Chapter 17 Cash, Receivables, and Inventory Management

11) A company's investment in accounts receivable is determined by the company's level of sales, percent of credit sales to total sales, and credit and collection policies.

12) The speed of the collections process is determined by three types of float: mail float, processing float, and transit float.

13) Current assets in order of liquidity are cash, marketable securities, inventory, and accounts receivable.

14) The terms of sale identify the possible discount for early payment, the discount period, and the total credit period.

15) A corporation that is short on cash will take a trade discount of 2/10 net 30 only if the corporation's cost of funds is less than 2%.

16) Total float consists of each of the following elements EXCEPT

A) mail float.

B) processing float.

C) transit float.

D) audit float.

17) A retailer sells most of its merchandise on credit and bills clients monthly. Which of the following elements of float does the retailer have the most control over?

A) mail float

B) processing float

C) transit float

D) disbursing float

18) A large corporation has annual sales revenues of $6 billion. The corporation currently earns 2.25% on its money market account. If the corporation can reduce its float by three days by making its billing and collection functions more efficient, the company's operating profits will increase by approximately

A) $3,069,863

B) $2,196,500

C) $1,350,000

D) $1,109,589

19) Given that short-term interest rates typically fluctuate less than long-term rates, interest rate risk is least for

A) treasury bills.

B) common stock.

C) long-term government bonds.

D) medium-term corporate bonds.

20) Money market funds

A) are tax exempt.

B) typically invest in a diversified portfolio of short-term, high-grade debt instruments.

C) are generally very profitable but fail to provide liquidity to the small investor.

D) typically sell shares to the public in $25,000 denominations.