Deck 22: Management of Short-Term Assets: Liquid Assets and Accounts Receivable

Question 1

Asset liquidity can be best described as:

A)the ratio of total debt to total assets.
B)the length of time it takes to convert an asset to cash.
C)the ratio of current assets to current liabilities.
D)the ability to meet short-term creditors.

Answer 1

the length of time it takes to convert an asset to cash.

Question 2

From the following data,estimate the amount of cash to be collected in July.
Assuming that the collection pattern is as follows: 10 per cent of sales is collected in the same month,50 per cent is collected the following month,30 per cent is collected two months following the sale and 10 per cent is not collected at all.

A)$27 500
B)$33 000
C)$45 500
D)$33 500

Answer 2

$33 500

Question 3

An overdraft facility is:

A)an agreement by the bank to allow a customer to have a negative cash balance.
B)cash held at the bank.
C)a form of factoring.
D)the ability to extend the term of an existing loan with the bank.

Answer 3

an agreement by the bank to allow a customer to have a negative cash balance.

Question 4

According to the transaction motive,businesses hold liquid assets because:

A)there is always the possibility that extra cash will be needed to meet unexpected costs.
B)the opportunity to make profitable investments is anticipated.
C)cash is needed to meet obligations.
D)cash inflows and outflows are not perfectly matched in both timing and amount.

Question 5

Assuming that ABC Corporation runs two different departments to handle cash outflows and cash inflows,what is the cost to the company of decentralised liquidity management if $100 000 is required to purchase plant and on the same day $175 000 will be received as payment from a customer,if the time period is one month,and the borrowing and lending rates are 15 per cent and 10 per cent,respectively?

A)$1250.00
B)$208.33
C)$625.00
D)$416.67

Question 6

Which of the following statements about a cash budget is true?

A)It is usually prepared as a part of the overall master budget.
B)Particular emphasis is paid to cash outflows.
C)Costs of potential shortfalls in cash are built into the firm's cost structure.
D)Cash budgets are strictly long-term forecasts.

Question 7

Which of the following statements about investment of idle cash balances in longer-term (but not long-term)fixed-period investments is false?

A)Companies can usually obtain a higher interest rate on longer term investments.
B)Higher transaction costs of continual reinvestment in short-term securities can usually be avoided.
C)A problem with such a cash management policy is the possibility of an unforeseen cash shortage.
D)Longer term fixed-interest securities are not considered as alternative investments to holding cash.

Question 8

Which of the following statements with regards to a company that wishes to invest its idle cash balances in the commercial bill market is false?

A)A company can be the original 'discounter' of a commercial bill.
B)A company can be the 'acceptor' of a commercial bill.
C)A company rediscounts a bill that has previously been discounted by another bill discounter.
D)A company can be either the original 'discounter' or the 'acceptor' of a commercial bill.

Question 9

Management of interest-rate risk involves:

A)taking advantage of discrepancies between fixed and floating interest rates.
B)minimising losses due to fluctuations in exchange rates.
C)ensuring a company's assets are liquid.
D)minimising losses due to fluctuations in interest rates.

Question 10

The conventional classification of motives often attributed to Keynes divides the motives into:

A)three groups.
B)two groups.
C)four groups.
D)five groups.

Question 11

According to the precautionary motive,businesses hold liquid assets because:

A)cash inflows and outflows are not perfectly matched in both timing and amount.
B)there is always the possibility that extra cash will be needed to meet unexpected costs.
C)the opportunity to make profitable investments is anticipated.
D)there is a possibility of bankruptcy.

Question 12

Which is a broader concept than liquidity management and includes liquidity management as one of its functions?

A)Cash management.
B)Treasury management.
C)Cost management.
D)None of the given options.

Question 13

Given forecasts of total receipts,total payments and the minimum required balance,the forecast cash surplus is:

A)total payments less total receipts less minimum required balance.
B)total receipts less total payments plus minimum required balance.
C)total receipts less total payments less minimum required balance.
D)total payments less total receipts plus minimum required balance.

Question 14

If XYZ Ltd begins with a cash balance of $300 000 and its cash outflows exceed its inflows by $100 000 each week,what is its average weekly cash balance if,when it runs out of cash,it converts short-term securities to $300 000 cash?

A)$150 000
B)$100 000
C)$300 000
D)$133 333

Question 15

Which of the following provides the least attractive short-term investment opportunity?

A)90-day Treasury Note.
B)Loan to a debtor that is expected to mature in three months.
C)Three-year government bond.
D)90-day commercial bill.

Question 16

Which budget provides a forecast of the amount and timing of the cash receipts and payments that will result from the company's operations over a period of time?

A)Cash receipts budget.
B)Cash payments budget.
C)Cash budget.
D)Cash management budget.

Question 17

Which of the following statements about forecasting receipts is true?

A)Sales forecasts present no problems.
B)Credit sales require estimation of the timing of cash receipts.
C)Only cash sales are included in forecasts.
D)Cash sales and credit sales have equal weighting.

Question 18

Accounts where payment has not been made by the due date are known as:

A)bad accounts.
B)doubtful accounts.
C)delinquent accounts.
D)non-notification accounts.

Question 19

From the following data,estimate the amount of cash to be collected in July.
It is expected that cash sales in any single month will represent 30 per cent of sales for that month and the remaining cash is to be collected in the following month.

A)$37 000
B)$70 000
C)$33 000
D)$44 000

Question 20

XYZ Ltd begins with a cash balance of $600 000 and its cash outflows exceed its inflows by $100 000 each week.Calculate how long the supply of cash would last.

A)Four weeks.
B)Two weeks.
C)Six weeks.
D)Three weeks.

Question 21

Treasury management involves decisions about the composition and level of a company's liquid assets.

Question 22

Keynes divided the motives for holding liquid assets into three groups: transactions motive,precautionary motive and speculative motive.

Question 23

The __________ forecast is the most important factor affecting the accuracy of the cash receipts budget.

Question 24

A major benefit of granting credit to customers is a reduction in the cost of bad debts.

Question 25

The sale of a company's accounts receivable to a financial institution is known as ____________.

Question 26

____________ assets comprise cash and assets that can be converted into cash in a very short time,and whose cash value can be predicted with a high degree of certainty.

Question 27

Which of the following statements is not a 'step' in the preparation of a sales forecast?

A)A thorough analysis of past sales performance for each product.
B)Estimate cash receipts from sales.
C)Evaluate the impact of significant external factors.
D)None of the given options.

Question 28

The steps a company takes to recover the amount owing on debts is called its _______ policy.