Current Asset Managemen Part 2

Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-15 An Actual Credit Decision 30. Waldron Inc. is considering selling to a group of new customers that will bring in sales of $15,000 with a return on sales of 5%. The only new investment will be in accounts receivable. Waldron has a turnover ratio of 5 to 1 between sales and accounts receivable. What is the return on investment? A. 3% B. 25% C. 5% D. 40% Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-19 Inventory Policy in Inflation (and Deflation) 31. Modos Company has deposited $2,000 in cheques received from customers. It has written $1,400 in cheques to its suppliers. The initial balance was $400. If $1,600 of its customers cheques have been cleared but only $600 of its own has been deposited, calculate its float. A. $200 B. $400 C. $300 D. $700 7-11 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 07-02 Examine cash management as the control of receipts and disbursements to minimize nonearning cash balances while providing liquidity; and compare techniques to make cash management more efficient. Topic: 07-05 Float 32. Massa Machine Tool expects total sales of $10,000. The price per unit is $5. The firm estimates an ordering cost of $7.50 per order, with an inventory carrying cost of $0.70 per unit. What is the optimum order size? A. 146 units B. 207 units C. 373 units D. 2,000 units Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-20 The Inventory Decision Model 33. In comparison to securities issued by the federal government, securities issued by provincial governments: A. are significantly riskier. B. are much less liquid. C. yield slightly more than federal securities. D. usually require the payment of higher commissions when purchased than federal securities. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-03 Define the various marketable securities available for investment by the firm; and calculate the yield on these instruments. Topic: 07-10 Marketable Securities 34. Eurodollar (Canadian) certificates of deposit: A. may be borrowed by anyone who wishes to hold dollars. B. are Canadian dollars which have been converted into several European currencies. C. can only be redeemed at Canadian banks or their branches in European countries. D. can only be redeemed at Canadian banks or their branches in any foreign country. 7-12 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 07-02 Examine cash management as the control of receipts and disbursements to minimize nonearning cash balances while providing liquidity; and compare techniques to make cash management more efficient. Topic: 07-09 International Cash Management 35. Money market funds are: A. accounts that allow small investors to participate in buying large-denomination securities. B. extremely risky but high-yielding accounts used by large corporations to finance operations. C. accounts that allow small investors to buy shares in companies that then buy shares of common stock. D. pools of bonds held by large utility companies. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-03 Define the various marketable securities available for investment by the firm; and calculate the yield on these instruments. Topic: 07-10 Marketable Securities 36. Assuming that we can earn a 13.5% return on accounts receivable, which of the following actions to finance an increase in our accounts receivable balance would be optimal? A. A reduction in marketable securities which are earning a return of 14.2% B. A decrease in inventories which are earning a 17.6% return C. An increase in bank loans that would cost us 11.5% D. An increase in accounts payable that would cost our firm 15% Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-13 Accounts Receivable as an Investment 37. Which of the following is not a valid reason for holding cash? A. To meet transaction requirements. B. To earn the highest return possible. C. To satisfy emergency needs for funds. D. To provide a compensating balance for a bank. 7-13 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-02 Examine cash management as the control of receipts and disbursements to minimize nonearning cash balances while providing liquidity; and compare techniques to make cash management more efficient. Topic: 07-03 Reasons for Holding Cash Balances 38. Cash flow does not rely on which of the following? A. The payment patterns of customers. B. The monetary policy of the Bank of Canada. C. The speed at which suppliers and creditors process cheques. D. The efficiency of the banking system. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-02 Examine cash management as the control of receipts and disbursements to minimize nonearning cash balances while providing liquidity; and compare techniques to make cash management more efficient. Topic: 07-06 Improving Collections and Extending Disbursements 39. A service provided around the clock by SWIFT is: A. International interest rate evaluation. B. foreign currency analysis. C. swift shipping of goods. D. international payments between banks. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-02 Examine cash management as the control of receipts and disbursements to minimize nonearning cash balances while providing liquidity; and compare techniques to make cash management more efficient. Topic: 07-09 International Cash Management 40. Which of the following is not a factor influencing the selection of a marketable security? A. Yield B. Maturity C. Float D. Safety 7-14 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-03 Define the various marketable securities available for investment by the firm; and calculate the yield on these instruments. Topic: 07-10 Marketable Securities 41. The three primary policy variables to consider when extending credit include all of the following except: A. credit standards. B. the level of interest rates. C. the terms of trade. D. collection policy. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-14 Credit Policy Administration 42. Inventory is usually divided into three basic categories except: A. projected sales. B. work in progress. C. finished goods. D. raw materials. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-21 Safety Stock and Stockouts 43. The amount of safety stock that a firm carries depends upon: A. the unpredictability of inventory used. B. the supply chain costs. C. the riskiness of the storage facility. D. the time period necessary to fill inventory orders. 7-15 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-21 Safety Stock and Stockouts 44. A Just-In-Time (JIT) inventory management program has all but which of the following requirements? A. Quality production B. Large safety stocks C. Close ties between suppliers, manufacturers, and customers D. Minimizing inventory levels Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-22 Just-in-Time Inventory Management 45. Cost savings from JIT inventory management include: A. lower transaction fees. B. lower raw material cost. C. lower productivity. D. lower inventory financing costs. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-22 Just-in-Time Inventory Management 46. International cash management is more complex than domestic based cash management because of: A. difficult capital asset management. B. similarity in banking systems. C. exchange rate parity. D. currency risk fluctuations. 7-16 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 07-02 Examine cash management as the control of receipts and disbursements to minimize nonearning cash balances while providing liquidity; and compare techniques to make cash management more efficient. Topic: 07-09 International Cash Management 47. The most subjective and also significant segment of the 4 C's of credit for giving final approval is: A. capacity B. collateral C. character D. conditions Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-14 Credit Policy Administration 48. Variables important to credit scoring models include: A. age of credit scoring company. B. negative private records. C. facility owned by competitors. D. age of company in years. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-14 Credit Policy Administration 49. SWIFT's 'smart card technology': A. increases the likelihood of electronic fraud. B. adds additional security by sending secret information through mail. C. disguises the identity of the receiver. D. automates the process by which banks exchange authentication keys. 7-17 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-02 Examine cash management as the control of receipts and disbursements to minimize nonearning cash balances while providing liquidity; and compare techniques to make cash management more efficient. Topic: 07-09 International Cash Management 50. LIBOR is: A. a resource used in production. B. an interest rate paid on Eurodollar deposits between banks in the London market. C. an interest rate paid by European firms when they borrow Eurodollar deposits from Canadian banks. D. the interest rate paid by the British government on its long-term bonds. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 07-03 Define the various marketable securities available for investment by the firm; and calculate the yield on these instruments. Topic: 07-11 The Rates and Securities 51. An example of differences in International cash management systems includes: A. developed countries using cash payments and developing countries using electronic payments. B. Canadian companies uses cash payments more than United States Companies. C. the preference of Russian companies to use cash and United States Companies to use electronic payments. D. transaction costs are ignored when determining what cash management system to use. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-02 Examine cash management as the control of receipts and disbursements to minimize nonearning cash balances while providing liquidity; and compare techniques to make cash management more efficient. Topic: 07-09 International Cash Management 52. International cash management systems often consider: A. the use of the gold standard. B. the similarity of interest rates across countries. C. the similarity of transaction costs. D. the risk involved in currency fluctuations. 7-18 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-02 Examine cash management as the control of receipts and disbursements to minimize nonearning cash balances while providing liquidity; and compare techniques to make cash management more efficient. Topic: 07-09 International Cash Management 53. D&B is known for providing: A. interest rate information to cash managers. B. credit scoring reports that rank a company's payment habits relative to its peer group. C. cash management systems to corporate treasurers. D. consumer credit reports to credit card companies. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-14 Credit Policy Administration 54. When developing a credit scoring report, many variables would be considered. Which of the following best represent the major factors D&B would examine? A. the age of the management team, the dollar amount of sales, net profits, and long-term debt B. the age of the company, the number of employees, the level of current assets C. the financial statements, satisfactory or slow payment experiences, negative public records (suits, liens, judgments, bankruptcies) D. the company's cash balances, return on equity, and its average tax rates Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-04 Characterize accounts receivable as an investment resulting from the firm's credit policies; outline the considerations in granting credit; and evaluate a credit decision that changes credit terms to stimulate sales. Topic: 07-14 Credit Policy Administration 55. Companies that are mostly influenced by seasonal sales have to make a choice between: A. level production and inventory reduction. B. seasonal production and a stable workforce. C. a stable workforce and inventory build up. D. a stable workforce and a fluctuating workforce. 7-19 Chapter 07 - Current Asset Management Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Hard Learning Objective: 07-05 Assess inventory as an investment and apply techniques to reduce the costs of this investment. Topic: 07-18 Level versus Seasonal Production 56. Effective cash management requires awareness of: A. production design. B. forecasting theory. C. security personnel. D. financial forecasting. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 07-02 Examine cash management as the control of receipts and disbursements to minimize nonearning cash balances while providing liquidity; and compare techniques to make cash management more efficient. Topic: 07-02 Cash Management 57. The Bank Rate is set based on: A. the target rate for overnight money. B. the yield on 98-day Treasury bills. C. the prime rate. D. U.S. fed funds rate. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 07-03 Define the various marketable securities available for investment by the firm; and calculate the yield on these instruments. Topic: 07-11 The Rates and Securities 58. All of the following are benefits of just-in-time inventory ordering systems except: A. reduces warehouse space. B. saves utility and manpower costs. C. reduces inventory financing costs. D. prevents stock-outs. 7-20