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Question # 00004796 Posted By: spqr Updated on: 12/06/2013 01:15 PM Due on: 12/30/2013
Subject Finance Topic Finance Tutorials:
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Which of the following statements is incorrect about working capital policy?
a. A company may hold a relatively large amount of cash if it anticipates uncertain sales levels in the coming year.
b. Credit policy has an impact on working capital since it has the potential to influence sales levels and the speed with which cash is collected.
c. The cash budget is useful in determining future financing needs.
d. Holding minimal levels of inventory can reduce inventory carrying costs and cannot lead to any adverse effects on profitability.
e. Managing working capital levels is important to the financial staff since it influences
financing decisions and overall profitability of the firm.

Which of the following statements is most correct?
a. The cash balances of most firms consist of transactions, compensating, and precautionary balances. The total desired cash balance can be determined by calculating the amount needed for each purpose and then summing them together.
b. The easier a firm's access to borrowed funds, the higher its precautionary balances will be in order to protect against sudden increases in interest rates.
c. For some firms holding highly liquid marketable securities is a substitute for holding cash, because the marketable securities accomplish the same objective as cash.
d. All companies hold the same amount of funds for a transaction balance.
e. None of the statements above is correct.

Which of the following statements is most correct?
a. Compensating balance requirements apply only to businesses, not to individuals.
b. Compensating balances are essentially costless to most firms, because those firms would normally have such funds on hand to meet transactions needs anyway.
c. If the required compensating balance is larger than the transactions balance the firm would ordinarily hold, then the effective cost of any loan requiring such a balance is increased.
d. Banks are prohibited from earning interest on the funds they force businesses to keep
as compensating balances.
e. None of the statements above is correct.

Which of the following statements is most correct?
a. Shorter-term cash budgets, in general, are used primarily for planning purposes, while longer-term budgets are used for actual cash control.
b. The cash budget and the capital budget are planned separately and although they are both important to the firm, they are independent of each other.
c. Since depreciation is a non-cash charge, it does not appear on nor have an effect on the cash budget.
d. The target cash balance is set optimally such that it need not be adjusted for seasonal patterns and unanticipated fluctuations in receipts, although it is changed to reflect long-term changes in the firm's operations.
e. The typical actual cash budget will reflect interest on loans and income from investment of surplus cash. These numbers are expected values and actual results might vary from budgeted results.

A lockbox plan is most beneficial to firms which
a. Send payables over a wide geographic area.
b. Have widely disbursed manufacturing facilities.
c. Have a large marketable securities account to protect.
d. Hold inventories at many different sites.
e. Make collections over a wide geographic area.

Which of the following statements is most correct?
a. Poor synchronization of cash flows which results in high cash management costs can be partially offset by increasing disbursement float and decreasing collections float.
b. The size of a firm's net float is primarily a function of its natural cash flow
synchronization and how it clears its checks.
c. Lockbox systems are used mainly for security purposes as well as to decrease the firm's net float.
d. If a firm can speed up its collections and slow down its disbursements, it will be able to reduce its net float.
e. A firm practicing good cash management and making use of positive net float will bring its check book balance as close to zero as possible, but must never generate a negative book balance.

Which of the following statements is most correct?
a. A firm that makes 90 percent of its sales on credit and 10 percent for cash is growing at a rate of 10 percent annually. If the firm maintains stable growth it will also be able to maintain its accounts receivable at its current level, since the 10 percent cash sales can be used to manage the 10 percent growth rate.
b. In managing a firm's accounts receivable it is possible to increase credit sales per day yet still keep accounts receivable fairly steady if the firm can shorten the length of its collection period.
c. If a firm has a large percentage of accounts over 30 days old, it is a sign that the firm's receivables management needs to be reviewed and improved.
d. Since receivables and payables both result from sales transactions, a firm with a high receivables-to-sales ratio should also have a high payables-to-sales ratio.
e. None of the statements above is correct.

Which of the following statements is most correct?
a. If a firm's volume of credit sales declines then its DSO will also decline.
b. If a firm changes its credit terms from 1/20, net 40 days, to 2/10, net 60 days, the impact on sales can't be determined because the increase in the discount is offset by the longer net terms, which tends to reduce sales.
c. The DSO of a firm with seasonal sales can vary. While the sales per day figure is usually based on the total annual sales, the accounts receivable balance will be high or low depending on the season.
d. An aging schedule is used to determine what portion of customers pay cash and what portion buy on credit.
e. Aging schedules can be constructed from the summary data provided in the firm's financial statements.

Which of the following statements is most correct?
a. Other things held constant, the higher a firm's days sales outstanding (DSO), the better its credit department.
b. If a firm that sells on terms of net 30 changes its policy and begins offering all customers terms of 2/10, net 30 days, and if no change in sales volume occurs, then the firm's DSO will probably increase.
c. If a firm sells on terms of 2/10, net 30 days, and its DSO is 30 days, then its aging schedule would probably show some past due accounts.
d. Statements a and c are correct.
e. None of the statements above is correct.

Which of the following statements is most correct?
a. Depreciation is included in the estimate of cash flows (Cash flow = Net income + Depreciation), so depreciation is set forth on a separate line in the cash budget.
b. If cash inflows and cash outflows occur on a regular basis, such as the situation in which inflows from collections occur in equal amounts each day and most payments are made regularly on the 10th of each month, then it is not necessary to use a daily cash budget. A cash budget prepared at the end of the month will suffice.
c. Sound working capital policy is designed to maximize the time between cash expenditures on materials and the collection of cash on sales.
d. Statements b and c are correct.
e. None of the statements above is correct.

Which of the following statements is most correct?
a. Net working capital may be defined as current assets minus current liabilities. Any increase in the current ratio will automatically lead to an increase in net working capital.
b. Although short-term interest rates have historically averaged less than long-term rates, the heavy use of short-term debt is considered to be an aggressive strategy because of the inherent risks of using short-term financing.
c. If a company follows a policy of "matching maturities," this means that it matches its use of common stock with its use of long-term debt as opposed to short-term debt.
d. All of the statements above are correct.
e. None of the statements above is correct.

Which of the following statements is most correct?
a. Accruals are an expensive way to finance working capital.
b. A conservative financing policy is one in which the firm finances all of its fixed
assets with long-term capital and part of its permanent net operating working capital
with short-term, nonspontaneous credit.
c. If a company receives trade credit under the terms 2/10, net 30 days, this implies the company has 10 days of free trade credit.
d. Statements a and b are correct.
e. None of the answers above is correct

Which of the following statement completions is most correct? If the yield curve is
upward sloping, then a firm's marketable securities portfolio, assumed to be held for
liquidity purposes, should be
a. Weighted toward long-term securities because they pay higher rates.
b. Weighted toward short-term securities because they pay higher rates.
c. Weighted toward U.S. Treasury securities to avoid interest rate risk.
d. Weighted toward short-term securities to avoid interest rate risk.
e. Balanced between long- and short-term securities to minimize the effects of either an
upward or a downward trend in interest rates.

Which of the following statements is most correct?
a. Under normal conditions, a firm's expected ROE would probably be higher if it financed with short-term rather than with long-term debt, but the use of short-term debt would probably increase the firm's risk.
b. Conservative firms generally use no short-term debt and thus have zero current liabilities.
c. A short-term loan can usually be obtained more quickly than a long-term loan, but the cost of short-term debt is likely to be higher than that of long-term debt.
d. If a firm that can borrow from its bank buys on terms of 2/10, net 30 days, and if it must pay by Day 30 or else be cut off, then we would expect to see zero accounts payable on its balance sheet.
e. If one of your firm's customers is "stretching" its accounts payable, this may be a nuisance but does not represent a real financial cost to your firm as long as the firm periodically pays off its entire balance.

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  1. Tutorial # 00004592 Posted By: spqr Posted on: 12/06/2013 01:43 PM
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