FIN 300 Benson Exam 3 Review Chapters 8, 9, 16, and 17

Kelly just completed compiling a listing of her firm's accounts receivables with each invoice segregated according to the length of time the invoice has been outstanding. What is the name given to this listing? Aging schedule Collection report Credit evaluation report Invoice schedule Terms of credit

Aging schedule

Which one of the following reports will tell me the percentage of accounts receivables that are delinquent by 90 days or more? Cash budget 5Cs of credit Credit analysis Aging schedule Credit scoring report

Aging schedule

Kyle Electric has three positive net present value opportunities. Unfortunately, the firm has not been able to find financing for any of these projects. Which one of the following terms best describes the firm's situation? Sensitivity analysis Capital rationing Soft rationing Contingency planning Sunk cost

Capital rationing

Moore & Moore has just finished projecting its expected cash receipts and expenditures for next year. What is this projection called? Operating projection Receivables schedule Balance sheet Cash budget Compromise policy

Cash budget

Which one of the following is a disbursement account into which funds are transferred only as needed to cover the demands for payment? Master account Controlled disbursement account Bank controlled account Investment account Safety stock account

Controlled disbursement account

Which one of the following terms refers to the length of time a firm grants its customers to pay for their purchases? Lockbox period Discount period Credit period Cash cycle Receivables turnover period

Credit period

Which one of the following terms is most commonly used to describe the cash flows of a new project that are simply an offset of reduced cash flows for a current project? Opportunity cost Sunk cost Erosion Replicated flows Pirated flows

Erosion

Based on the most recent survey information presented in your textbook, CFOs tend to use which two methods of investment analysis the most frequently? Payback and net present value Payback and internal rate of return Internal rate of return and net present value Net present value and profitability index Profitability index and internal rate of return

Internal rate of return and net present value

An increase in the accounts receivable period will do which one of the following? Lengthen the accounts payable period Shorten the inventory period Shorten the operating cycle Lengthen the cash cycle Shorten the accounts payable period

Lengthen the cash cycle

The optimal credit policy will do which one of the following? Maximize sales Minimize bad debts Maximize units sold Minimize the total costs of granting credit Minimize carrying costs

Minimize the total costs of granting credit

Mary has just been asked to analyze an investment to determine if it is acceptable. Unfortunately, she is not being given sufficient time to analyze the project using various methods. She must select one method of analysis and provide an answer based solely on that method. Which method do you suggest she use in this situation? Internal rate of return Payback Average accounting rate of return Net present value Profitability index

Net present value

Which one of the following is generally considered to be the best form of analysis if you have to select a single method to analyze a variety of investment opportunities? Payback Profitability index Accounting rate of return Internal rate of return Net present value

Net present value

Which one of the following defines the cash cycle? Inventory period plus the accounts receivable period Inventory period plus the accounts payable period Operating cycle minus the inventory period Operating cycle minus the accounts payable period Operating cycle minus the accounts receivable period

Operating cycle minus the accounts payable period

Which one of the following terms refers to the best option that was foregone when a particular investment is selected? Side effect Erosion Sunk cost Opportunity cost Marginal cost

Opportunity Cost

Which one of the following is a shortage cost associated with a firm's inventory? Restocking cost Opportunity cost of capital Inventory obsolescence Insurance cost Inventory theft

Restocking cost

Mark is analyzing a proposed project to determine how changes in the variable costs per unit would affect the project's net present value. What type of analysis is Mark conducting? Sensitivity analysis Erosion planning Scenario analysis Cost-benefit analysis Opportunity cost analysis

Sensitivity analysis

Black Water Mills is operating at its optimal point. Which one of the following conditions exists given this firm's operating status? Carrying costs exceed shortage costs Carrying costs are equal to zero Both carrying costs and shortage costs are at their minimum levels Shortage costs are equal to zero Shortage costs equal carrying costs

Shortage costs equal carrying costs

Which one of the following principles refers to the assumption that a project will be evaluated based on its incremental cash flows? Forecast assumption principle Base assumption principle Fallacy principle Erosion principle Stand-alone principle

Stand-alone principle

How are checks which are deposited into a typical lockbox handled? The checks are deposited into a local bank which then overnights one check for the entire amount to the firm. The checks are collected once a day, normally in the early morning, by a bank employee. The checks are posted to the customer's account prior to being deposited. The checks are collected throughout the day and immediately deposited into the firm's account. The checks are collected and sent overnight to the firm's main office for processing.

The checks are collected throughout the day and immediately deposited into the firm's account.

Which one of the following statements related to the inventory period is correct? The inventory period increases as the inventory turnover rate increases. The length of the inventory period depends on the length of the cash cycle. The inventory period is the average number of days a firm holds inventory on its shelves. The inventory period is equal to the operating cycle minus the accounts payable period. The inventory period has no effect on the cash cycle.

The inventory period is the average number of days a firm holds inventory on its shelves.

The internal rate of return is unreliable as an indicator of whether or not an investment should be accepted given which one of the following? One of the time periods within the investment period has a cash flow equal to zero The initial cash flow is negative The investment has cash inflows that occur after the required payback period The investment is mutually exclusive with another investment under consideration The cash flows are conventional

The investment is mutually exclusive with another investment under consideration

Which one of the following statements is correct? The internal rate of return is the most reliable method of analysis for any type of investment decision. The payback method is biased towards short-term projects. The modified internal rate of return is most useful when projects are mutually exclusive. The average accounting return is the most difficult method of analysis to compute. The net present value method is only applicable if a project has conventional cash flows.

The payback method is biased towards short-term projects.

Which one of the following statements is correct? A longer payback period is preferred over a shorter payback period. The payback rule states that you should accept a project if the payback period is less than one year. The payback period ignores the time value of money. The payback rule is biased in favor of long-term projects. The payback period considers the timing and amount of all of a project's cash flows.

The payback period ignores the time value of money.

Cash concentration accounts: are no longer needed since the Check Clearing Act for the 21st Century has been passed. eliminate the need for lockboxes. decrease a firm's disbursement float by reducing mail and processing delays. allow firms to more efficiently handle cash. tend to decrease a firm's investment income.

allow firms to more efficiently handle cash

Scenario analysis: determines the impact a $1 change in sales has on the internal rate of return. determines which variable has the greatest impact on a project's net present value. helps determine the reasonable range of expectations for a project's anticipated outcome. evaluates a project's net present value while sensitivity analysis evaluates a project's internal rate of return. determines the absolute worst and absolute best outcome that could ever occur.

helps determine the reasonable range of expectations for a project's anticipated outcome.

Sensitivity analysis: looks at the most reasonably optimistic and pessimistic results for a project. helps identify the variable within a project that presents the greatest forecasting risk. is used for projects that cannot be analyzed by scenario analysis because the cash flows are unconventional. is generally conducted prior to scenario analysis just to determine if the range of potential outcomes is acceptable. illustrates how an increase in operating cash flow caused by changing both the revenue and the costs simultaneously will change the net present value for a project.

helps identify the variable within a project that presents the greatest forecasting risk.

A pro forma financial statement is a financial statement that: expresses all values as a percentage of either total assets or total sales. compares actual results to the budgeted amounts. compares the performance of a firm to its industry. projects future years' operations. values all assets based on their current market values.

projects future years' operations

The net working capital invested in a project is generally: a sunk cost. an opportunity cost. recouped in the first year of the project. recouped at the end of the project. depreciated to a zero balance over the life of the project.

recouped in the first year of the project. recouped at the end of the project.

The accounts receivable period is the time that elapses between the _____ and the _____. purchase of inventory: payment to the supplier purchase of inventory: collection of the receivable sale of inventory: payment to supplier sale of inventory: collection of the receivable sale of inventory: billing to customer

sale of inventory: collection of the receivable

The cash cycle is equal to which one of the following? Inventory period minus the accounts payable period Operating cycle plus the accounts payable period Operating cycle minus the accounts receivable period Accounts receivable period minus the accounts payable period plus the inventory period Inventory period minus the accounts receivable period minus the accounts payable period

Accounts receivable period minus the accounts payable period plus the inventory period

Which one of the following is a primary benefit of implementing zero-balance accounts into a cash management system? Increased disbursements float Total elimination of all safety stocks Additional cash availability Decreased collection float Elimination of all float

Additional cash availability

All else held constant, which one of the following statements is correct concerning the accounts payable period? The accounts payable period is equal to 365/(Sales/Average accounts payable). A decrease in the accounts payable period will increase the operating cycle. An increase in the accounts payable period will decrease the cash cycle. A decrease in the accounts payable period will decrease the operating cycle. An increase in the accounts payable turnover rate decreases the cash cycle.

An increase in the accounts payable period will decrease the cash cycle.

Which one of the following will increase the operating cycle? Decreasing the accounts payable period Increasing the accounts payable turnover rate Increasing the cash cycle Decreasing the accounts receivable turnover rate Decreasing the inventory period

Decreasing the accounts receivable turnover rate

The net present value profile illustrates how the net present value of an investment is affected by which one of the following? Project's initial cost Discount rate Timing of the project's cash inflows Inflation rate Real rate of return

Discount rate

Which of the following are inversely related to increases in a firm's current assets? I. re-order costs II. shortage costs III. restocking costs IV. carrying costs I and III only II and IV only I, II, and III only II, III, and IV only I, III, and IV only

I, II, and III only

Any changes to a firm's projected future cash flows that are caused by adding a new project are referred to as which one of the following? Eroded cash flows Deviated projections Incremental cash flows Directly impacted flows Assumed flows

Incremental cash flow

Which one of the following indicates that a project is expected to create value for its owners? Profitability index less than 1.0 Payback period greater than the requirement Positive net present value Positive average accounting rate of return Internal rate of return that is less than the requirement

Positive net present value

Which one of the following statements is correct? If the IRR exceeds the required return, the profitability index will be less than 1.0. The profitability index will be greater than 1.0 when the net present value is negative. When the internal rate of return is greater than the required return, the net present value is positive. Projects with conventional cash flows have multiple internal rates of return. If two projects are mutually exclusive, you should select the project with the shortest payback period.

When the internal rate of return is greater than the required return, the net present value is positive.

Which one of the following is a disbursement account into which funds are transferred from a master account only as the funds are needed to cover checks presented for payment? Lockbox account Cash concentration account Ledger account Zero-balance account Cash clearing account

Zero-balance account

Discounted cash flow valuation is the process of discounting an investment's: assets. future profits. liabilities. costs. future cash flows.

future cash flows.