Deck 22: Managing the Firms Assets

Question 1

Pledging accounts receivable can indicate troublesome accounts.

Answer 1

False

Question 2

During the cash conversion cycle, the business has the benefit of the financing provided by the supplier.

Answer 2

False

Question 3

Net cash flow should be equated with net profit.

Answer 3

False

Question 4

The longer the cash conversion cycle, the greater the potential for cash flow problems to exist for a company.

Question 5

Working capital management focuses on the attractiveness of long-run investment opportunities.

Question 6

Revenue is recorded at the time a sale is made, but cash receipts are recorded when money actually flows into the business.

Question 7

The disadvantage of accounts receivable financing is the negative impact on cash flow.

Question 8

In a healthy business, cash flow is typically even.

Question 9

Days sales outstanding should be decreased to increase accounts receivable conversion.

Question 10

Managing cash flow well will give a company a competitive edge over its competitors.

Question 11

Expenses occur when items are purchased; disbursements are the receipts made later for these expenses.

Question 12

A business's working capital cycle refers to the flow of cash to purchase and sell fixed assets.

Question 13

Factoring account receivables involve the business selling its accounts receivable to a finance company, and the finance company assumes any bad-debt risk.

Question 14

The average collection period is the number of days that a business extends credit to its customers.

Question 15

Batching may hold up receipts of customer payments.

Question 16

The cash conversion cycle is the time period between ordering inventory and receiving cash for its sale.

Question 17

Inventory is a concern only for manufacturing companies.

Question 18

A business's net cash flow may be determined by examining the company's bank account.

Question 19

Accounts receivable are sometimes called near cash because they can be converted to cash whenever a business needs to do so.

Question 20

Management should be working continuously to shorten the working capital cycle.

Question 21

Days in inventory are equal to the number of days a business waits to be paid for inventory that has been sold.

Question 22

Small business managers tend to overbuy inventory due to not understanding inventory management.

Question 23

In managing accounts payable, the principle of "Buy now, pay later" allows the small business to postpone a payment.

Question 24

The goal of the cash conversion cycle is to have as few days as possible in the process so as to be able to finance other activities with working capital.

Question 25

A shortcoming of the accounting return on investment technique is that it is based on accounting profits rather than cash flows received.

Question 26

Improperly managed and uncontrolled stockpiling may greatly increase inventory-carrying costs and place a heavy drain on the funds of a small business.

Question 27

The goal of the cash conversion cycle is to convert paid-for inventory and accounts receivables into cash as quickly as possible.

Question 28

The calculation for the average payment period is very similar to average collection period and average age in inventory.

Question 29

Inventory management and accounts payable management are intertwined.

Question 30

Capital budgeting primarily involves short-term decisions on the part of management.

Question 31

The percentage annual interest rate is the rate a business will pay by not taking a discount.

Question 32

The management of a small business's long-term assets is called capital budgeting.

Question 33

Software programs can provide adequate assistance in inventory identification and control.

Question 34

A company should pay accounts payable on day 30 if funds are available.

Question 35

Accounting profits are identical to actual cash flows.

Question 36

Every component of working capital has two dimensions: interest and money.

Question 37

The last step in managing inventory is to discover how long the inventory has been at the company.

Question 38

Capital budgeting analysis helps managers make decisions about inventory investments.

Question 39

Carrie's decision to research a new product for her children's party business is considered an example of a capital budget decision.

Question 40

The cash conversion cycle equals the days in inventory plus the days' sales outstanding minus days in payables.

Question 41

The under-capitalisation and liquidity problems of a small business can directly affect the decision-making process, and survival often becomes the top priority.

Question 42

Net cash flow and revenue are:

A)opposites.
B)different.
C)identical.
D)identical after adjustment for depreciation.

Question 43

The extensive use of discounted cash flow tools by a small business probably has more to do with the nature of the small business itself than it does with the owner's desire to be perceived as a community-minded business person.

Question 44

A business's cost of capital is simply the interest rate it must pay on its loans.

Question 45

Historically, many small business owners have relied on quantitative analysis in making capital budgeting decisions.

Question 46

The internal rate of return method estimates the rate of return that can be expected from a contemplated investment.

Question 47

Which statement is true about businesses with a cash culture?

A)Cash policies are not their first priority.
B)They are less likely to have good vendor terms.
C)Their metrics are murky.
D)They need less working capital.

Question 48

Use of the accounting return on investment technique answers the question, "How long will it take to recover the original investment outlay?"

Question 49

A advantage of the accounting return on investment technique is that it ignores the time value of money.

Question 50

Cash deposits during a month less payments made during the same period equal:

A)net cash flow.
B)net profit.
C)net working capital.
D)operating profit.

Question 51

The third day in the working capital time line is:

A)accounts payable are paid.
B)collect accounts receivable.
C)inventory is sold on credit.
D)pay accounts payable.

Question 52

Discounted cash flow techniques take into consideration that cash received today is more valuable than cash received at a later date.

Question 53

The first step in the working capital cycle process is to:

A)order inventory.
B)purchase or produce inventory for sale.
C)receive inventory.
D)sell the inventory for cash or credit.

Question 54

A business will have difficulty attracting investors if investments in the business have internal rates of return below an investor's required rate of return.

Question 55

Pearl has been asked by her boss to manage the company's working capital.This means Pearl is now in charge of:

A)cash, fixed assets and inventory.
B)cash, accounts receivable, inventory and accounts payable.
C)cash, accounts receivable and fixed assets.
D)accounts receivable, accounts payable and long-term investments.

Question 56

Working capital management:

A)deals with assigning cash values to employees.
B)is not important to small businesses.
C)involves managing short-term assets and sources of financing.
D)involves managing long-term assets and liabilities.

Question 57

The payback period technique measures how long it will take to recover the initial cash outlay and the total amount of interest earned over the payback period as an opportunity cost.

Question 58

The payback period technique does not consider the time value of money.

Question 59

The cash conversion cycle is the time between:

A)cash payment for inventory and collection of accounts receivable.
B)placement of an order and cash payment for it.
C)receipt of inventory and cash payment for it.
D)sale of inventory and cash collection of accounts receivable.

Question 60

Lester is watching the bank balance decline throughout the month and hopes his company won't run out of money before it runs out of month.Lester is concerned about the net cash flow, which is:

A)is the difference between cash inflows and outflows.
B)is the difference between revenues and expenses.
C)is the same as net profit.
D)is the same as working capital plus inventory.

Question 61

Nozinhle would like to know how long it takes, on average, from the time inventory is received until it is sold.Nozinhle is interested in the:

A)days in credit.
B)days in inventory.
C)days in payables.
D)days sales outstanding.

Question 62

Nadine would like to improve the management of inventory in her company.One of her first activities should be to:

A)discount current items.
B)discover how long items have been there.
C)organise current items by skew number.
D)purchase new items.

Question 63

Accounts payable ____ cash available for the business when payment is made.

A)increase the amount of
B)reduce the amount of
C)have no effect on the
D)represent all of the

Question 64

Lucinda has decided to use a _______________ to speed up the processing of invoice payments.

A)customer box
B)deposit box
C)lock box
D)mail box

Question 65

A company with accounts payables of R35 000 and cost of goods sold of R300 000 would have an average payment period of:

A)24 days.
B)32 days.
C)43 days.
D)The answer is not one of the above choices.

Question 66

Accounts receivable financing:

A)allows small businesses to extend credit to customers.
B)delays the time a company receives money from receivables.
C)means borrowing money against the business's accounts receivable.
D)is not a suggested practice due to the cost.

Question 67

The terms 2/10, net 45 offer:

A)a 2 per cent discount on purchases paid for within 45 days.
B)a 10 per cent discount on purchases paid for within 2 days.
C)a 2 per cent discount on purchases paid for within 10 days.
D)a 10 per cent discount on purchases paid for within 45 days.

Question 68

Accounts receivable financing might include:

A)using a bank, lender or other finance company.
B)lending money against receivables and ageing accounts receivable.
C)providing cash discounts and charging interest on delinquent accounts.
D)giving a customer more time to pay.

Question 69

The main purpose of capital budgeting is to help managers make decisions about:

A)discounts to offer to customers.
B)long-term investments.
C)non-financial constraints on expansion.
D)short-term investments.

Question 70

Which statement is true concerning inventory management programmes?

A)A yearly inventory for accounting purposes should be sufficient for most small businesses.
B)Keeping stock for "just in case" is suggested for customer satisfaction and is needed for inventory.
C)Software programs supplemented by a required physical inventory will assist in inventory control.
D)Slow moving items in a company's inventory are limited concerns since they can be marked down and sold.

Question 71

Bongani has received a large contract and has taken a loan to buy inventory.Considering the timing of the loan, Bongani may be ____________ to complete the contract.

A)selling short
B)pledging receivables
C)mortgaging
D)factoring

Question 72

A company has 30 days in payables, 15 days in inventory and 20 days for the average collection period.How many days are in the company's cash conversion cycle?

A)5
B)25
C)45
D)65

Question 73

Why do small business managers tend to overbuy inventory?

A)They forecast greater demand than is realistic
B)Vendors insist that prices may be going down.
C)They don't want to disappoint vendors and suppliers.
D)Maximising inventory is a good way to decrease taxes.

Question 74

Owen was surprised when he calculated the percentage annual interest rate on his accounts payable.He discovered that failure to take advantage of the discount offered by suppliers:

A)makes small difference since a business does not pay a high interest rate.
B)makes a large difference since a business pays a high interest rate.
C)has no effect on cash flow since the interest rates are so low.
D)will have erratic effects on rates for the use of a supplier's money.

Question 75

Which question do all types of capital budgeting techniques try to answer?

A)Do the future benefits from the investment exceed the cost of making the investment?
B)Is the investment too expensive?
C)Will the business's cash flows be adequate to pay for the investment?
D)Will the investment's time requirements fit the needs of the company?

Question 76

Inventory is called a "necessary evil"; it is "necessary" because:

A)it ties up funds that are not actively productive.
B)supply and demand cannot be managed precisely with day-to-day operations.
C)it reduces cash when it is sold.
D)it deteriorates so therefore a certain per cent is lost to spoilage and waste.

Question 77

Nicholas would like to improve the management of his company's accounts payable.One metric he might find useful is:

A)days in credit.
B)days in inventory.
C)days in payables.
D)days sales outstanding.

Question 78

The number of days, on average, that a business is extending credit to its customers is called:

A)cash conversion cycle.
B)average age in inventory.
C)average collection period.
D)cash flow cycle.

Question 79

Assuming that cash is available, payment for an account payable with terms of 3/10, net 30 should be made on day:

A)3.
B)10.
C)13.
D)30.

Question 80

Margaret has just sold merchandise to a small beauty salon and has given the salon 45 days to pay the invoice.She is at the beginning of:

A)the life cycle of receivables.
B)the cash conversion cycle.
C)the working capital management cycle.
D)the inventory management cycle.