Question 1

What would be the incremental bad debt losses if the change were made?

Accepted Answer

A)  $315,000
B)  $260,500
C)  -$260,500 (bad debt losses would decline) 
D)  -$315,000 (bad debt losses would decline) E) A) and D)
F) None of the above

Question 2

Which situation is NOT likely to lead a firm to hold marketable securities?

Accepted Answer

A)  The firm has replaced an obsolete machine with a new model; a large write-off must be taken on the old machine.
B)  The firm must meet a known financial commitment, such as financing an ongoing construction project.
C)  The firm must finance seasonal operations.
D)  The firm has just sold long-term securities and has not yet invested the proceeds in earning assets.E) None of the above
F) B) and D)

Question 3

Since a tighter collection policy is very likely to reduce sales,such a change in policy should not be considered.

Accepted Answer

A) True 
 B)False

Question 4

What are the incremental pre-tax profits from this proposal?

Accepted Answer

A)  $181,250
B)  $206,500
C)  $231,250
D)  $256,250E) A) and B)
F) A) and C)

Question 5

Canuck Ltd.Assume that Canuck Ltd. has sales of 5,000 tonnes per year. Further, assume that Canuck can order the material at a cost of $16 per order, plus fixed ordering costs of $7.50 per order. The firm's carrying cost is 15% of the inventory value, at cost.
-Refer to Scenario: Canuck Ltd.What is Canuck's EOQ?

Accepted Answer

A)  828
B)  168
C)  177
D)  430E) B) and C)
F) A) and D)

Question 6

AberwaldAberwald Corporation expects to order 126,000 memory chips for inventory during the coming year, and it will use this inventory at a constant rate. Fixed ordering costs are $200 per order, the purchase price per chip is $25, and the firm's inventory carrying costs is equal to 20% of the purchase price. (Assume a 360-day year.) 
-Refer to Scenario: Aberwald.If the lead time for placing an order is 5 days,and Aberwald holds a safety stock equal to a 30-day supply of chips,then at what inventory level should an order be placed?

Accepted Answer

A)  15,570
B)  13,675
C)  12,250
D)  3,175E) A) and C)
F) All of the above

Question 7

The primary reason to monitor aggregate accounts receivable is to see if customers,on average,are paying more slowly.

Accepted Answer

A) True 
 B)False

Question 8

If a firm has a large percentage of accounts over 30 days old,this is solid proof that its receivables manager is not doing a good job.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is NOT likely to be a proper investment for temporarily idle cash?

Accepted Answer

A)  Treasury bills
B)  commercial paper
C)  recently issued long-term AAA corporate bonds
D)  government bonds due within 1 yearE) C) and D)
F) B) and D)

Question 10

Suppose you have $10,000 in your chequing account.You write a cheque for $2,000 and deposit $3,000.What is your net float?

Accepted Answer

A)  $5,000
B)  $1,000
C)  -$1,000
D)  -$5,000E) All of the above
F) None of the above

Question 11

Since receivables and payables both result from sales transactions,a firm with a high receivables-to-sales ratio must also have a high payables-to-sales ratio.

Accepted Answer

A) True 
 B)False

Question 12

Which statement best describes cash balances?

Accepted Answer

A)  Most firms' cash balances consist of transactions and compensating and precautionary balances. The total desired cash balance can be determined by calculating the amount needed for each purpose and then summing them.
B)  The easier a firm's access to borrowed funds, the higher its precautionary balances will be in order to protect against sudden increases in interest rates.
C)  For some firms, holding highly liquid marketable securities is a substitute for holding cash, because the marketable securities accomplish the same objective as cash.
D)  All companies hold the same percentage of funds for transaction balances.E) A) and C)
F) A) and D)

Question 13

Fashion ClothiersAssume that Fashion Clothiers Inc. uses 1,440,000 metres of material each year. Further, assume that Fashion can order the material at a cost of $2 per metre, plus fixed ordering costs of $100 per order. The firm's carrying cost is 20% of the inventory value, at cost.
-Refer to Scenario: Fashion Clothiers.What is the firm's EOQ?

Accepted Answer

A)  13,563
B)  26,833
C)  30,040
D)  43,987E) B) and C)
F) All of the above

Question 14

Marketable securities aim for long-term investments,but firms may temporarily hold them to convert into cash quickly.

Accepted Answer

A) True 
 B)False

Question 15

The four major elements in a firm's credit policy are (1) credit standards,(2) discounts offered,(3) credit period,and (4) collection policy.

Accepted Answer

A) True 
 B)False

Question 16

Which statement best describes cash management?

Accepted Answer

A)  A cash management system that minimizes collections float and maximizes disbursement float is better than one with higher collections float and lower disbursement float.
B)  A cash management system that maximizes collections float and minimizes disbursement float is better than one with lower collections float and higher disbursement float.
C)  The use of a lockbox is designed to minimize cash theft losses in retail stores. If the cost of the lockbox is less than theft losses saved, then the lockbox should be installed.
D)  Other things held constant, a firm will need an identical line of credit regardless of whether it must pay its bills by the 5th of each month or pay its bills due uniformly during the month.E) B) and D)
F) B) and C)

Question 17

Canada ManuAssume that Canada Manu. Inc. uses 2,000,000 tonnes of material each year. Further, assume that Canada Manu can order the material at a cost of $10 per tonne, plus fixed ordering costs of $100 per order. The firm's carrying cost is 5% of the inventory value, at cost.
-Refer to Scenario: Canada Manu.What is the Canada Manu's EOQ?

Accepted Answer

A)  28,285
B)  26,833
C)  30,040
D)  43,987E) None of the above
F) All of the above

Question 18

The DSO and the aging schedule are two common methods for monitoring receivables.When are they misleading?

Accepted Answer

A)  when customers' payments patterns are changing
B)  when sales fluctuate seasonally
C)  when some customers take the discount and others do not
D)  when sales are relatively constant, both seasonally and cyclicallyE) B) and C)
F) C) and D)

Question 19

Changes in a firm's collection policy can affect sales,working capital,and even additional funds needed.

Accepted Answer

A) True 
 B)False

Question 20

Synchronization of cash flows is an important cash management technique,as it can reduce the required cash balance and increase a firm's profitability.

Accepted Answer

A) True 
 B)False

Exam 18: Current Asset Management

Correct Answer
verified

Since a tighter collection policy is very likely to reduce sales,such a change in policy should not be considered.

Correct Answer
verified

Since receivables and payables both result from sales transactions,a firm with a high receivables-to-sales ratio must also have a high payables-to-sales ratio.

Correct Answer
verified

Correct Answer
verified

Which of the following is NOT likely to be a proper investment for temporarily idle cash?

Correct Answer
verified

Marketable securities aim for long-term investments,but firms may temporarily hold them to convert into cash quickly.

Correct Answer
verified

The DSO and the aging schedule are two common methods for monitoring receivables.When are they misleading?

Correct Answer
verified

Which situation is NOT likely to lead a firm to hold marketable securities?

Correct Answer
verified

Correct Answer
verified

The primary reason to monitor aggregate accounts receivable is to see if customers,on average,are paying more slowly.

Correct Answer
verified

Correct Answer
verified

What would be the incremental bad debt losses if the change were made?

Correct Answer
verified

Suppose you have $10,000 in your chequing account.You write a cheque for $2,000 and deposit $3,000.What is your net float?

Correct Answer
verified

What are the incremental pre-tax profits from this proposal?

Correct Answer
verified

The four major elements in a firm's credit policy are (1) credit standards,(2) discounts offered,(3) credit period,and (4) collection policy.

Correct Answer
verified

If a firm has a large percentage of accounts over 30 days old,this is solid proof that its receivables manager is not doing a good job.

Correct Answer
verified

Which statement best describes cash management?

Correct Answer
verified

Changes in a firm's collection policy can affect sales,working capital,and even additional funds needed.

Correct Answer
verified

Which statement best describes cash balances?

Correct Answer
verified

Synchronization of cash flows is an important cash management technique,as it can reduce the required cash balance and increase a firm's profitability.

Correct Answer
verified

Exam 18: Current Asset Management

Correct AnswerverifiedShow Answer

Since a tighter collection policy is very likely to reduce sales,such a change in policy should not be considered.

Correct AnswerverifiedShow Answer

Since receivables and payables both result from sales transactions,a firm with a high receivables-to-sales ratio must also have a high payables-to-sales ratio.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is NOT likely to be a proper investment for temporarily idle cash?

Correct AnswerverifiedShow Answer

Marketable securities aim for long-term investments,but firms may temporarily hold them to convert into cash quickly.

Correct AnswerverifiedShow Answer

The DSO and the aging schedule are two common methods for monitoring receivables.When are they misleading?

Correct AnswerverifiedShow Answer

Which situation is NOT likely to lead a firm to hold marketable securities?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The primary reason to monitor aggregate accounts receivable is to see if customers,on average,are paying more slowly.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What would be the incremental bad debt losses if the change were made?

Correct AnswerverifiedShow Answer

Suppose you have $10,000 in your chequing account.You write a cheque for $2,000 and deposit $3,000.What is your net float?

Correct AnswerverifiedShow Answer

What are the incremental pre-tax profits from this proposal?

Correct AnswerverifiedShow Answer

The four major elements in a firm's credit policy are (1) credit standards,(2) discounts offered,(3) credit period,and (4) collection policy.

Correct AnswerverifiedShow Answer

If a firm has a large percentage of accounts over 30 days old,this is solid proof that its receivables manager is not doing a good job.

Correct AnswerverifiedShow Answer

Which statement best describes cash management?

Correct AnswerverifiedShow Answer

Changes in a firm's collection policy can affect sales,working capital,and even additional funds needed.

Correct AnswerverifiedShow Answer

Which statement best describes cash balances?

Correct AnswerverifiedShow Answer

Synchronization of cash flows is an important cash management technique,as it can reduce the required cash balance and increase a firm's profitability.

Correct AnswerverifiedShow Answer

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