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finance data bank




Question;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.


Paper#50967 | Written in 18-Jul-2015

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