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Question;[i]. Net;working capital may be defined as current assets minus current;liabilities. This also defines the;current ratio.a. Trueb. False[ii]. Net;working capital is defined as current assets divided by current liabilities.a. Trueb. False[iii]. An;increase in a current asset account must be accompanied by a corresponding;increase in a liability account.a. Trueb. False[iv]. Determination;of a firm's investment in net operating working capital and how that investment;is financed are elements of working capital policy.a. Trueb. False[v]. Cash;is often referred to as a "non-earning" asset. Thus, one goal of cash management is to;minimize the amount of cash necessary to conduct business.a. Trueb. False[vi]. Firms;hold cash balances in order to complete transactions that are necessary in;business operations and as compensation to banks for providing loans and;services.a. Trueb. False[vii]. A;firm's peak borrowing needs will probably be overstated if it bases its monthly cash budget on uniform;cash receipts and disbursements, but actual receipts are concentrated at the;beginning of each month.a. Trueb. False[viii]. Shorter-term;cash budgets, in general, are used for actual cash control while longer-term;budgets are used primarily for planning purposes.a. Trueb. False[ix]. For;a firm that makes heavy use of float, being able to forecast its collections;and disbursement check clearings is essential.a. Trueb. False(21.5);Lockbox Answer;a Diff: E[x]. Lockbox;arrangements are one way for a firm to speed up its collection of payments from;customers.a. Trueb. False(21.6);Goal of inventory management Answer;b Diff: E[xi]. The;central goal of inventory management is to provide sufficient incentives to;ensure that the firm never suffers a stock-out (i.e., runs out of an inventory;item).a. Trueb. False[xii]. The;principal goal of most inventory management systems is to balance the costs of;ordering, shipping, and receiving goods with the cost of carrying those goods;while simultaneously meeting the firm's policy with respect to avoiding running;short of stock and disrupting production schedules.a. Trueb. False[xiii]. Inventory;management is largely self-contained, that is, only minimum coordination among;other departments such as sales, purchasing, and production is required for;successful inventory management.a. Trueb. False[xiv]. Since;receivables and payables both result from sales transactions, a firm with a;high receivables-to-sales ratio will also have a high payables-to-sales ratio.a. Trueb. False[xv]. The;average accounts receivables balance is determined jointly by the volume of;credit sales and the days sales outstanding.a. Trueb. False[xvi]. 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.a. Trueb. False(21.7);Monitoring receivables Answer;a Diff: E[xvii]. The;aging schedule is a commonly used method of monitoring receivables.a. Trueb. False[xviii]. The;four major elements in a firm's credit policy are (1) credit standards, (2);discounts offered, (3) credit period, and (4) collection policy.a. Trueb. False[xix]. If;you receive some goods on April 1 with the follow?ing terms, 3/20, net 30, June;1 dating, it means that you will receive a 3 percent discount if the bill is;paid on or before June 20 and that the full amount must be paid 30 days after;receipt of the goods.a. Trueb. False[xx]. Offering;trade credit discounts is costly to a firm and as a result, firms that offer;trade discounts are usually those that are performing poorly and need cash;quickly.a. Trueb. False[xxi]. A;firm changes its credit policy from 2/10, net 30, to 3/10, net 30. The change;is meant to meet competition, so no increase in sales is expected. Average accounts receivable will probably;decline as a result of this change.a. Trueb. False[xxii]. Accruals;are "free" financing in the sense that no explicit interest is paid;on accruals.a. Trueb. False[xxiii]. Accruals;are ?spontaneous,? but, unfortunately, due to law and economic forces, firms;have little control over the level of these accounts.a. Trueb. False[xxiv]. The;fact that no explicit interest cost is paid on accruals, and that the firm can;exercise considerable control over their level, makes accruals an attractive;source of additional funding.a. Trueb. False[xxv]. If;a firm is offered credit terms of 2/10, net 30, it is in the firm's financial;interest to pay as early as possible during the discount period.a. Trueb. False[xxvi]. Trade;credit can be separated into two components: free trade credit, which involves;credit received after the discount period ends, and costly trade credit, which;is the cost of discounts not taken.a. Trueb. False[xxvii]. As;a rule, managers should try to always use the free component of trade credit;but should use the costly component only after comparing its costs to the costs;of similar credit from other sources.a. Trueb. False[xxviii]. Trade;credit is an inexpensive source of short-term financing if no discounts are;offered.a. Trueb. False[xxix]. When;deciding whether or not to take a trade discount, the cost of borrowing funds;should be compared to the cost of trade credit to determine if the cash;discount should be taken.a. Trueb. False[xxx]. The;calculated cost of trade credit is reduced;by paying late.a. Trueb. False;="msonormal">

 

Paper#48799 | Written in 18-Jul-2015

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