Question 1

The economic order quantity approach states that inventory order sizes should be determined by:

Accepted Answer

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

Question 2

Which one of the following is a disbursement account into which funds are transferred from a master account only as the funds are needed to cover checks presented for payment?

Accepted Answer

A)  Lockbox account
B)  Cash concentration account
C)  Ledger account
D)  Zero-balance account
E)  Cash clearing accountF) B) and C)
G) B) and E)

Question 3

AJ's Market generally holds $50,000 in cash in case an unexpected investment opportunity arises.This is an example of the ____ motive for holding cash.

Accepted Answer

A)  precautionary
B)  opportunistic
C)  speculative
D)  reserve
E)  transactionF) A) and E)
G) A) and C)

Question 4

Which of these is evidence of indebtedness?

Accepted Answer

A)  Terms of sale
B)  Credit cost curve
C)  Credit instrument
D)  Concentration policy
E)  Credit policyF) A) and C)
G) A) and B)

Question 5

On June 22, Roy's Welding Shop purchased $2,618 worth of goods.The terms of the sale were 2/15, net 45.What is the effective annual rate of interest for the credit period for this sale?

Accepted Answer

A)  27.86 percent
B)  31.38 percent
C)  29.42 percent
D)  25.73 percent
E)  28.63 percentF) C) and D)
G) A) and E)

Question 6

Which of these refers to a customer's willingness to meet his or her credit obligations?

Accepted Answer

A)  Capital
B)  Conditions
C)  Capacity
D)  Character
E)  CollateralF) A) and D)
G) C) and E) D

Question 7

Used Furniture sells 1,330 sofas a year at an average price per sofa of $549.The carrying cost per unit is $31.60.The company orders 75 sofas at a time and has a fixed order cost of $69 per order.The sofas are sold out before they are restocked.What is the economic order quantity?

Accepted Answer

A)  76 sofas
B)  72 sofas
C)  81 sofas
D)  98 sofas
E)  101 sofasF) A) and B)
G) C) and D)

Question 8

Laurie's Ice Rink keeps an extra $1,000 in its checking account simply in case an emergency arises.Which type of motive for holding cash does this represent?

Accepted Answer

A)  Speculative
B)  Float requirement
C)  Transaction
D)  Precautionary
E)  AvailabilityF) C) and E)
G) A) and B)

Question 9

Which of these is a speculative motive for holding cash?

Accepted Answer

A)  Buying extra inventory because a key supplier offered a special one-time discount
B)  Paying a $100 bonus to all employees at year-end
C)  Paying the annual insurance premium on the firm's assets
D)  Needing to purchase a new delivery truck because the old one was totally destroyed in an accident
E)  Contributing $1,000 to help fund medical care for an uninsured neighborF) C) and D)
G) None of the above

Question 10

Al's Bakery has a checkbook balance of $1,650.A $700 deposit was made today and will be added to the available balance tomorrow.There are two outstanding checks that total to $623 that should clear tomorrow.There are no other outstanding items.Which one of the following statements accurately reflects this situation?

Accepted Answer

A)  The disbursement float is $1,650.
B)  The firm's current available balance is equal to $1,650 plus $700 minus $623.
C)  The firm's collection float exceeds its disbursement float.
D)  The firm's available balance is greater than its book balance.
E)  The firm has a net disbursement float.F) All of the above
G) A) and C)

Question 11

Holding cash simply as a financial reserve is referred to as the ____ motive.

Accepted Answer

A)  precautionary
B)  opportunistic
C)  speculative
D)  activity
E)  transactionF) A) and B)
G) B) and D) A

Question 12

During a normal month, Jim's Gems receives a total of nine checks with a total value of $97,500.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)  $3,250
B)  $13,000
C)  $26,000
D)  $65,000
E)  $52,000F) B) and C)
G) All of the above

Question 13

Which of the following characteristics apply to U.S.Treasury bills?
I.Interest income taxed at both the federal and state level
II.Minimal, if any, default risk
III.Marketable, but not liquid
IV.Short maturities

Accepted Answer

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

Question 14

Beauty Aids has an average collection period of 8.4 days and annual credit sales of $937,800.What is the average investment in accounts receivable as shown on the balance sheet? Assume a 365-day year.

Accepted Answer

A)  $18,850
B)  $20,375
C)  $22,506
D)  $18,906
E)  $21,582F) None of the above
G) B) and E)

Question 15

Which one of the following will tend to increase the length of the credit period?

Accepted Answer

A)  Decrease in product cost
B)  Decrease in consumer demand
C)  Decrease in collateral value
D)  Increase in credit risk
E)  Increase in product standardizationF) B) and D)
G) None of the above

Question 16

A disbursement account into which funds are transferred only as needed to cover the demands for payment is called a(n)  ____ account.

Accepted Answer

A)  master
B)  controlled disbursement
C)  bank controlled
D)  investment
E)  safety stockF) B) and C)
G) B) and D)

Question 17

What is the key difference between an ordinary preferred stock and a money market preferred stock?

Accepted Answer

A)  Issuer
B)  Maturity
C)  Fixed versus floating dividend
D)  Voting rights
E)  Absence of any dividendF) C) and D)
G) B) and E)

Question 18

PP&M sells earnings forecasts for international securities.Its credit terms are 1/5, net 20.Based on experience, 66 percent of all customers take the discount.What is the average collection period?

Accepted Answer

A)  10.4 days
B)  10.1 days
C)  11.1 days
D)  10.6 days
E)  10.9 daysF) C) and E)
G) None of the above

Question 19

You place an order for 1,800 units of widgets at a unit price of $14.99.The supplier offers terms of 2/10, net 30.If you don't take the discount, how much interest on your order are you paying implicitly?

Accepted Answer

A)  $568.33
B)  $539.64
C)  $519.36
D)  $540.65
E)  $564.80F) None of the above
G) A) and D)

Question 20

The graphical representation of the sum of the carrying costs and the opportunity costs of a credit policy is called the:

Accepted Answer

A)  aging report.
B)  economic credit function.
C)  optimal credit curve.
D)  credit analysis graph.
E)  credit cost curve.F) B) and D)
G) B) and E)

Exam 17: Working Capital Management

The economic order quantity approach states that inventory order sizes should be determined by:

Correct Answer
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Which one of the following is a disbursement account into which funds are transferred from a master account only as the funds are needed to cover checks presented for payment?

Correct Answer
verified

AJ's Market generally holds $50,000 in cash in case an unexpected investment opportunity arises.This is an example of the ____ motive for holding cash.

Correct Answer
verified

Which of these is evidence of indebtedness?

Correct Answer
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On June 22, Roy's Welding Shop purchased $2,618 worth of goods.The terms of the sale were 2/15, net 45.What is the effective annual rate of interest for the credit period for this sale?

Correct Answer
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Which of these refers to a customer's willingness to meet his or her credit obligations?

Correct Answer
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D

Used Furniture sells 1,330 sofas a year at an average price per sofa of $549.The carrying cost per unit is $31.60.The company orders 75 sofas at a time and has a fixed order cost of $69 per order.The sofas are sold out before they are restocked.What is the economic order quantity?

Correct Answer
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Laurie's Ice Rink keeps an extra $1,000 in its checking account simply in case an emergency arises.Which type of motive for holding cash does this represent?

Correct Answer
verified

Which of these is a speculative motive for holding cash?

Correct Answer
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Correct Answer
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Holding cash simply as a financial reserve is referred to as the ____ motive.

Correct Answer
verified
A

During a normal month, Jim's Gems receives a total of nine checks with a total value of $97,500.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

Which of the following characteristics apply to U.S.Treasury bills? I.Interest income taxed at both the federal and state level II.Minimal, if any, default risk III.Marketable, but not liquid IV.Short maturities

Correct Answer
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B

Beauty Aids has an average collection period of 8.4 days and annual credit sales of $937,800.What is the average investment in accounts receivable as shown on the balance sheet? Assume a 365-day year.

Correct Answer
verified

Which one of the following will tend to increase the length of the credit period?

Correct Answer
verified

A disbursement account into which funds are transferred only as needed to cover the demands for payment is called a(n) ____ account.

Correct Answer
verified

What is the key difference between an ordinary preferred stock and a money market preferred stock?

Correct Answer
verified

PP&M sells earnings forecasts for international securities.Its credit terms are 1/5, net 20.Based on experience, 66 percent of all customers take the discount.What is the average collection period?

Correct Answer
verified

You place an order for 1,800 units of widgets at a unit price of $14.99.The supplier offers terms of 2/10, net 30.If you don't take the discount, how much interest on your order are you paying implicitly?

Correct Answer
verified

The graphical representation of the sum of the carrying costs and the opportunity costs of a credit policy is called the:

Correct Answer
verified

Exam 17: Working Capital Management

The economic order quantity approach states that inventory order sizes should be determined by:

Correct AnswerverifiedShow Answer

Which one of the following is a disbursement account into which funds are transferred from a master account only as the funds are needed to cover checks presented for payment?

Correct AnswerverifiedShow Answer

AJ's Market generally holds $50,000 in cash in case an unexpected investment opportunity arises.This is an example of the ____ motive for holding cash.

Correct AnswerverifiedShow Answer

Which of these is evidence of indebtedness?

Correct AnswerverifiedShow Answer

On June 22, Roy's Welding Shop purchased $2,618 worth of goods.The terms of the sale were 2/15, net 45.What is the effective annual rate of interest for the credit period for this sale?

Correct AnswerverifiedShow Answer

Which of these refers to a customer's willingness to meet his or her credit obligations?

Correct AnswerverifiedD

Used Furniture sells 1,330 sofas a year at an average price per sofa of $549.The carrying cost per unit is $31.60.The company orders 75 sofas at a time and has a fixed order cost of $69 per order.The sofas are sold out before they are restocked.What is the economic order quantity?

Correct AnswerverifiedShow Answer

Laurie's Ice Rink keeps an extra $1,000 in its checking account simply in case an emergency arises.Which type of motive for holding cash does this represent?

Correct AnswerverifiedShow Answer

Which of these is a speculative motive for holding cash?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Holding cash simply as a financial reserve is referred to as the ____ motive.

Correct AnswerverifiedA

During a normal month, Jim's Gems receives a total of nine checks with a total value of $97,500.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

Which of the following characteristics apply to U.S.Treasury bills? I.Interest income taxed at both the federal and state level II.Minimal, if any, default risk III.Marketable, but not liquid IV.Short maturities

Correct AnswerverifiedB

Beauty Aids has an average collection period of 8.4 days and annual credit sales of $937,800.What is the average investment in accounts receivable as shown on the balance sheet? Assume a 365-day year.

Correct AnswerverifiedShow Answer

Which one of the following will tend to increase the length of the credit period?

Correct AnswerverifiedShow Answer

A disbursement account into which funds are transferred only as needed to cover the demands for payment is called a(n) ____ account.

Correct AnswerverifiedShow Answer

What is the key difference between an ordinary preferred stock and a money market preferred stock?

Correct AnswerverifiedShow Answer

PP&M sells earnings forecasts for international securities.Its credit terms are 1/5, net 20.Based on experience, 66 percent of all customers take the discount.What is the average collection period?

Correct AnswerverifiedShow Answer

You place an order for 1,800 units of widgets at a unit price of $14.99.The supplier offers terms of 2/10, net 30.If you don't take the discount, how much interest on your order are you paying implicitly?

Correct AnswerverifiedShow Answer

The graphical representation of the sum of the carrying costs and the opportunity costs of a credit policy is called the:

Correct AnswerverifiedShow Answer

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D

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A

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B

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