Question 1

Baxter's, Inc. generally holds $125,000 in cash in case an unexpected investment opportunity arises. Which one of the following refers to holding cash for this type of purpose?

Accepted Answer

A)   Precautionary motive
B)   Opportunistic motive
C)   Speculative motive
D)   Reserve motive
E)   Transaction motiveF) A) and E)
G) C) and D)

Question 2

Which one of the following statements is correct?

Accepted Answer

A)   Firms cannot use lockboxes if they use cash concentration accounts.
B)   Firms prefer to increase processing delay on disbursements.
C)   Firms prefer to eliminate all types of float.
D)   Firms open regional offices so their employees can pick up lockbox payments throughout the day.
E)   The Check Clearing Act for the  Century is designed to reduce the collection time to one day.F) A) and C)
G) A) and D)

Question 3

A firm offers terms of 2/5, net 30. What effective annual interest rate does the firm earn when a customer does not take the discount?

Accepted Answer

A)   21.69 percent
B)   24.42 percent
C)   28.97 percent
D)   31.08 percent
E)   34.31 percentF) A) and E)
G) A) and D)

Question 4

Which one of the following will reduce the disbursement float of a firm?

Accepted Answer

A)   Mailing a check from a very remote location
B)   Mailing an unsigned check so that it must be returned for a signature
C)   Paying a loan payment at the bank rather than mailing a check to the bank
D)   Requiring that all checks be held one day before mailing so they can be reviewed by a manager
E)   Writing checks on a zero-balance account rather than on the master accountF) All of the above
G) A) and B)

Question 5

How quickly can a bank receive payment once it transmits a copy of a check to the bank on which the check was drawn?

Accepted Answer

A)   Immediately
B)   In 1 day
C)   Between 1 and 2 days
D)   2 days
E)   Between 2 and 3 daysF) B) and C)
G) None of the above

Question 6

A firm grants credit with terms of 2/5, net 20. The firm's customers have ___ days to pay in order to receive a _____ percent discount.

Accepted Answer

A)   2; 5
B)   5; 2
C)   15; 2
D)   20; 2
E)   30; 5F) A) and E)
G) A) and D)

Question 7

You place an order for 680 units of Good M at a unit price of $46. The supplier offers terms of 1/5, net 20. If you don't take the discount, how much interest are you paying implicitly?

Accepted Answer

A)   $46
B)   $312.80
C)   $346.00
D)   $1,460
E)   $1,564F) B) and C)
G) All of the above

Question 8

The Flowering Vine buys hanging plants for $2 each and resells them for $8.95 each. The firm sells 3,500 plants per year. Generally, the firm orders 400 plants at a time and has a fixed cost per order of $28. The carrying cost per unit is $1.16. To avoid newer plants mixing with older plants, the inventory is totally sold out before it is restocked. The total annual carrying cost is ____ and the total annual restocking cost is _____.

Accepted Answer

A)   $211; $245
B)   $211; $269
C)   $232; $245
D)   $232; $256
E)   $232; $269F) None of the above
G) C) and D)

Question 9

What is the name given to a subsidiary of a firm that exists solely to handle the credit functions of the parent company?

Accepted Answer

A)   Internal credit organization
B)   Bank
C)   Credit association
D)   Captive finance company
E)   Credit unionF) B) and D)
G) A) and B)

Question 10

Which one of the following is an expected result of the Check Clearing Act for the  Century?

Accepted Answer

A)   Firms will have to wait three days before having access to their deposited funds.
B)   Zero-balance accounts will be eliminated.
C)   Lockboxes will be prohibited.
D)   Collection float, but not disbursement float, will be reduced.
E)   Both collection and disbursement float will be reduced.F) All of the above
G) A) and B)

Question 11

The economic order quantity approach states that inventory order sizes should be determined in which one of the following manners?

Accepted Answer

A)   By dividing annual item sales by the carrying cost per item and multiplying by 2
B)   By computing the average number of items sold each month
C)   By equating restocking costs with carrying costs
D)   By dividing the inventory into various groups based on the value per item
E)   By computing the amount of the derived demandF) A) and E)
G) D) and E)

Question 12

Which one of the following would be the most common evidence of indebtedness when a sale is made on open account?

Accepted Answer

A)   Sight draft
B)   Commercial draft
C)   Banker's acceptance
D)   Promissory note
E)   InvoiceF) A) and E)
G) A) and D)

Question 13

A firm uses the extended economic order quantity approach to inventory management. Which one of the following inventory levels is considered to be the minimum inventory level given this approach?

Accepted Answer

A)   Zero inventory
B)   Reorder point level
C)   Safety stock level
D)   50 percent of the reorder quantity
E)   Safety stock plus the reorder quantityF) A) and D)
G) D) and E)

Question 14

Which of the following are money market securities? I. jumbo CDs
II)  short-term municipal debt
III)  U.S. Treasury bills
IV)  commercial paper

Accepted Answer

A)   I and IV only
B)   II and III only
C)   I, II, and IV only
D)   II, III, and IV only
E)   I, II, III, and IVF) A) and D)
G) B) and D)

Question 15

Which one of the following best defines the economic order quantity (EOQ) ?

Accepted Answer

A)   Minimum size of an order needed to qualify for free shipping
B)   Minimum amount that must be ordered to obtain the quantity discount
C)   Number of items that are sold on average each month
D)   Restocking quantity that minimizes the total cost of inventory
E)   Minimal amount of inventory that must be purchased to receive a cash discountF) C) and E)
G) None of the above D

Question 16

Kelly just completed compiling a listing of her firm's accounts receivables with each invoice segregated according to the length of time the invoice has been outstanding. What is the name given to this listing?

Accepted Answer

A)   Aging schedule
B)   Collection report
C)   Credit evaluation report
D)   Invoice schedule
E)   Terms of creditF) B) and D)
G) A) and E) A

Question 17

During a normal month, Cunningham's Lumber receives a total of 8 checks with a total value of $546,000. On average, it takes 1 day from the date of deposit for the funds from these checks to be available to the firm. Assume each month has 30 days. What is the average daily float?

Accepted Answer

A)   $18,200
B)   $273,000
C)   $546,000
D)   8,190,000
E)   $16,380,000F) B) and C)
G) All of the above

Question 18

Float is defined as the difference between which of the following?

Accepted Answer

A)   Beginning cash balance and the ending cash balance as shown on a cash budget
B)   Ledger balance and the available balance
C)   Book balance and the ledger balance
D)   Collections and disbursements for any given period of time
E)   Available balance and the collected balanceF) C) and D)
G) B) and D)

Question 19

Which one of the following is a primary benefit of implementing zero-balance accounts into a cash management system?

Accepted Answer

A)   Increased disbursements float
B)   Total elimination of all safety stocks
C)   Additional cash availability
D)   Decreased collection float
E)   Elimination of all floatF) B) and E)
G) B) and D)

Question 20

You place an order for 750 units of Good Y at a unit price of $32. The supplier offers terms of 1/15, net 45. The supplier is offering you a discount of _____ if you pay within ____ days.

Accepted Answer

A)   $240; 15
B)   $240; 30
C)   $240; 45
D)   $1,600; 15
E)   $1,600; 45F) B) and D)
G) B) and C) A

Exam 17: Working Capital Management

Baxter's, Inc. generally holds $125,000 in cash in case an unexpected investment opportunity arises. Which one of the following refers to holding cash for this type of purpose?

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

A firm offers terms of 2/5, net 30. What effective annual interest rate does the firm earn when a customer does not take the discount?

Correct Answer
verified

Which one of the following will reduce the disbursement float of a firm?

Correct Answer
verified

How quickly can a bank receive payment once it transmits a copy of a check to the bank on which the check was drawn?

Correct Answer
verified

A firm grants credit with terms of 2/5, net 20. The firm's customers have _ days to pay in order to receive a ___ percent discount.

Correct Answer
verified

You place an order for 680 units of Good M at a unit price of $46. The supplier offers terms of 1/5, net 20. If you don't take the discount, how much interest are you paying implicitly?

Correct Answer
verified

Correct Answer
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What is the name given to a subsidiary of a firm that exists solely to handle the credit functions of the parent company?

Correct Answer
verified

Which one of the following is an expected result of the Check Clearing Act for the Century?

Correct Answer
verified

The economic order quantity approach states that inventory order sizes should be determined in which one of the following manners?

Correct Answer
verified

Which one of the following would be the most common evidence of indebtedness when a sale is made on open account?

Correct Answer
verified

A firm uses the extended economic order quantity approach to inventory management. Which one of the following inventory levels is considered to be the minimum inventory level given this approach?

Correct Answer
verified

Which of the following are money market securities? I. jumbo CDs II) short-term municipal debt III) U.S. Treasury bills IV) commercial paper

Correct Answer
verified

Which one of the following best defines the economic order quantity (EOQ) ?

Correct Answer
verified
D

Kelly just completed compiling a listing of her firm's accounts receivables with each invoice segregated according to the length of time the invoice has been outstanding. What is the name given to this listing?

Correct Answer
verified
A

During a normal month, Cunningham's Lumber receives a total of 8 checks with a total value of $546,000. On average, it takes 1 day from the date of deposit for the funds from these checks to be available to the firm. Assume each month has 30 days. What is the average daily float?

Correct Answer
verified

Float is defined as the difference between which of the following?

Correct Answer
verified

Which one of the following is a primary benefit of implementing zero-balance accounts into a cash management system?

Correct Answer
verified

You place an order for 750 units of Good Y at a unit price of $32. The supplier offers terms of 1/15, net 45. The supplier is offering you a discount of _ if you pay within days.

Correct Answer
verified
A

Exam 17: Working Capital Management

Baxter's, Inc. generally holds $125,000 in cash in case an unexpected investment opportunity arises. Which one of the following refers to holding cash for this type of purpose?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

A firm offers terms of 2/5, net 30. What effective annual interest rate does the firm earn when a customer does not take the discount?

Correct AnswerverifiedShow Answer

Which one of the following will reduce the disbursement float of a firm?

Correct AnswerverifiedShow Answer

How quickly can a bank receive payment once it transmits a copy of a check to the bank on which the check was drawn?

Correct AnswerverifiedShow Answer

A firm grants credit with terms of 2/5, net 20. The firm's customers have ___ days to pay in order to receive a _____ percent discount.

Correct AnswerverifiedShow Answer

You place an order for 680 units of Good M at a unit price of $46. The supplier offers terms of 1/5, net 20. If you don't take the discount, how much interest are you paying implicitly?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the name given to a subsidiary of a firm that exists solely to handle the credit functions of the parent company?

Correct AnswerverifiedShow Answer

Which one of the following is an expected result of the Check Clearing Act for the Century?

Correct AnswerverifiedShow Answer

The economic order quantity approach states that inventory order sizes should be determined in which one of the following manners?

Correct AnswerverifiedShow Answer

Which one of the following would be the most common evidence of indebtedness when a sale is made on open account?

Correct AnswerverifiedShow Answer

A firm uses the extended economic order quantity approach to inventory management. Which one of the following inventory levels is considered to be the minimum inventory level given this approach?

Correct AnswerverifiedShow Answer

Which of the following are money market securities? I. jumbo CDs II) short-term municipal debt III) U.S. Treasury bills IV) commercial paper

Correct AnswerverifiedShow Answer

Which one of the following best defines the economic order quantity (EOQ) ?

Correct AnswerverifiedD

Kelly just completed compiling a listing of her firm's accounts receivables with each invoice segregated according to the length of time the invoice has been outstanding. What is the name given to this listing?

Correct AnswerverifiedA

During a normal month, Cunningham's Lumber receives a total of 8 checks with a total value of $546,000. On average, it takes 1 day from the date of deposit for the funds from these checks to be available to the firm. Assume each month has 30 days. What is the average daily float?

Correct AnswerverifiedShow Answer

Float is defined as the difference between which of the following?

Correct AnswerverifiedShow Answer

Which one of the following is a primary benefit of implementing zero-balance accounts into a cash management system?

Correct AnswerverifiedShow Answer

You place an order for 750 units of Good Y at a unit price of $32. The supplier offers terms of 1/15, net 45. The supplier is offering you a discount of _____ if you pay within ____ days.

Correct AnswerverifiedA

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

A firm grants credit with terms of 2/5, net 20. The firm's customers have _ days to pay in order to receive a ___ percent discount.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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A

Correct Answer
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Correct Answer
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Correct Answer
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You place an order for 750 units of Good Y at a unit price of $32. The supplier offers terms of 1/15, net 45. The supplier is offering you a discount of _ if you pay within days.

Correct Answer
verified
A