Answer Options:
a. True
b. False
Answer:
a. True
Question: An increase in accounts receivable represents an increase in net cash provided by operating activities because receivables will produce cash when they are collected.
Answer Options:
a. True
b. False
Answer:
b. False
Question: Which of the following would indicate an improvement in a company’s financial position, holding other things constant? a. The inventory and total assets turnover ratios both decline. b. The total debt to total capital ratio increases. c. The profit margin declines. d. The times-interest-earned ratio declines. e. The current and quick ratios both increase.
Answer:
e. The current and quick ratios both increase.
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 Options:
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
Question: High current and quick ratios always indicate that the firm is managing its liquidity position well. a. True b. False
Answer:
b. False
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 Options:
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: On average, a firm collects checks totaling $250,000 per day. It takes the firm approximately 4 days from the day the checks were mailed until they result in usable cash for the firm. Assume that (1) a lockbox system could be employed which would reduce the cash conversion procedure to 2 1/2 days and (2) the firm could invest any additional cash generated at 6% after taxes. The lockbox system would be a good buy if it costs $25,000 annually.
Answer Options:
a. True
b. False
Answer:
b. False
Question: Net operating working capital, defined as current assets minus the difference between current liabilities and notes payable, is equal to the current ratio minus the quick ratio.
Answer Options:
a. True
b. False
Answer:
b. False
Question: Other things held constant, if a firm “stretches” (i.e., delays paying) its accounts payable, this will lengthen its cash conversion cycle (CCC).
Answer Options:
a. True
b. False
Answer:
b. False
Question: “Stretching” accounts payable is a widely accepted, entirely ethical, and costless financing technique, which is particularly useful when suppliers’ production plants are at full capacity.
Answer Options:
a. True
b. False
Answer:
b. False
Question: Which of the following items should a company report directly in its monthly cash budget? a. Its monthly depreciation expense. b. Cash proceeds from selling one of its divisions. c. Accrued interest on zero coupon bonds that it issued. d. New shares issued in a stock split. e. New shares issued in a stock dividend.
Answer Options:
a. Its monthly depreciation expense.
b. Cash proceeds from selling one of its divisions.
c. Accrued interest on zero coupon bonds that it issued.
d. New shares issued in a stock split.
e. New shares issued in a stock dividend.
Answer:
b
Question: The cash budget and the capital budget are handled separately, and although they are both important, they are developed completely independently of one another.
Answer Options:
a. True
b. False
Answer:
b. False