FIN081: SW (P2)

Assuming that net credit sales is constant, which of the following determines the decrease in the average collection period * a. decrease in accounts receivable b. decrease in accounts receivable turnover c. increase in accounts receivable d. none of the above

A

It is a debt instrument representing obligation of the government issued by the central bank. It is referred to as a risk-free investment. * a. treasury bill b. bonds c. commercial papers d. none of the above

A

It is a process in which the customers are instructed to send their payments to a post office box served by the company's bank. * a. lockbox system b. deposit pick-up c. floats d. electronic fund transfer

A

It is the process of postponing the payments to their due dates or maximizing the paying period the firm. * a. stretching of payables b. deposit pick-up c. floats d. none of the above

A

It is the process of taking advantage of the discrepancies between the company books and bank book due to clearing of checks and manner of check deposit. a. lockbox system b. deposit pick-up c. floats d. electronic fund transfer

A

It refers to the effective and efficient utilization of working capital to attain predetermine company objectives. a. working capital management b. current ratio c. current assets d. working capital

A

What is the effect of the collection of accounts receivable on the current ratio and net working capital, respectively? * a. No effect, no effect b. Increase, increase c. Increase, no effect d. No effect, increase

A

A short-term loan payable converted into a long-term loan payable will result in which of the following in terms of working capital and current ratio, respectively? * a. Decrease, decrease b. Increase, increase c. Increase, no effect d. Decrease, no effect

B

It is the difference between current assets and current liabilities. a. quick asset ratio b. working capital c. current ratio d. none of the above

B

Which of the following actions will not be consistent with good management? * a. increasing synchronization of cash flows b. minimizing the use of float c. maintaining an average cash balance equal to that required as a compensating balance or that which minimizes total cost d. using checks and drafts in disbursing funds

B

Which of the following factors does not directly affect the firm's level of investment in working capital? * a. the firm's inventory and credit policies b. the age of the firm's plant and equipment c. the firm's sales level d. the length of the firm's operating cycle

B

Which of the following is not a method used by a firm to speed up collections? * a. lockboxes b. overdraft c. pre-authorized debit d. bank transfer

B

A precautionary motive for holding excess cash is ___________. * a. to enable a company to meet the cash demands from the normal flow of business activity b. to enable a company to avail itself of a special inventory purchase before prices rise to higher levels c. to enable a company to have cash meet emergencies that may arise periodically d. to avoid having to use the various types of lending arrangements to cover projected cash deficits

C

A working capital technique that increases the payable float and therefore delays the outflow of cash is _________. * a. concentration banking b. electronic data interchange c. draft d. lockbox system

C

If the company has a profit margin of 5%, a gross margin of 25%, and an industry average of 40% on cost of goods sold, what does it indicate? * a. efficiency in handling its inventories b. above average performance of profitability c. a high cost of inventories d. a well-controlled expense

C

It is a measure of the rate of cash inflow from the collection of receivables. * a. aging of receivables b. accounts receivable turnover c. average collection period d. average accounts receivable

C

It refers to the efficient and effective utilization of cash to attain company objectives. * a. working capital management b. current ratio c. current assets d. none of the above

D

Which of the following assets are not part of a firm's working capital investment? * a. cash b. accounts receivable c. inventory d. none of the above

D

Which of the following determines the working capital? * a. current assets divided by current liabilities b. current liabilities less current assets c. current assets plus current liabilities d. current assets less current liabilities

D

Which of the following is not likely to be a proper investment for temporary idle cash? * a. initial public offering b. treasury bills c. commercial paper d. treasury bonds within one year

D

A firm is said to be technically insolvent when its total assets are less than its total liabilities and stockholders' equity.

F

A lockbox plan is one method of speeding up the check-clearing process for customer payments and decreasing the firm's net float position.

F

As the ratio of current assets to total assets increases, the firm's risk also increases.

F

Collection float results from the lapse between the time that a firm deducts a payment from its checking account ledger and the time that funds are actually withdrawn from its accounts.

F

In analyzing an applicant's creditworthiness, the credit manager typically gives primary attention to two of the five Cs of credit-collateral and condition-since they represent the most basic requirements for extending credit to an applicant.

F

The benefits of a sound cash management program are not sensitive to interest rates.

F

The cash conversion cycle is the total number of days in the operating cycle less the average payment period for inputs to production.

F

If the cash discount period is extended, the firm's investment in accounts receivable due to non-discount takers paying earlier is expected to decrease.

T

Lockbox arrangements are a way for a firm to speed up the receipt of payments from customers.

T

Processing float is the delay between the receipt of a check by the payee and its deposit in the firm's account.

T

The cash management techniques aim to minimize the firm's financing requirements by taking advantage of certain imperfections in the collection and payment system.

T

The target cash balance is the minimum cash balance that a firm need to maintain in order to conduct business.

T

The yields on negotiable certificates of deposit are typically above those on T-bill issues and comparable to the yields on commercial paper with similar maturities.

T

Too much investment in current assets reduces profitability, whereas too little investment increases the risk of not being able to pay debts as they come due.

T

Two of the primary motives for a firm to hold cash are the transaction motive and the precautionary motive.

T