Question 1

The amount of checks that have been received and deposited but have not yet been made available to the account in which they were deposited is the float.

Accepted Answer

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

Question 2

Offering trade credit discounts is costly to a firm and as a result, firms that offer trade discounts are usually those that are performing poorly and need cash quickly.

Accepted Answer

A) True 
 B)False

Question 3

Fashion Clothiers Inc.
Assume that Fashion Clothiers Inc. uses 1,440,000 yards of material each year. Further, assume that Fashion can order the material at a cost of $2 per yard, plus fixed ordering costs of $100 per order. The firm's carrying cost is
20 percent of the inventory value, at cost.
-Refer to Fashion Clothiers Inc.What is Fashion Clothiers' minimum cost of ordering and holding inventory?

Accepted Answer

A) $6,254 
B) $10,733 
C) $11,560 
D) $13,563 
E) $19,825

Question 4

For a firm that makes heavy use of float, being able to forecast its collections and disbursement check clearings is essential.

Accepted Answer

A) True 
 B)False

Question 5

If a firm's terms are 2/10, net 30 days, and its DSO is 28 days, we can be certain that the credit department is functioning efficiently and the percentage of past due accounts is minimal.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following might be attributed to efficient inventory management?

Accepted Answer

A) High inventory turnover ratio. 
B) Low incidence of production schedule disruptions. 
C) High total asset turnover. 
D) All of the above. 
E) Only answers a and c above.

Question 7

If the carrying costs of inventory increase then the economic ordering quantity of inventory will increase to insure the firm minimizes the total inventory costs.

Accepted Answer

A) True 
 B)False

Question 8

A firm's collection policy and the procedures it follows to collect accounts receivable play an important role in keeping its deferrables period short, although too strict a collection policy can result in outright losses due to non- payment.

Accepted Answer

A) True 
 B)False

Question 9

In part because money has time value, cash sales are always more profitable and more valuable than credit sales.

Accepted Answer

A) True 
 B)False

Question 10

In the text, the "red-line method" refers to

Accepted Answer

A) The policy of drawing a red line around certain neighborhoods on a map and then refusing to sell on credit to people who live within those areas. 
B) Restrictions imposed by companies which insure credit risks. 
C) The use, in Dun & Bradstreet's reports, of a red line to show the maximum amount of credit which should be extended to a given customer; companies using this limit when they screen customers' orders are said to be using the "red-line method." 
D) A method of controlling inventories by drawing a red line on the inside of a bin. 
E) A method of controlling receivables by drawing a red line on invoices of companies that are expected to pay late.

Question 11

Having synchronized cash flows enables a firm to

Accepted Answer

A) increase its cash balances. 
B) increase its bank loans. 
C) increase interest expense. 
D) increase profits. 
E) None of the above.

Question 12

Credit policy for the multinational firm is generally riskier due in part to the additional consideration of exchange rates and also due to uncertainty regarding the credit worthiness of many foreign customers.

Accepted Answer

A) True 
 B)False

Question 13

Cross Collectibles currently fills mail orders from all over the U.S.and receipts come in to headquarters in Little Rock, Arkansas.The firm's average accounts receivable (A/R) is $2.5 million and is financed by an 11 percent annual, simple interest bank loan.Cross is considering a regional lockbox system to speed up collections which it believes will reduce A/R by 20 percent.The annual cost of the system is $15,000.What is the estimated net annual savings to the firm from implementing the lockbox system?

Accepted Answer

A) $500,000 
B) $30,000 
C) $60,000 
D) $55,000 
E) $40,000

Question 14

Generally, the longer the normal inventory holding period of a customer the longer the credit period.One effect of extending the credit period to match the customer's merchandise holding period is to increase the customer's payables deferral period which actually serves to shorten the customer's cash conversion cycle.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statement completions is correct? If the yield curve is upward sloping, then a firm's marketable securities portfolio, assumed to be held for liquidity purposes, should be

Accepted Answer

A) Weighted toward long-term securities because they pay higher rates. 
B) Weighted toward short-term securities because they pay higher rates. 
C) Weighted toward U.S.Treasury securities to avoid interest rate risk. 
D) Weighted toward short-term securities to avoid interest rate risk. 
E) Balanced between long- and short-term securities to minimize the effects of either an upward or a downward trend in interest rates.

Question 16

Which of the following activities will increase the short-term net cash flow for a firm?

Accepted Answer

A) Increase a cash bonus for employees. 
B) Increase the firm's days sales outstanding ratio without an increase in sales. 
C) Write off old accounts receivable that are considered uncollectible. 
D) Increase the average amount of time the firm takes to pay accounts. 
E) Increase the time you allow the firm's customers to pay for goods.

Question 17

Other things equal and held constant, a firm with an effective accounts receivable monitoring system, when compared with a firm without such a monitoring system, will likely have lower additional funds needed.

Accepted Answer

A) True 
 B)False

Question 18

Synchronization of cash flows is an important cash management technique and effective synchronization can actually increase a firm's profitability.

Accepted Answer

A) True 
 B)False

Question 19

Reston Inc.has expected sales of $17,000,000.While 10 percent of its customers pay cash, the remaining 90 percent pay on credit with 40 percent paying on Day 10, 30 percent paying on Day 20, 15 percent paying on Day 25, and 15 percent paying on Day 30.Assume that the cost of funds invested in receivables is 10 percent.Suppose that the firm's customers begin paying later, such that the new DSO increases to 24 days, that the firm uses a 360- day year, and that the firm's variable cost ratio is 80 percent.What is the additional interest cost to Reston of the additional investment in A/R caused by the delay in payment by its customers?

Accepted Answer

A) $19,550 
B) $24,438 
C) $42,500 
D) $78,625 
E) $102,000

Question 20

Credit associations and credit reporting agencies are two major sources of external credit information on credit customers.

Accepted Answer

A) True 
 B)False

Exam 16: Managing Short-Term Liabilities Financing

The amount of checks that have been received and deposited but have not yet been made available to the account in which they were deposited is the float.

Offering trade credit discounts is costly to a firm and as a result, firms that offer trade discounts are usually those that are performing poorly and need cash quickly.

For a firm that makes heavy use of float, being able to forecast its collections and disbursement check clearings is essential.

If a firm's terms are 2/10, net 30 days, and its DSO is 28 days, we can be certain that the credit department is functioning efficiently and the percentage of past due accounts is minimal.

Which of the following might be attributed to efficient inventory management?

If the carrying costs of inventory increase then the economic ordering quantity of inventory will increase to insure the firm minimizes the total inventory costs.

A firm's collection policy and the procedures it follows to collect accounts receivable play an important role in keeping its deferrables period short, although too strict a collection policy can result in outright losses due to non- payment.

In part because money has time value, cash sales are always more profitable and more valuable than credit sales.

In the text, the "red-line method" refers to

Having synchronized cash flows enables a firm to

Credit policy for the multinational firm is generally riskier due in part to the additional consideration of exchange rates and also due to uncertainty regarding the credit worthiness of many foreign customers.

Which of the following statement completions is correct? If the yield curve is upward sloping, then a firm's marketable securities portfolio, assumed to be held for liquidity purposes, should be

Which of the following activities will increase the short-term net cash flow for a firm?

Other things equal and held constant, a firm with an effective accounts receivable monitoring system, when compared with a firm without such a monitoring system, will likely have lower additional funds needed.

Synchronization of cash flows is an important cash management technique and effective synchronization can actually increase a firm's profitability.

Credit associations and credit reporting agencies are two major sources of external credit information on credit customers.