firm revealed:   Given this information, what recommendation would you give the firm with respect to paying its suppliers weekly? Explain.

Accepted Answer

Deposit: $50,000 on day 3 to cover Suppl

Question 7

When a firm initiates or increases a cash discount, sales are expected to ________, the investment in accounts receivable is expected to ________, the bad debt expense is expected to ________, and the profit per unit is expected to ________.

Accepted Answer

A)  decrease; increase; increase; increase 
B)  decrease; decrease; increase; increase 
C)  increase; increase; decrease; decrease 
D)  increase; decrease; decrease; decrease 
A)  decrease; increase; increase; increase 
B)  decrease; decrease; increase; increase 
C)  increase; increase; decrease; decrease 
D)  increase; decrease; decrease; decrease

Question 8

A firm's credit ________ provides guidelines for determining whether to extend credit to a customer and how much credit to extend.

Accepted Answer

A)  scoring 
B)  terms 
C)  policy 
D)  standards 
A)  scoring 
B)  terms 
C)  policy 
D)  standards

Question 9

A firm has arranged for a lockbox system to reduce collection time of accounts receivable. Currently the firm has an average collection period of 43 days, an average age of inventory of 50 days, and an average payment period of 10 days. The lockbox system will reduce the average collection period by 3 days by reducing processing, mail, and clearing float. The firm's cash conversion cycle

Accepted Answer

A)  increases by 3 days. 
B)  decreases by 3 days. 
C)  will not change. 
D)  is 93 days. 
A)  increases by 3 days. 
B)  decreases by 3 days. 
C)  will not change. 
D)  is 93 days.

Question 10

A firm 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)  $50,000. 
B)  $200,000. 
C)  $ 6,000. 
D)  $216,000. 
A)  $50,000. 
B)  $200,000. 
C)  $ 6,000. 
D)  $216,000.

Question 11

The risk of an investment in a Eurodollar deposit is partially due to

Accepted Answer

A)  the fact that the center of the Eurodollar market is in London. 
B)  the fact that the majority of these deposits are not in the form of U.S. dollars. 
C)  the presence of some foreign exchange risk. 
D)  the fact that these instruments only pay interest at maturity. 
A)  the fact that the center of the Eurodollar market is in London. 
B)  the fact that the majority of these deposits are not in the form of U.S. dollars. 
C)  the presence of some foreign exchange risk. 
D)  the fact that these instruments only pay interest at maturity.

Question 12

Table 15.3  
-Ace's Business Forms has compiled several factors relative to its financing mix. The firm pays 8 percent on short-term funds and 10 percent on long-term funds. The firm's monthly current, fixed and total asset requirements for the previous year are summarized in Table 15.3.
Determine:
(a) the monthly average permanent funds requirement
(b) the monthly average seasonal funds requirement
(c) the annual financing costs (aggressive strategy)
(d) the annual financing costs (conservative strategy)

Accepted Answer

(a) $350,000
(b) @#IMG-DLM& (c

Question 13

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 14

Because managing inventory is just like managing any other investment, decisions about the level of inventory should be guided by the effect of inventory levels on sales.

Accepted Answer

A) True 
 B)False

Question 15

Federal agency issues are low-risk securities issued by government agencies but not guaranteed by the U.S. Treasury.

Accepted Answer

A) True 
 B)False

Question 16

All of the following managers would like to have large inventories EXCEPT the ________ manager.

Accepted Answer

A)  financial 
B)  marketing 
C)  manufacturing 
D)  purchasing 
A)  financial 
B)  marketing 
C)  manufacturing 
D)  purchasing

Question 17

Table 15.2   The company earns 5 percent on current assets and 15 percent on fixed assets. The firm's current liabilities cost 7 percent to maintain and the average annual cost of long-term funds is 20 percent.
-If the firm was to shift $7,000 of fixed assets to current assets, the firm's net working capital would ________, the annual profits on total assets would ________, and the risk of not being able to meet current obligations would ________, respectively. (See Table 15.2)

Accepted Answer

A)  increase; decrease; increase 
B)  decrease; increase; decrease 
C)  increase; decrease; decrease 
D)  decrease; increase; increase 
A)  increase; decrease; increase 
B)  decrease; increase; decrease 
C)  increase; decrease; decrease 
D)  decrease; increase; increase

Question 18

Table 15.4
Bowring Ball Bearings has 10 different items in its inventory. The average number of units held in inventory and the average unit cost are listed for each item. The firm uses an ABC system of inventory control  
-Inventory items that belong in the C category include ________. (See Table 15.4)

Accepted Answer

A)  Items 4 and 6 
B)  Items 1, 6, and 7 
C)  Items 1, 3, and 9 
D)  Items 1 and 7 
A)  Items 4 and 6 
B)  Items 1, 6, and 7 
C)  Items 1, 3, and 9 
D)  Items 1 and 7

Question 19

An increase in accounts receivable turnover due to an increase in collection efforts will decrease the firm's marginal investment in accounts receivable.

Accepted Answer

A) True 
 B)False

Question 20

A customer sends payment to a post office box which is emptied by the firm's bank daily. The bank then processes the payments and notifies the firm of the day's collections. This collection technique is known as

Accepted Answer

A)  a direct send. 
B)  concentration banking. 
C)  the lockbox system. 
D)  controlled disbursing. 
A)  a direct send. 
B)  concentration banking. 
C)  the lockbox system. 
D)  controlled disbursing.

Each of the following instruments demonstrates the safety of principal characteristic common to marketable securities EXCEPT

The aggressive strategy operates with minimum net working capital since only the permanent portion of the firm's current assets is being financed with long-term funds.

The firm's credit ________ defines the minimum criteria for the extension of credit to a customer.

2/15 net 45 translates as

When a firm initiates or increases a cash discount, sales are expected to , the investment in accounts receivable is expected to , the bad debt expense is expected to , and the profit per unit is expected to .

A firm's credit ________ provides guidelines for determining whether to extend credit to a customer and how much credit to extend.

A firm 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 risk of an investment in a Eurodollar deposit is partially due to

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

Because managing inventory is just like managing any other investment, decisions about the level of inventory should be guided by the effect of inventory levels on sales.

Federal agency issues are low-risk securities issued by government agencies but not guaranteed by the U.S. Treasury.

All of the following managers would like to have large inventories EXCEPT the ________ manager.

An increase in accounts receivable turnover due to an increase in collection efforts will decrease the firm's marginal investment in accounts receivable.

A customer sends payment to a post office box which is emptied by the firm's bank daily. The bank then processes the payments and notifies the firm of the day's collections. This collection technique is known as

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

Each of the following instruments demonstrates the safety of principal characteristic common to marketable securities EXCEPT

The aggressive strategy operates with minimum net working capital since only the permanent portion of the firm's current assets is being financed with long-term funds.

The firm's credit ________ defines the minimum criteria for the extension of credit to a customer.

2/15 net 45 translates as

When a firm initiates or increases a cash discount, sales are expected to ________, the investment in accounts receivable is expected to ________, the bad debt expense is expected to ________, and the profit per unit is expected to ________.

A firm's credit ________ provides guidelines for determining whether to extend credit to a customer and how much credit to extend.

A firm 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 risk of an investment in a Eurodollar deposit is partially due to

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

Because managing inventory is just like managing any other investment, decisions about the level of inventory should be guided by the effect of inventory levels on sales.

Federal agency issues are low-risk securities issued by government agencies but not guaranteed by the U.S. Treasury.

All of the following managers would like to have large inventories EXCEPT the ________ manager.

An increase in accounts receivable turnover due to an increase in collection efforts will decrease the firm's marginal investment in accounts receivable.

A customer sends payment to a post office box which is emptied by the firm's bank daily. The bank then processes the payments and notifies the firm of the day's collections. This collection technique is known as

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

When a firm initiates or increases a cash discount, sales are expected to , the investment in accounts receivable is expected to , the bad debt expense is expected to , and the profit per unit is expected to .