Question 1

Which of the following best describes the availability float?

Accepted Answer

A)  how long it takes the firm to process the check and deposit it in the bank
B)  how long it takes before the bank gives the firm credit for the funds
C)  how long it takes before payments to suppliers actually result in a cash outflow for the firm
D)  how long it takes for a firm to be able to use funds after a customer has paid for its goodsE) B) and C)
F) A) and D)

Question 2

What is a compensating balance?

Accepted Answer

A)  the cash a firm places into short-term investments
B)  the cash a firm holds in order to pay its bills
C)  the cash a firm holds to gain tax advantages
D)  the cash a firm holds in an account at the bank in order for the bank to perform services for that firmE) A) and B)
F) All of the above

Question 3

Which of the following would decrease a firm's cash conversion cycle?

Accepted Answer

A)  Increase the inventory days
B)  Increase the accounts receivable days
C)  Increase the accounts payable days
D)  Increase the cash daysE) B) and D)
F) B) and C)

Question 4

Which of the following is NOT a reason why a firm may typically choose not to stretch its accounts payable?

Accepted Answer

A)  Delaying payment can increase the effective cost of credit in some circumstances.
B)  The supplier may demand COD or CBD in future.
C)  The supplier may choose to discontinue business with delinquent customers.
D)  The firm's credit rating may be damaged.E) None of the above
F) A) and C)

Question 5

Which of the following money market investments is short-term debt issued by a bank with a minimum denomination of $100,000?

Accepted Answer

A)  Treasury bills
B)  banker's acceptance
C)  repurchase agreement
D)  commercial paper
E)  certificates of depositF) A) and C)
G) A) and D)

Question 6

Which of the following statements is FALSE?

Accepted Answer

A)  A firm's cash cycle is the length of time between when the firm pays cash to purchase its initial inventory and when it receives cash from the sale of the output produced from that inventory.
B)  The longer a firm's cash cycle,the more working capital it has,and the more cash it needs to carry to conduct its daily operations.
C)  Most firms buy their inventory on credit,which increases the amount of time between the cash investment and the receipt of cash from that investment.
D)  Any reduction in working capital requirements generates a positive free cash flow that the firm can distribute immediately to shareholders.E) B) and D)
F) None of the above

Question 7

The level of cash a firm holds is irrelevant;it can never be short of cash since a firm is able to raise new money instantly at a fair rate,while it can never have surplus cash since the firm can invest excess cash at a fair rate to earn a net present value (NPV)of zero.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is FALSE?

Accepted Answer

A)  The main components of net working capital are cash,inventory,receivables,and payables.
B)  The firm's cash cycle is the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product.
C)  Working capital includes the cash that is needed to run the firm on a day-to-day basis.It does not include excess cash,which is cash that is not required to run the business and can be invested at a market rate.
D)  If the firm pays cash for its inventory,the firm's operating cycle is identical to the firm's cash cycleE) A) and D)
F) A) and B)

Question 9

Evertz Metals buys and stockpiles dolomite to use in its smelting processes.Before all this dolomite is used,however,they alter their smelting process so that calcite limestone is used instead.How is the inventory cost of the unused dolomite best categorized?

Accepted Answer

A)  an acquisition cost
B)  a carrying cost
C)  an order cost
D)  a holding costE) A) and C)
F) A) and B)

Question 10

Use the table for the question(s) below.
Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2006.
A simplified balance sheet for the firm appears below: 
-Luther's Inventory days is closest to:

Accepted Answer

A)  32 days
B)  59 days
C)  39 days
D)  42 daysE) A) and C)
F) C) and D)

Exam 19: Working Capital Management

The level of cash a firm holds is irrelevant;it can never be short of cash since a firm is able to raise new money instantly at a fair rate,while it can never have surplus cash since the firm can invest excess cash at a fair rate to earn a net present value (NPV)of zero.

Correct Answer
verified

What is a compensating balance?

Correct Answer
verified

Which of the following best describes the availability float?

Correct Answer
verified

Which of the following is NOT a reason why a firm may typically choose not to stretch its accounts payable?

Correct Answer
verified

Which of the following would decrease a firm's cash conversion cycle?

Correct Answer
verified

Evertz Metals buys and stockpiles dolomite to use in its smelting processes.Before all this dolomite is used,however,they alter their smelting process so that calcite limestone is used instead.How is the inventory cost of the unused dolomite best categorized?

Correct Answer
verified

Use the table for the question(s) below. Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2006. A simplified balance sheet for the firm appears below: -Luther's Inventory days is closest to:

Correct Answer
verified

Which of the following money market investments is short-term debt issued by a bank with a minimum denomination of $100,000?

Correct Answer
verified

Which of the following statements is FALSE?

Correct Answer
verified

Which of the following statements is FALSE?

Correct Answer
verified

Exam 19: Working Capital Management

The level of cash a firm holds is irrelevant;it can never be short of cash since a firm is able to raise new money instantly at a fair rate,while it can never have surplus cash since the firm can invest excess cash at a fair rate to earn a net present value (NPV)of zero.

Correct AnswerverifiedShow Answer

What is a compensating balance?

Correct AnswerverifiedShow Answer

Which of the following best describes the availability float?

Correct AnswerverifiedShow Answer

Which of the following is NOT a reason why a firm may typically choose not to stretch its accounts payable?

Correct AnswerverifiedShow Answer

Which of the following would decrease a firm's cash conversion cycle?

Correct AnswerverifiedShow Answer

Evertz Metals buys and stockpiles dolomite to use in its smelting processes.Before all this dolomite is used,however,they alter their smelting process so that calcite limestone is used instead.How is the inventory cost of the unused dolomite best categorized?

Correct AnswerverifiedShow Answer

Use the table for the question(s) below. Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2006. A simplified balance sheet for the firm appears below: -Luther's Inventory days is closest to:

Correct AnswerverifiedShow Answer

Which of the following money market investments is short-term debt issued by a bank with a minimum denomination of $100,000?

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

Which of the following statements is FALSE?

Correct AnswerverifiedShow Answer

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