FIN 300 ch 15 practice quiz
7. Which of the following statements about cash management systems is correct? a. A lockbox system generally is used to effectively manage a firm's collections through concentration banking arrangements. b. A firm that has many divisions that are widely dispersed geographically will find that centralizing customers' payments is of little benefit. c. Disbursement float refers to the frequency with which a firm writes checks to pay its creditors. d. There are few actions a firm can take to improve its synchronization of cash flows. e. Zero-balance accounts are used to help a firm to manage its cash receipts
a
A firm's credit policy includes procedures that it follows to collect its accounts receivable. a. True b. False
a
A just-in-time system of inventory control requires that manufacturers coordinate production with suppliers so that the raw materials or components arrive just as they are needed in the production process. a. True b. False
a
Generally, the marketable securities account includes securities that are traded in the money markets. a. True b. False
a
If a firm discovers that the days sales outstanding (DSO) of its credit customers is increasing, management should consider tightening the firm's credit policy. a. True b. False
a
The _____ current asset investment policy calls for relatively large amounts of current assets to be carried by a company. a. relaxed b. restricted c. moderate d. lean-and-mean e. speculative
a
The primary reason that companies provide cash discounts to customers who pay for their credit purchases on or before a specified date is to speed up the collection period. a. True b. False
a
The threat of expropriation creates an incentive for a multinational firm to minimize inventory holdings and to bring goods into a foreign country only as needed. a. True b. False
a
. If a firm's credit terms are 2/10 net 30 days, then customers settling their bills within 30 days of the beginning of the billing cycle will receive a 2 percent discount from the total invoice price. a. True b. False
b
A ______ balance is a minimum checking account balance that a firm must maintain with a bank to help offset the costs and services, such as check clearing and cash management advice that the bank offers with a loan. a. transactions b. compensating c. precautionary d. speculative e. lockbox
b
A firm should change its credit policy if the net present value (NPV) of the proposed credit policy is both positive and less than the NPV of its existing credit policy. a. True b. False
b
A firm that follows a restricted current asset investment policy generally has: a. Uncertain sales. b. Relatively low levels of accounts receivable. c. A lower return on investment, especially on current assets, than a firm that follows a relaxed current investment policy. d. A cash conversion cycle greater than the average firm in the industry. e. The highest inventory conversion period in the industry.
b
A firm's target cash balance is the difference between its total cash receipts and its total cash disbursements over a particular time period. a. True b. False
b
All else equal, firms that hold greater proportions of their total assets as short-term assets are considered riskier than firms that hold greater proportions of their total assets as long-term assets. a. True b. False
b
Compared to other current asset investment policies, a restricted current asset investment policy prescribes that a firm should hold maximum levels of safety stocks for cash and inventories and should have a liberal credit policy. a. True b. False
b
Outsourcing is an inventory control procedure where a red line is drawn around the inside of an inventory-stocked bin to indicate the level of inventory at which an order for new raw materials should be initiated. a. True b. False
b
The lower the level of current assets that is required to support its operations, the more closely a firm can adhere to a _____ current asset investment policy. a. relaxed b. restricted c. moderate d. lean-and-mean e. precautionary
b
Which of the following current asset investment policies emphasizes holding minimal current assets? a. Relaxed current asset investment policy b. Restricted current asset investment policy c. Moderate current asset investment policy d. Fat cat current asset investment policy e. Precautionary current asset investment policy
b
. A ______ balance is cash that a firm holds in reserve for unforeseen fluctuations in its cash flows. a. transactions b. compensating c. precautionary d. speculative e. lockbox
c
10. Having synchronized cash flows enables a firm to: a. Speed up collections on checks written. b. Increase its bank loans. c. Increase its interest expenses. d. Increase its profits. e. Increase its cash balances.
d
The primary purpose of a lockbox arrangement is to: a. Provide for the safe-keeping of the firm's marketable securities. b. Identify inventory safety stocks. c. Slow down (delay) cash disbursements to the firm's customers. d. Speed up a firm's collections on checks received from customers. e. Speed up a firm's disbursement of checks to its suppliers.
d
Which of the following situations would most likely exist if a firm adheres to a moderate current asset investment policy? a. The firm's level of accounts receivable is greater than its level of accounts payable. b. Once equilibrium is attained, the amount of current assets will equal the amount of current liabilities. c. The firm maintains relatively large amounts of current assets. d. The firm holds minimum amounts of cash and marketable securities, inventories, and receivables. e. The firm maintains a level of working capital that falls between the levels prescribed by the relaxed current asset investment policy and the restrictive current asset investment policy.
e