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Exam 7: Current Asset Management

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Question 51

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If a firm's average accounts receivable balance increases, this could be because the company improved what customers it extended credit to.

A) True
B) False

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Question 52

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Cost-benefit is not a consideration in development of a cash management system, only safety and liquidity.

A) True
B) False

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Question 53

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The investment of excess short-term funds is usually diversified between short- and long-term marketable securities.

A lock-box system is a method of extending disbursements.

Which of the following is not a valid quantitative measure for accounts receivable collection policies?

In managing cash and marketable securities, what should be the manager's primary concern?

A stock out saves the firm money because little inventory is held on hand, which saves on storage costs.

Which of the following securities typically trades on a discount basis?

Waldron Inc. is considering selling to a group of new customers that will bring in credit sales of $24,000 with a return on sales of 5%. The only new investment will be in accounts receivable. Waldron has a turnover ratio of 6 to 1 between sales and accounts receivable. What is Waldron Inc's expected return on investment?

Use of the economic order quantity

The most subjective and also significant segment of the 5 Cs of credit for giving final approval is

Bankers' acceptances are short-term securities that arise from foreign trade.

The amount of safety stock that a firm carries depends upon

The "economic ordering quantity" helps a firm determine the most efficient order size to place.

If a firm's average collection period increases, this could be because the company gave credit to customers with a low credit report.

Minimizing cash balances can improve overall corporate profitability.

Electronic funds transfer will likely increase the use of float.

Small-denomination certificates of deposit are usually more liquid than large-denomination CDs.

Eurodollars are U.S. dollars held on deposit by foreign banks.

Assuming that inventory is used up at a constant rate and safety stock is zero, the average inventory will be half the re-order size. Since safety stock = 0, and (EOQ/2) + Safety stock = Average inventory, then we carry one half that amount.