Question 1

Which of the following describes the place over which the bank-to-bank transfers are conducted within the United States?

Accepted Answer

Fedwire is the funds transfer system operated by the Federal Reserve Banks that allows banks to transfer large sums of money between each other in real time.

Question 2

Which of the following is NOT a fundamental factor ignored by the target cash balance models?

Accepted Answer

The answer of Which of the following is NOT a...

Question 3

Team Sports Industries has a cash balance of $60,000; accounts payable of $40,000; inventory of $100,000; accounts receivable of $110,000; notes payable of $80,000; and accrued wages and taxes of $10,000.How much net working capital does the firm need to fund?

Accepted Answer

The answer of Team Sports Industries has a cash balance...

Question 4

Painting,Inc.has sales of $400,000 and cost of goods sold of $275,000.The firm had a beginning inventory of $42,000 and an ending inventory of $38,000.What is the length of the days' sales in inventory?

Accepted Answer

The answer of Painting,Inc.has sales of $400,000 and cost of...

Question 5

Which of these is defined as the excess amounts of a current asset kept on hand to meet unexpected shocks in demand?

Accepted Answer

Safety stock is the excess amounts of a current asset kept on hand to meet unexpected shocks in demand. Therefore, option B is the correct choice. Option A (liquid current assets) refers to those assets that can be easily converted into cash without any significant loss of value. Option C (overnight securities) refers to short-term debt securities that mature within one day. Option D (float) refers to the time delay between when a payment is initiated and when it is actually deposited into the recipient's account.

Question 6

Which of the following approach for determining the target cash balance assumes that the distribution of daily net cash flows is normally distributed,and allows for both cash inflows and outflows?

Accepted Answer

The Miller-Orr model assumes that the distribution of daily net cash flows is normally distributed, and allows for both cash inflows and outflows. The Baumol model assumes only cash outflows at a fixed rate, while the Merton model and Interbank Financial model are not relevant to determining the target cash balance.

Question 7

Which of the following resemble checks,but differ in that they are payable by the firm issuing them rather than payable by a bank?

Accepted Answer

Drafts are similar to checks in that they are orders for payment, but they are issued by the company rather than a bank.

Question 8

If a firm has a cash cycle of 47 days and an operating cycle of 92 days,what is its average payment period?

Accepted Answer

The cash conversion cycle is the difference between the operating cycle and the average payment period. 
Cash cycle = Operating cycle - Average payment period 
47 = 92 - Average payment period 
Average payment period = 92 - 47 = 45 days

Question 9

Which of the following is a checking account that the firm sets up so that the bank agrees to automatically transfer funds from an interest-bearing account to pay off any checks presented?

Accepted Answer

A zero-balance account is a checking account where the bank automatically transfers funds from an interest-bearing account to pay off any checks presented, ensuring that the checking account balance always stays at zero. This helps firms avoid overdraft fees and ensures that they are not holding excess funds in a non-interest-bearing checking account.

Question 10

Elle Mae Industries has a cash balance of $50,000; accounts payable of $150,000; inventory of $190,000; accounts receivable of $250,000; notes payable of $210,000; and accrued wages and taxes of $40,000.How much net working capital does the firm need to fund?

Accepted Answer

Net working capital is calculated as current assets minus current liabilities. Here, current assets are $50,000 (cash) + $190,000 (inventory) + $250,000 (accounts receivable) = $490,000. Current liabilities are $150,000 (accounts payable) + $210,000 (notes payable) + $40,000 (accrued wages and taxes) = $400,000. Therefore, net working capital needed is $490,000 - $400,000 = $90,000.

Question 11

If a firm has a cash cycle of 25 days and an operating cycle of 80 days,what is its average payment period?

Accepted Answer

The cash cycle is the time period between paying for inventory and receiving cash from the sale of that inventory. In this case, it is 25 days. 
The operating cycle is the time period between purchasing inventory and receiving cash from the sale of that inventory. In this case, it is 80 days. 
The difference between the cash cycle and operating cycle is the average payment period, which is the time period between receiving inventory and paying for that inventory. 
Thus, the average payment period is 80 - 25 = 55 days. 
Therefore, the best choice is C.

Question 12

Which of the following is the technique for reducing collection float by having funds sent to several geographically situated regional banks and then transferring to a main concentration account in another bank?

Accepted Answer

Concentration banking is the technique for reducing collection float by having funds sent to several geographically situated regional banks and then transferring to a main concentration account in another bank. The other options, such as lockbox system, wire transfers, and collection float, do not describe this specific technique for reducing collection float.

Question 13

If a firm has a cash cycle of 10 days and an operating cycle of 43 days,what is its average payment period?

Accepted Answer

The average payment period is the difference between the operating cycle and the cash cycle, which represents the number of days the firm takes to pay its bills. 
Therefore, average payment period = operating cycle - cash cycle 
= 43 days - 10 days 
= 33 days

Question 14

Which of the following is NOT one of the "five C's" of credit analysis?

Accepted Answer

The five C's of credit analysis are Capacity, Character, Collateral, Conditions, and Capital. Collectability is not a commonly recognized component of credit analysis.

Question 15

Drawing,Inc.has sales of $860,000 and cost of goods sold of $450,000.The firm had a beginning inventory of $50,000 and an ending inventory of $59,000.What is the length of the days' sales in inventory?

Accepted Answer

The days' sales in inventory is calculated by dividing the average inventory by the cost of goods sold (COGS) and then multiplying by 365 days. First, find the average inventory: (Beginning Inventory + Ending Inventory) / 2 = ($50,000 + $59,000) / 2 = $54,500. Then, divide this by the COGS and multiply by 365: ($54,500 / $450,000) * 365 = 47.86 days.

Question 16

Which of these is the period of time after a check has been written,but not yet cleared and deposited?

Accepted Answer

The period of time after a check has been written, but not yet cleared and deposited is known as float. Float can be considered a form of liquidity management, as it refers to the time during which funds are not available for use by the person or organization that wrote the check.

Question 17

Scribble,Inc.has sales of $100,000 and cost of goods sold of $75,000.The firm had a beginning inventory of $20,000 and an ending inventory of $22,000.What is the length of the days' sales in inventory?

Accepted Answer

The answer of Scribble,Inc.has sales of $100,000 and cost of...

Question 18

Daisy D Industries has a cash balance of $75,000; accounts payable of $140,000; inventory of $300,000; accounts receivable of $350,000; notes payable of $145,000; and accrued wages and taxes of $80,000.How much net working capital does the firm need to fund?

Accepted Answer

The answer of Daisy D Industries has a cash balance...

Question 19

Scribble,Inc.has sales of $80,000 and cost of goods sold of $64,000.The firm had a beginning inventory of $10,000 and an ending inventory of $12,000.What is the length of the days' sales in inventory?

Accepted Answer

The answer of Scribble,Inc.has sales of $80,000 and cost of...

Question 20

If a firm has a cash cycle of 25 days and an operating cycle of 80 days,what is its payables turnover?

Accepted Answer

Payables turnover = Operating cycle / Payables period
Payables period = Cash cycle = 25 days

Therefore, Payables turnover = 80 / 25 = 3.2

However, we need to annualize this figure, as the turnover ratio is based on an annual basis. To do this, we multiply by the number of times the ratio turns over in a year:

Payables turnover = 3.2 x (365 / Operating cycle)
Payables turnover = 3.2 x (365 / 80) =  14.6

Therefore, the answer is (C) 6.64.

Quiz 14: Working Capital and Policies