Q&A Hero

Q: Concentration banking is a cash management arrangement that is used to mobilize funds from decentralized receiving locations, whether they are lockboxes or decentralized company locations, into one or more central cash pools. a. True b. False

Q: Compared to other current asset investment policies, a restricted current asset investment policy prescribes that a firm should hold maximum levels of safety stocks for cash and inventories and should have a liberal credit policy. a. True b. False

Q: All else equal, firms that hold greater proportions of their total assets as short-term assets are considered riskier than firms that hold greater proportions of their total assets as long-term assets. a. True b. False

Q: Governments often impose _____ to restrict the quantities of foreign products that multinational firms can bring into their countries. a. stockout rules b. negative tariffs c. quotas d. custom exclusions e. expropriation restrictions

Q: Which of the following statements about working capital management in multinational corporations is correct? a. Multinational corporations can take advantage of the best interest rates available in the international financial markets by using global concentration banks. b. The primary reason foreign governments impose import or export quotas and tariffs is to ensure that multinational corporations are able to compete with domestic companies. c. The political and legal environments in most foreign countries make it easier for multinational corporations than for domestic companies to collect defaulted credit accounts. d. Many foreign governments provide multinational corporations that operate in their countries with subsidies to offset exchange rate changes that harm the foreign companies' profits. e. Generally, a multinational company faces a lower threat of government expropriation than do domestic companies.

Q: Which of the following statements about the cash management in multinational companies is correct? a. Most multinational companies prefer to operate in countries that enact quotas on imported goods, because such quotas normally limit the amount of money the firms can lose in those countries. b. Multinational companies do not use lock box systems, because most countries do not permit such banking arrangements. c. Multinational companies always prefer holding more cash in their foreign operations than in their domestic operations. d. Multinational companies often try to slow down collections and speed up disbursements where possible. e. Most multinational companies face restrictions imposed by foreign governments when transferring funds from their foreign operations to their home countries.

Q: Which of the following statements about multinational working capital management is correct? a. Exchange rate changes can greatly influence the credit policies of multinational companies. b. Foreign governments generally do not restrict the amount of cash multinational corporations can return to their home countries. c. Multinational companies hold larger-than-normal amounts of inventory in countries where the chances of expropriation are high. d. Most multinational corporations prefer banking with the local banks where they operate rather than with mega international banks. e. The political and legal environments of many foreign countries are more helpful to multinational corporations in the collection of credit sales than in the United States.

Q: Many foreign governments attempt to restrict the ability of foreign companies to compete with domestic companies by imposing ______, which often substantially increase the prices of products that are imported by multinational companies compared to domestic products. a. stockout limitations b. tariffs c. foreign tax refunds d. quantity discounts e. inventory expropriations

Q: Inventory carrying costs: a. include the costs of generating memos, fax transmissions, etc. associated with placing an order with a supplier. b. generally increase in proportion to the average amount of inventory held. c. are fixed regardless of the average size of the inventory. d. are equal to the sum of total inventory costs and total ordering costs. e. are at maximum when a firm's order is equal to optimal quantity.

Q: Which of the following types of inventory has completed the production process and is ready for sale? a. Just-in-time inventory b. Materials in transit c. Raw materials d. Work-in-process e. Finished goods

Q: The ______ is minimized when a company uses the economic ordering quantity (EOQ) model for its inventory management. a. cost of carrying inventory b. total inventory cost c. total cost of purchasing inventory d. total cost of ordering inventory e. amount of quantity discounts taken

Q: Which of the following statements about inventory management is correct? a. The economic ordering quantity is the quantity at which the total cost of carrying (holding) inventory is minimized. b. A firm should always order inventory in amounts sufficient to take advantage of quantity discounts. c. Safety stock is additional inventory that a firm carries to guard against unexpected changes in sales. d. To most efficiently manage its inventory, a firm should not reorder raw materials until it has no products remaining in inventory. e. Outsourcing is the practice of arranging for a supplier to deliver raw materials at the time they are needed in the production process.

Q: ______ is a model that a firm's management can use to determine the amount of inventory that should be ordered and carried to minimize its total inventory costs. a. Economic ordering quantity model b. Lockbox system algorithm c. Receivables monitoring model d. Inventory optimization model e. Quantity discount model

Q: Fashion Clothier's economic ordering quantity (EOQ) for its dyes is 2,000 units. If the total demand is 100,000 units per period, the carrying cost per unit is 15 percent of the inventory value, the dyes purchase price is $10, and the fixed cost per order is $30, then Fashion's total inventory cost is_____. a. $1,500 b. $4,500 c. $6,000 d. $11,500 e. $3,000

Q: Aberwald Corporation expects to sell 120,000 memory chips this year. Aberwald has determined that it costs $3 to carry each chip in inventory and $50 each time an order for raw materials is placed. Assuming Aberwald always orders the EOQ amount, what will be its total ordering cost this year? a. $7,2000 b. $260,000 c. $3,000 d. $800 e. $6,000

Q: Orangetree Pharma's demand for test tubes is 72,000 units per year. If the lead time for placing an order is five (5) days, at what level of inventory should Orangetree place an order for raw materials? In your computations, assume a 360-day year. a. 0 units. b. 40 units. c. 20 units. d. 1,000 units. e. 200 units.

Q: Given the following information, what is the economic ordering quantity (EOQ) for Shinebird Textiles? Ordering costs = $40 per order Carrying costs = 20% of purchase price Purchase price (cost) = $10 per unit Total sales for year = 1,000 units a. 142 units b. 200 units c. 50 units d. 90 units e. 283 units

Q: New Markets' economic ordering quantity (EOQ) is 30,000 widgets. New Markets' EOQ will decrease if the ______ increases. a. selling price of the widgets b. fixed costs to make each order of raw materials c. demand for its widgets. d. cost of carrying each widget e. cash discount offered to credit customers

Q: Ace Hardware's economic ordering quantity (EOQ) is 1,000 widgets, its total demand is 20,000 units per period, its carrying costs per unit are 20 percent of the inventory value, each inventory item costs $4 to purchase, and it costs $20 each time inventory is order. What is Ace's total inventory costs if it orders the EOQ amount? a. $1,200 b. $1,000 c. $16,400 d. $8,400 e. $800

Q: The "redline method" that is used in inventory management is a: a. policy of drawing a red line around the firm's location to determine from which suppliers it should purchase raw materials. b. restriction imposed on the amount of inventory a company that uses a just-in-time inventory system can order. c. minimum credit score (hurdle) that a customer must possess to purchase inventory on credit from the selling firm.c d. method of controlling inventories by drawing a red line around the inside of a bin. e. method of controlling receivables by drawing a red line on invoices of companies that normally pay late.

Q: ______ is the process of evaluating a firm's credit policy to determine whether a shift in its customers' payment patterns has occurred. a. Receivables monitoring b. Accounts payables monitoring c. Concentration banking d. Customer maintenance e. Purchasing subsidization

Q: Tungsten Chemicals is considering changing its credit policy, so it conducted a net present value (NPV) analysis to compare the proposed credit policy with the existing credit policy. The results of the analysis shows that NPVProposed Policy NPVExisting Policy = $20 per day. If Tungsten's required rate of return is 10 percent, what will be the change in the firm's value if the proposed credit policy is implemented? In you computations, use a 360-day year. a. $200 b. $72,000 c. $25,920 d. $259,200 e. $7,200

Q: Suppose that two firms are identical in all aspects except for their credit policies. The days sales outstanding (DSO) of Firm A is 20 days and the days sales outstanding (DSO) of Firm B is 30 days. Which of the following statements about the firms is correct? a. Firm A takes more time to collect its receivables than Firm B. b. Firm A has tighter credit terms than Firm B. c. Firm A has a weaker collection team than Firm B. d. Firm A provides less discount to its customers to pay its bills early than Firm B. e. Firm A has weaker receivables monitoring system than Firm B.

Q: The aging schedule of a firm shows that 40 percent of the receivables are collected in 18 days and the remaining 60 percent of the receivables are collected in 50 days. As a result, the firm's days sales outstanding (DSO) is _____. a. 34.0 days b. 30.8 days c. 40.8 days d. 42.0 days e. 37.2 days

Q: A firm that offers credit with terms of 2/10 net 30 gives its customers a: a. 2 percent discount from the full invoice price if the bill is paid on or before Day 30; otherwise an additional cost of 10 percent of invoice price must be paid. b. 20 percent discount from the full invoice price if the bill is paid on or before Day 10; otherwise the entire bill is due by Day 30. c. 30 percent discount from the full invoice price if the bill is paid on or before Day 10; otherwise the entire bill is due by Day 2 of the month following the sale. d. 10 percent discount from the full invoice price if the bill is paid on or before Day 2; otherwise the entire bill is due by Day 30. e. 2 percent discount from the full invoice price if the bill is paid on or before Day 10; otherwise the entire bill is due by Day 30.

Q: Sunshine Inc. recently tightened its credit policy. The credit policy change resulted in an increase of $10 per day on a net present value (NPV) basis. Sunshine's required rate of return is 8 percent. What was the effect of the credit policy change on the firm's value? In your computations, assume a 360-day year. a. $288 b. $12,500 c. $36,000 d. $45,000 e. $3,600

Q: Which of the following conditions must exist for a firm to make a change in its existing credit policy? a. Days sales outstanding (DSO) must decline if the new policy is implemented. b. Bad debts must decrease if the new policy is implemented. c. The new policy's net present value (NPV) must be both positive and greater than the existing policy's NPV. d. Sales must increase if the new policy is implemented. e. The firm's variable costs should decrease if the new policy is implemented.

Q: Rainbow Inc.'s sales equal $200,000 each month. Rainbow generally permits credit purchases with terms of 3/10 net 30. Ten (10) percent of total sales are for cash, and the remaining 90 percent pay on credit. Of the credit sales, 20 percent are paid on Day 10 of the billing cycle, and the rest pay on Day 30 (in the following month). What is the amount of the discounts that Rainbow's customers normally take? a. $850 b. $720 c. $560 d. $485 e. $900

Q: Reston Inc.'s annual sales normally equal $17,000,000. Ten (10) percent of Reston's sales are cash payments; the remaining 90 percent of sales are on credit, with 40 percent outstanding for 10 days, 30 percent outstanding for 20 days, 20 percent outstanding for 25 days, and 10 percent outstanding for 30 days. What is Reston's days sales outstanding (DSO)? a. 19.00 days b. 18.00 days c. 21.25 days d. 17.00 days e. 23.75 days

Q: The Danser Corporation expects to generate sales equal to $30,000 in January, $33,000 in February, and $38,000 in March. Twenty (20) percent of all sales are for cash, 50 percent are credit sales that are paid in the month following the sale, and 30 percent are credit sales that are paid two months following the sale. What are Danser's total cash collections in March? a. $35,800 b. $40,400 c. $33,667 d. $33,100 e. $33,900

Q: A(n) ______ is a report that shows how long accounts receivable have been outstanding; it divides receivables into specified periods that provide information regarding the proportions of receivables that are due for specific periods of time. a. payables time line b. collection float schedule c. aging schedule d. accounts payable tracker e. credit indenture

Q: The primary reason a firm holds marketable securities is because they: a. substitute for its long-term debt. b. offer a place to temporarily invest cash balances to earn high rates of return. c. are useful for managing credit sales. d. can be used to help speed up collections of its accounts payable. e. permit the firm to earn positive returns on cash that is not needed to pay bills in the current period.

Q: Which of the following statements concerning marketable securities is correct? a. Marketable securities are extremely liquid investments. b. Marketable securities generally are long-term investments. c. Marketable securities provide higher yields than the firm's other investments. d. The primary purpose for holding marketable securities is to support long-term operations. e. Marketable securities are held by a firm that normally has cash deficiencies.

Q: Which of the following securities is an appropriate investment to include in the marketable securities account? a. Common stock b. Long-term corporate bonds c. Preferred stock d. Mortgages e. Treasury bills

Q: Zinc Corporation is developing its cash budget for this month. Each month, the firm manufactures and sells $15,000 of products, and it pays $10,000 for wages, taxes, cost of goods sold, and other operating expenses. Zinc has nothing in its checking account even though its target cash balance is $8,000. What amount will Zinc show on the bottom line of its cash budget for this month? That is, what will be Zinc's cash position? a. Zinc has surplus cash of $8,000. b. Zinc has a cash shortfall of $3,000. c. Zinc has surplus cash of $6,000. d. Zinc has a cash shortfall of $23,000. e. Zinc has surplus cash of $20,000.

Q: Chovita Marbles purchases $1,500 in raw material each month to support sales of $2,500 that occur in the following month. In addition, Chovita pays wages, rent, and taxes that total $700 each month. What is Chovita's total monthly cash disbursements? a. $300 b. $4,700 c. $700 d. $1,000 e. $2,200

Q: Chadmark Corporation's budgeted monthly sales are $3,000. The company sells on credit with terms of 2/10 net 45. Forty (40) percent of Chadmark's customers pay on Day 10 and take the 2 percent discount; the remaining 60 percent pay in the month following the sale (on Day 45), so they pay the full invoice price. What is Chadmark's total cash receipts for a typical month? a. $1,543 b. $2,976 c. $3,200 d. $1,652 e. $2,408

Q: Jumpdisk Company writes checks averaging $15,000 a day, and it takes 5 days for these checks to clear. The firm also receives checks in the amount of $17,000 per day, but the firm loses three days while its receipts are being deposited and cleared. What is Jumpdisk's net float? a. $126,000 b. $75,000 c. $4,000 d. $24,000 e. $51,000

Q: Which of the following statements regarding cash budgets is correct? a. Payments for credit purchases should not be included in a cash budget. b. Only inflows from cash sales should be included in cash budgets. c. Once a firm sets a target cash balance, the amount should remain constant (fixed) as long as the firm continues operations. d. Cash budgets should not include cash invested in capital budgeting projects. e. Cash budgets should include the firm's tax expenses (liabilities).

Q: Which of the following is a common method that is used to manage/control cash disbursements? a. Lockbox arrangement b. Zero-balance account c. Concentration banking d. Preauthorized sales e. Net float agreement

Q: Which of the following arrangements helps a firm both to accelerate the collection of its customers' payments and to convert those payments into cash? a. Lockbox arrangement b. Controlled disbursement accounts c. Economic ordering quantity d. Payables concentration e. Zero-balance accounts

Q: A(n) ______ system is an arrangement that permits a customer's bank to periodically transfer funds from its account to a selling firm's bank account to pay an amount owed to the selling firm. a. disbursement b. preauthorized debit c. lockbox d. concentration banking e. accounts payable

Q: ______ float represents the value of checks that have been received and deposited in the bank but have not yet been made available to the account in which they were deposited. a. Disbursement b. Net c. Collections d. Receivables e. Deposit

Q: ______ float represents the value of checks that have been written and disbursed but have not been deducted from the account on which they were written. a. Disbursement b. Net c. Collections d. Payables e. Deposit

Q: Having synchronized cash flows enables a firm to: a. speed up collections on checks written. b. increase its bank loans. c. increase its interest expenses. d. increase its profits. e. increase its cash balances.

Q: A ______ balance is cash that a firm holds in reserve for unforeseen fluctuations in its cash flows. a. transactions b. compensating c. precautionary d. speculative e. lockbox

Q: A ______ balance is a minimum checking account balance that a firm must maintain with a bank to help offset the costs and services, such as check clearing and cash management advice, that the bank offers with a loan. a. transactions b. compensating c. precautionary d. speculative e. lockbox

Q: Which of the following statements about cash management systems is correct? a. A lockbox system generally is used to effectively manage a firm's collections through concentration banking arrangements. b. A firm that has many divisions that are widely dispersed geographically will find that centralizing customers' payments is of little benefit. c. Disbursement float refers to the frequency with which a firm writes checks to pay its creditors. d. There are few actions a firm can take to improve its synchronization of cash flows. e. Zero-balance accounts are used to help a firm to manage its cash receipts.

Q: The primary purpose of a lockbox arrangement is to: a. provide for the safe-keeping of the firm's marketable securities. b. identify inventory safety stocks. c. slow down (delay) cash disbursements to the firm's customers. d. speed up a firm's collections on checks received from customers. e. speed up a firm's disbursement of checks to its suppliers.

Q: Which of the following situations would most likely exist if a firm adheres to a moderate current asset investment policy? a. The firm's level of accounts receivable is greater than its level of accounts payable. b. Once equilibrium is attained, the amount of current assets will equal the amount of current liabilities. c. The firm maintains relatively large amounts of current assets. d. The firm holds minimum amounts of cash and marketable securities, inventories, and receivables. e. The firm maintains a level of working capital that falls between the levels prescribed by the relaxed current asset investment policy and the restrictive current asset investment policy.

Q: The lower the level of current assets that is required to support its operations, the more closely a firm can adhere to a _____ current asset investment policy. a. relaxed b. restricted c. moderate d. lean-and-mean e. precautionary

Q: A firm that follows a restricted current asset investment policy generally has: a. uncertain sales. b. relatively low levels of accounts receivable. c. a lower return on investment, especially on current assets, than a firm that follows a relaxed current investment policy. d. a cash conversion cycle greater than the average firm in the industry. e. the highest inventory conversion period in the industry.

Q: Which of the following current asset investment policies emphasizes holding minimal current assets? a. Relaxed current asset investment policy b. Restricted current asset investment policy c. Moderate current asset investment policy d. Fat cat current asset investment policy e. Precautionary current asset investment policy

Q: The _____ current asset investment policy calls for relatively large amounts of current assets to be carried by a company. a. relaxed b. restricted c. moderate d. lean-and-mean e. speculative

Q: The maturity matching approach calls for matching the maturities of the firm's: a. long-term liabilities and equity. b. long-term liabilities and current liabilities. c. long-term assets and current assets. d. assets and equity. e. assets and liabilities.

Q: The current asset financing policy that calls for matching the maturities of assets with the maturities of liabilities is known as the: a. self-liquidating approach. b. conservative approach. c. aggressive approach. d. permanent current ratio approach. e. temporary net working capital approach.

Q: If a firm wants to decrease its cash conversion cycle, which of the following actions should it take? Assume everything else is equal. a. Loosen credit terms to increase the firm's sales. b. Delay payments made to suppliers so that the firm pays late. c. Purchase more raw materials to increase the average inventory the firm maintains. d. Increase the amount the firm borrows from its bank. e. Decrease the common equity on the firm's balance sheet.

Q: The following information relates to Dane Corporation: Inventory conversion period 55.8 days Days sales outstanding 23.9 days Days payables outstanding 32.5 days Which of the following is the cash conversion cycle of the company? a. 0.6 days b. 112.2 days c. 79.7 days d. 64.4 days e. 47.2 days

Q: The following information relates to Gear Corporation: Inventory conversion period 68.2 days Receivables collection period 35.8 days Payables deferral period 24.6 days Which of the following is the cash conversion cycle of the company? a. 128.6 days b. 79.4 days c. 57.0 days d. 79.2 days e. 60.4 days

Q: The following information relates to Musk Corporation: Inventory conversion period 15 days Average inventory $28,000 Average accounts payable $25,000 What is Musk's cost of goods sold during the year? In your computations, assume there are 360 days in a year. a. $550,000 b. $420,000 c. $750,000 d. $672,000 e. $580,008

Q: A firm has an accounts receivables turnover equal to 33.5 days, an average inventory equal to $120,000, and an average accounts payable balance equal to $52,000. What is the firm's receivables collection period? In your computations, assume there are 360 days in a year. a. 3.00 days b. 77.31 days c. 14.52 days d. 12.25 days e. 10.75 days

Q: The following information relates to RAM Corporation: Accounts receivable $160,000 Total credit sales $2,500,000 Accounts payable $220,000 What is RAM's receivables collection period (DSO)? In your computations, assume there are 360 days in a year. a. 23.04 days b. 21.56 days c. 15.62 days d. 22.50 days e. 160.00 days

Q: The following information relates to LoGo Corporation: Accounts payable $650,000 Credit purchases $21,000,000 Accounts receivable $2,100,000 What is LoGo's payables deferral period (DPO)? In your computations, assume there are 360 days in the year. a. 21.45 days b. 11.14 days c. 32.31 days d. 20.11 days e. 30.95 days

Q: Which of the following mathematical equations is used to calculate days sales outstanding (DSO)? a. Days sales outstanding (DSO) = Receivables + Daily credit sales b. Days sales outstanding (DSO) = Payables + Daily credit sales c. Days sales outstanding (DSO) = Receivables/Cost of goods sold d. Days sales outstanding (DSO) = Accounts payable/Cost of goods sold e. Days sales outstanding (DSO) = Receivables/Daily credit sales

Q: Which of the following mathematical equations is used to compute the payables deferral period (DPO)? a. Payables deferral period (DPO) = Payables turnover/360 b. Payables deferral period (DPO) = Payables turnover 360 c. Payables deferral period (DPO) = Daily credit purchases/Accounts payable d. Payables deferral period (DPO) = Accounts payable/Daily credit purchases e. Payables deferral period (DPO) = Cost of goods sold/Accounts payables

Q: The inventory turnover of Long Corporation is 16, and its closing inventory is $20,000. Assuming there are 360 days in a year, compute the company's inventory conversion period. (Give answer to one decimal place.) a. 22.5 days b. 24.2 days c. 3.5 days d. 42.8 days e. 55.5 days

Q: The inventory conversion period refers to the average length of time required: a. to convert raw materials into finished goods. b. to sell all the finished goods once the production process is completed. c. to convert materials into finished goods and then to sell those goods. d. to collect cash following the sale of inventory. e. to provide payment in cash for the purchase of raw materials and labor.

Q: The cash conversion cycle refers to the: a. length of time from the payment for the purchase of raw materials to manufacture a product until the collection of accounts receivable associated with the sale of the product. b. average length of time between the cash payment for the purchase of raw materials and labor and their utilization in the manufacturing process. c. amount of time a product remains in inventory in various stages of completion. d. amount of time it takes to collect cash following a sale. e. length of time from the purchase of raw materials to manufacture a product until the payment for the raw materials is made.

Q: The following information relates to Lobo Corporation: Cash $20,000 Accounts receivable $50,000 Marketable securities $65,000 Notes payable $10,000 Accrued wages $5,000 Based on this information, the net working capital of the company is: a. $135,000. b. $70,000. c. $55,000. d. $120,000. e. $150,000.

Q: The following information relates to Zync Corporation: Current assets $200,000 Current liabilities $150,000 Long-term assets $600,000 Long-term liabilities $400,000 Based on the information given above, the net working capital of the company is: a. $250,000. b. $50,000. c. $350,000. d. $10,000,000. e. $650,000.

Q: The following information relates to Rodeo Corporation: Current assets $70,000 Current liabilities $52,500 Long-term assets $210,000 Long-term liabilities $140,000 Based on the information given above, the amount of the current assets financed by the long-term liabilities is: a. $12,500. b. $52,500. c. $102,500. d. $70,000. e. $17,500.

Q: Net working capital is equal to: a. current assets. b. current liabilities. c. current assets divided by current liabilities. d. current assets minus current liabilities. e. current assets plus current liabilities.

Q: The task of managing working capital accounts in multinational corporations is far simpler than in purely domestic firms because domestic firms are not affected by different languages, different cultures, different political environments, different economic conditions, and so forth. a. True b. False

Q: Decisions made by multinational corporations to manage working capital accounts can have significant consequences on the long-run survival of the firms. a. True b. False

Q: For the most part, the techniques used to manage working capital accounts in multinational corporations are same as the techniques used in purely domestic corporations. a. True b. False

Q: The effective annual rate (rEAR) it pays on a loan is lower whenever a firm must use some of the proceeds from the loan to meet the bank's compensating balance requirement. a. True b. False

Q: Computation of the annual percentage rate (APR) recognizes interest compounding, whereas computation of the effective annual rate (EAR) does not. a. True b. False

Q: Commercial paper is a discount interest loan. a. True b. False

Q: Accruals are generally considered free debt in the sense that no explicit interest is paid on funds "raised" through them. a. True b. False

Q: The outright sale of receivables by firms to financial organizations is called factoring. a. True b. False