F
(B. Working
B. WORKING CAPITAL MANAGEMENT tend to have a(n)
A. Increase in the ratio of current liabilities to noncurrent liabilitie
B. Increase in the operating cycle.
THEORIES: C. Decrease in the operating cycle.
Working capital management D. Increase in the ratio of current assets to current liabilities.
1. Working capital management involves investment and financing decisions related to:
A. plant and equipment and current liabilities. Moderate
B. current assets and capital structure. 3. Short-term financing plans with high liquidity have:
C. current assets and current liabilities. A. high return and high risk
D. sales and credit. B. moderate return and moderate risk
C. low profit and low risk
17. The goal of managing working capital, such as inventory, should be to minimize the: D. none of the above
A. costs of carrying inventory
B. opportunity cost of capital Temporary & Permanent working capital
C. aggregate of carrying and shortage costs 4. Temporary working capital supports
D. amount of spoilage or pilferage A. the cash needs of the company. C. acquisition of ca
B. payment of long term debt. D. seasonal peaks
Working capital financing policy
Aggressive Cash Management
5. Zap Company follows an aggressive financing policy in its working capital management while Motives for holding cash
Zing Corporation follows a conservative financing policy. Which one of the following 7. The transaction motive for holding cash is for:
statements is correct? A. a safety cushion C. compensating b
A. Zap has low ratio of short-term debt to total debt while Zing has a high ratio of short- B. daily operating requirements D. none of the abo
term debt to total debt.
B. Zap has a low current ratio while Zing has a high current ratio. Float
C. Zap has less liquidity risk while Zing has more liquidity risk. 8. The difference between the cash balance on the firm's books and
D. Zap finances short-term assets with long-term debt while Zing finances short-term bank statement is called:
assets with short-term debt. A, the compensating balance C. a safety cushion
B. float D. none of the abo
6. Which of the following would increase risk?
A. Raise the level of working capital. Cash conversion cycle
B. Decrease the amount of inventory by formulating an effective inventory policy. 9. The length of time between payment for inventory and the collection
C. Increase the amount of short-term borrowing. A. payables deferral period C. operating cycle
D. Increase the amount of equity financing. B. receivables conversion period D. cash conversion
Conservative 10. As a firm's cash conversion cycle increases, the firm:
2. As a company becomes more conservative with respect to working capital policy, it would A. becomes less profitable
636
, F
(B. Working
B. increases its investment in working capital A. decreases by the amount of the safety stock.
C. reduces its accounts payable period B. is one-half the level of the safety stock.
D. incurs more shortage costs C. Increases by one-half the amount of the safety stock.
D. Increases by the number of units of the safety stock.
11. The longer the firm's accounts payable period, the:
A. longer the firm's cash conversion cycle is. 19. Which of the following statements is correct for a firm that currently
B. shorter the firm's inventory period is. and ordering inventory that are 50% higher than total carrying costs
C. more the delay in the accounts receivable period. A. Current order size is greater than optimal
D. less the firm must invest in working capital. B. Current order size is less than optimal
C. Per unit carrying costs are too high
12. The average length of time a peso is tied up in current asset is called the: D. The optimal order size is currently being used
A. net working capital. C. receivables conversion period.
B. inventory conversion period. D. cash conversion period. Trade credit
20. With credit terms of 3/8, n/30, what is the customer’s payment decis
Receivables management A. Three days after the invoice is received.
13. All of these factors are used in credit policy administration except: B. The 8th day is the customer’s decision date.
A. credit standards C. peso amount of receivables C. Anytime during the period, 8th to the 30th.
B. terms of trade D. collection policy D. The 30th day is the primary decision date.
14. Which of the following statements is most correct? If a company lowers its DSO, but no PROBLEMS
changes occur in sales or operating costs, then: Working capital financing
A. the company might well end up with a higher debt ratio. 1
. Casie Company turns out 200 calculators a day at a cost of P250
B. the company might well end up with a lower debt ratio. and variable conversion cost. It takes the firm 18 days to c
C. the company would probably end up with a higher ROE. calculator. Casie’s usual credit terms extended to its customer
D. the company's total asset turnover ratio would probably decline. generally pays its suppliers in 20 days.
If the foregoing cycles are constant, what amount of working ca
15. All but which of the following is considered in determining credit policy? finance?
A. Credit standards C. Accounts payable deferral period A. P1,400,000 C. P 900,000
B. Credit limits D. Collection efforts B. P2,400,000 D. P1,800,000
Inventory management Cash conversion cycle
16. The use of safety stock by a firm will: 2
. Luke Company has an inventory conversion period of 60 days
A. reduce inventory costs C. have no effect on inventory costs period of 45 days, and a payments cycle of 30 days. What is th
B. increase inventory costs D. none of the above conversion cycle?
A. 90 days C. 54 days
18. When a specified level of safety stock is carried for an item in inventory, the average B. 75 days D. 105 days
inventory level for that item
637
(B. Working
B. WORKING CAPITAL MANAGEMENT tend to have a(n)
A. Increase in the ratio of current liabilities to noncurrent liabilitie
B. Increase in the operating cycle.
THEORIES: C. Decrease in the operating cycle.
Working capital management D. Increase in the ratio of current assets to current liabilities.
1. Working capital management involves investment and financing decisions related to:
A. plant and equipment and current liabilities. Moderate
B. current assets and capital structure. 3. Short-term financing plans with high liquidity have:
C. current assets and current liabilities. A. high return and high risk
D. sales and credit. B. moderate return and moderate risk
C. low profit and low risk
17. The goal of managing working capital, such as inventory, should be to minimize the: D. none of the above
A. costs of carrying inventory
B. opportunity cost of capital Temporary & Permanent working capital
C. aggregate of carrying and shortage costs 4. Temporary working capital supports
D. amount of spoilage or pilferage A. the cash needs of the company. C. acquisition of ca
B. payment of long term debt. D. seasonal peaks
Working capital financing policy
Aggressive Cash Management
5. Zap Company follows an aggressive financing policy in its working capital management while Motives for holding cash
Zing Corporation follows a conservative financing policy. Which one of the following 7. The transaction motive for holding cash is for:
statements is correct? A. a safety cushion C. compensating b
A. Zap has low ratio of short-term debt to total debt while Zing has a high ratio of short- B. daily operating requirements D. none of the abo
term debt to total debt.
B. Zap has a low current ratio while Zing has a high current ratio. Float
C. Zap has less liquidity risk while Zing has more liquidity risk. 8. The difference between the cash balance on the firm's books and
D. Zap finances short-term assets with long-term debt while Zing finances short-term bank statement is called:
assets with short-term debt. A, the compensating balance C. a safety cushion
B. float D. none of the abo
6. Which of the following would increase risk?
A. Raise the level of working capital. Cash conversion cycle
B. Decrease the amount of inventory by formulating an effective inventory policy. 9. The length of time between payment for inventory and the collection
C. Increase the amount of short-term borrowing. A. payables deferral period C. operating cycle
D. Increase the amount of equity financing. B. receivables conversion period D. cash conversion
Conservative 10. As a firm's cash conversion cycle increases, the firm:
2. As a company becomes more conservative with respect to working capital policy, it would A. becomes less profitable
636
, F
(B. Working
B. increases its investment in working capital A. decreases by the amount of the safety stock.
C. reduces its accounts payable period B. is one-half the level of the safety stock.
D. incurs more shortage costs C. Increases by one-half the amount of the safety stock.
D. Increases by the number of units of the safety stock.
11. The longer the firm's accounts payable period, the:
A. longer the firm's cash conversion cycle is. 19. Which of the following statements is correct for a firm that currently
B. shorter the firm's inventory period is. and ordering inventory that are 50% higher than total carrying costs
C. more the delay in the accounts receivable period. A. Current order size is greater than optimal
D. less the firm must invest in working capital. B. Current order size is less than optimal
C. Per unit carrying costs are too high
12. The average length of time a peso is tied up in current asset is called the: D. The optimal order size is currently being used
A. net working capital. C. receivables conversion period.
B. inventory conversion period. D. cash conversion period. Trade credit
20. With credit terms of 3/8, n/30, what is the customer’s payment decis
Receivables management A. Three days after the invoice is received.
13. All of these factors are used in credit policy administration except: B. The 8th day is the customer’s decision date.
A. credit standards C. peso amount of receivables C. Anytime during the period, 8th to the 30th.
B. terms of trade D. collection policy D. The 30th day is the primary decision date.
14. Which of the following statements is most correct? If a company lowers its DSO, but no PROBLEMS
changes occur in sales or operating costs, then: Working capital financing
A. the company might well end up with a higher debt ratio. 1
. Casie Company turns out 200 calculators a day at a cost of P250
B. the company might well end up with a lower debt ratio. and variable conversion cost. It takes the firm 18 days to c
C. the company would probably end up with a higher ROE. calculator. Casie’s usual credit terms extended to its customer
D. the company's total asset turnover ratio would probably decline. generally pays its suppliers in 20 days.
If the foregoing cycles are constant, what amount of working ca
15. All but which of the following is considered in determining credit policy? finance?
A. Credit standards C. Accounts payable deferral period A. P1,400,000 C. P 900,000
B. Credit limits D. Collection efforts B. P2,400,000 D. P1,800,000
Inventory management Cash conversion cycle
16. The use of safety stock by a firm will: 2
. Luke Company has an inventory conversion period of 60 days
A. reduce inventory costs C. have no effect on inventory costs period of 45 days, and a payments cycle of 30 days. What is th
B. increase inventory costs D. none of the above conversion cycle?
A. 90 days C. 54 days
18. When a specified level of safety stock is carried for an item in inventory, the average B. 75 days D. 105 days
inventory level for that item
637
