Deck 13: Stock Market Efficiency

Question 1

The basic strategies that should be employed by the business firm in managing cash include all of the following EXCEPT

A) turning over inventory as quickly as possible, avoiding stockouts.
B) paying accounts payable as late as possible without damaging the firm's credit rating.
C) collecting accounts receivable as quickly as possible without damaging customer rapport.
D) operating in a fashion that requires maximum cash.

Answer 1

D

Question 2

In general, the more net working capital a firm has,

A) the greater its risk.
B) the less likely are creditors to lend to the firm.
C) the lower its risk.
D) the lower its level of long- term funds.

Answer 2

C

Question 3

A decrease in the inventory conversion period will result in in the cash conversion cycle.

A) an increase
B) an undetermined change
C) a decrease
D) no change

Answer 3

C

Question 4

In the EOQ model, if carrying costs increase while all other costs remain unchanged, the number of orders placed would be expected to

A) decrease.
B) remain unchanged.
C) change without regard to carrying costs.
D) increase.

Question 5

Net working capital is defined as

A) current assets minus current liabilities.
B) the portion of the firm's assets financed with short- term funds.
C) current liabilities minus current assets.
D) a ratio measure of liquidity best used in cross- sectional analysis.

Question 6

A(n) _ in current assets net working capital, thereby _ the risk of technical insolvency.

A) decrease; decreases; reducing
B) increase; decreases; increasing
C) increase; increases; reducing
D) decrease; increases; increasing

Question 7

A firm has a working capital cycle of 170 days, an average payment period of 50 days, and an inventory conversion period of 145 days. The firm's average collection period is days.

A) 95
B) 120
C) 75
D) 25

Question 8

The purpose of managing current assets and current liabilities is to

A) achieve as low a level of current assets as possible.
B) achieve as low a level of current liabilities as possible.
C) achieve as high a level of current liabilities as possible.
D) achieve a balance between profitability and risk that contributes to the firm's value.

Question 9

A firm has an inventory conversion period of 20 days, an average collection period of 30 days, and an average payment period of 60 days. The firm's cash conversion cycle, in terms of days, is

A) 70
B) 110
C) - 10
D) 50

Question 10

An increase in the average collection period will result in in the working capital cycle.

A) a decrease
B) no change
C) an undetermined change
D) an increase

Question 11

The of a firm is the amount of time that elapses from the point when the firm makes an outlay to purchase raw materials to the point when cash is collected from the sale of the finished good.

A) average age of inventory
B) cash conversion cycle
C) cash turnover
D) average collection period

Question 12

The conversion of current assets from inventory to receivables to cash provides the of cash used to pay the current liabilities, which represents a(n) of cash.

A) outflow; inflow
B) inflow; source
C) use; source
D) source; use

Question 13

The of a firm is the amount of time that elapses from the point when the firm inputs material and labor into the production process to the point when cash is collected from the sale of the finished product that contains these production inputs.

A) average age of inventory
B) average collection period
C) working capital cycle
D) cash conversion cycle

Question 14

A firm has an operating cycle of 120 days, an average collection period of 40 days, and an average payment period of 30 days. The firm's average age of inventory is days.

A) 50
B) 70
C) 80
D) 90

Question 15

A firm has a cash conversion cycle of 80 days, an average collection period of 25 days, and an average age of inventory of 70 days. Its operating cycle is _ days.

A) 60
B) 105
C) 130
D) 95

Question 16

A firm has an average age of inventory of 90 days, an average collection period of 40 days, and an average payment period of 30 days. The firm's working capital cycle is days.

A) 130
B) 120
C) 70
D) 110

Question 17

A firm could reduce its cash conversion cycle by

A) increasing the average collection period.
B) increasing the average payment period.
C) decreasing the average payment period.
D) increasing the inventory conversion period.

Question 18

The is the time period that elapses from the point when the firm purchases raw materials for manufacturing a finished good to the point when the finished good is sold.

A) cash turnover
B) average collection period
C) inventory conversion period
D) cash conversion cycle

Question 19

A firm purchased raw materials on account and paid for them within 30 days. The raw materials were used in manufacturing a finished good sold on account 100 days after the raw materials were purchased. The customer paid for the finished good 60 days later. The firm's cash conversion cycle is _ days.

A) 10
B) 130
C) 190
D) 70

Question 20

A firm has an average age of inventory of 60 days, an average collection period of 45 days, and an average payment period of 30 days. The firm's cash conversion cycle is days.

A) 135
B) 45
C) 15
D) 75

Question 21

A positive cash conversion cycle means that the firm must obtain financing to support the cash conversion cycle.

Question 22

Short- term financial management is concerned with management of the firm's current assets and current liabilities.

Question 23

A firm that is unable to pay its bills as they come due is technically insolvent.

Question 24

A firm with a cash conversion cycle of 175 days can stretch its average payment period from 30 days to 45 days. This will result in a(n )

A) decrease of 30 days in the cash conversion cycle.
B) increase of 15 days in the cash conversion cycle.
C) increase of 30 days in the cash conversion cycle.
D) decrease of 15 days in the cash conversion cycle.

Question 25

The economic order quantity (EOQ) is the order quantity which minimizes

A) order quantity in units.
B) the carrying costs per unit per period.
C) the total inventory costs.
D) the order cost per order.

Question 26

The goal of short- term financial management is to manage each of the firm's current assets and current liabilities in order to achieve a balance between profitability and risk that contributes to the firm's value.

Question 27

The cash conversion cycle is the amount of time that elapses from the point when the firm inputs materials and labor into the production process to the point when cash is collected from the sale of the resulting finished product.

Question 28

The working capital cycle is the recurring transition of a firm's working capital from cash to inventories and inventories to receivables and back to cash.

Question 29

When a firm's cash conversion cycle is negative, the firm should benefit by being able to use the financing provided by the suppliers of its production inputs to help support aspects of the business other than just the operating cycle.

Question 30

The cash conversion cycle is the total number of days in the operating cycle less the average payment period for inputs to production.