Current Asset Managemen Part 5

118. Because they generally run a surplus budget, Crown corporations are able to issue securities with slightly lower yields than direct Treasury issues. FALSE Accessibility: Keyboard Navigation Blooms: Understand 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: 07-11 The Rates and Securities 119. Accounts receivable of industrial corporations has decreased since the introduction of Electronic Funds Transfer. FALSE 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: 07-12 Management of Accounts Receivable 120. A stock out occurs when a firm runs out of inventory and is unable to sell or deliver the product requested. TRUE 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 121. Maintaining a safety stock will guard against an EOQ from occurring. FALSE 7-40 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 122. Minimizing cash balances can improve overall corporate profitability. TRUE 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 123. For most firms, the primary motive for holding cash is the transaction motive. TRUE 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: 07-03 Reasons for Holding Cash Balances 124. Cash balances are usually determined by the amount of cash flowing through the firm on a yearly basis. FALSE 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: 07-02 Cash Management 125. Sales, receivables, and inventory form the basis of cash flow. TRUE 7-41 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: 07-02 Cash Management 126. Unfortunately, float is too complicated to be effectively managed through any combination of disbursement and collection strategies. FALSE 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: 07-05 Float 127. The cash generating process for a firm is continuous, even though cash flow can be sporadic. TRUE 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 128. The 4 C's of credit include character, capital, capacity, and conditions. TRUE 7-42 Chapter 07 - Current Asset Management 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 129. One way businesses try to overcome the risk associated with new customers is to access a credit scoring report that will predict the probability of a customer causing credit problems in the future. TRUE 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 130. Because of changing economic conditions, it is difficult for companies such as D&B to devise models predicting payment problems and probability of bankruptcy 12 months in the future. FALSE 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 131. Finding out who is ultimately responsible for a bad debt can be helped by D&B's D-UN-S (Data Universal Numbers System) that tracks relationships and ownership of businesses within D&B's information base. TRUE 7-43 Chapter 07 - Current Asset Management 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 132. SWIFT stands for the Society for Worldwide International Funds Transfer. FALSE 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 133. Every message routed through SWIFT is encrypted and every money transaction is authorized by another code for security purposes. TRUE 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 134. Just-in-time (JIT) inventory systems can leave manufacturers empty handed if suppliers can't keep up with product growth rates. TRUE Accessibility: Keyboard Navigation Blooms: Understand 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 135. A compensating balance is a cash balance, typically held by the bank, to indirectly pay for certain bank services. TRUE 7-44 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 136. Commercial paper is an unsecured promissory note issued by large corporations to investors. TRUE 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: 07-11 The Rates and Securities 7-45