Answer Options:
a. True
b. False
Answer: a. True
Question: If a firm buys on terms of 2/10, net 30, it should pay as early as possible during the discount period to lower its cost of capital. a. True b. False
Answer: a. True
Question: Which of the following statements is most consistent with efficient inventory management? The firm has a a. below-average inventory turnover ratio. b. low incidence of production schedule disruptions. c. below-average total assets turnover ratio. d. relatively high current ratio. e. relatively low DSO.
Answer: b
Question: Since depreciation is a non-cash charge, it neither appears on nor has any effect on the cash budget. Thus, if the depreciation charge for the coming year doubled or halved, this would have no effect on the cash budget.
Answer Options:
a. True
b. False
Answer: True
Question: A line of credit can be either a formal or an informal agreement between a borrower and a bank regarding the maximum amount of credit the bank will extend to the borrower during some future period, assuming the borrower maintains its financial strength.
Answer Options:
a. True
b. False
Answer: True
Question: Accruals are “spontaneous” funds arising automatically from a firm’s operations, but unfortunately, due to law and economic forces, firms have little control over the level of these accounts.
Answer Options:
a. True
b. False
Answer: True
Question: If a firm sells on terms of 2/10, net 30 days, and its DSO is 28 days, then the fact that the 28-day DSO is less than the 30-day credit period tell us that the credit department is functioning efficiently and there are no past due accounts.
Answer Options:
a. True
b. False
Answer: False
Question: A firm’s profit margin is 5%, its debt ratio is 56%, and its dividend payout ratio is 40%. If the firm is operating at less than full capacity, then sales could increase to some extent without the need for external funds, but if it is operating at full capacity with respect to all assets, including fixed assets, then any positive growth in sales will require some external financing.
Answer Options:
a. True
b. False
Answer: b. False
Question: If a firm wants to maintain its ratios at their existing levels, then if it has a positive sales growth rate of any amount, it will require some amount of external funding.
Answer Options:
a. True
b. False
Answer: b. False
Question: Because money has time value, a cash sale is always more profitable than a credit sale.
Answer Options:
a. True
b. False
Answer: False
Question: Which of the following statements is 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 developed separately, and although they are both important to the firm, one does not affect the other. c. Since depreciation is a non-cash charge, it neither appears on nor has any effect on the cash budget. d. The target cash balance should be set such that it need not be adjusted for seasonal patterns and unanticipated fluctuations in receipts, although it should be changed to reflect long-term changes in the firm’s operations. e. The typical cash budget reflects interest paid on loans as well as income from the investment of surplus cash. These numbers, as well as other items on the cash budget, are expected values; hence, actual results might vary from the budgeted amounts.
Answer: e