Question 1

A (n) ________ in current assets ________ net working capital, thereby ________ the risk of technical insolvency.
A)decrease; increases; increasing
B)decrease; decreases; reducing
C)increase; decreases; increasing
D)increase; increases; reducing

Accepted Answer

An increase in current assets increases net working capital, which reduces the risk of technical insolvency by improving the company's ability to cover short-term liabilities with short-term assets.

Question 2

The basic strategies that should be employed by the business firm in managing cash include all of the following EXCEPT
A)paying accounts payable as late as possible without damaging the firm's credit rating.
B)turning over inventory as quickly as possible while avoiding stock outs.
C)collecting accounts receivable as quickly as possible without damaging customer relationships.
D)all of the above

Accepted Answer

All of the strategies listed (A-C) should be employed by the business firm in managing cash. Ignoring any of these strategies can lead to unnecessary cash flow problems or missed opportunities to improve cash position. Therefore, (D) is the correct answer.

Question 3

The basic strategies that should be employed by the business firm in managing cash include all of the following EXCEPT
A)paying accounts payable as late as possible without damaging the firm's credit rating.
B)turning over inventory as quickly as possible while avoiding stock outs.
C)operating in a fashion that requires maximum cash.
D)collecting accounts receivable as quickly as possible without damaging customer rapport.
E)none of the above

Accepted Answer

Operating in a fashion that requires maximum cash is not a strategy that should be employed in managing cash. Instead, the goal should be to optimize cash flow by strategically managing accounts payable, inventory, and accounts receivable. This may involve paying accounts payable on time, turning over inventory quickly but not risking stock outs, and collecting accounts receivable promptly without damaging customer relationships. However, operating in a cash-intensive fashion may not be sustainable or effective in the long run.

Question 4

BP has an operating cycle of 120 150 days, an average collection period of 40 days, and an average payment period of 30 20 days.Based on this information, BPs average age of inventory is ________ days.
A)50130
B)60
C)7090
D)80110
E)none of the above

Accepted Answer

The information given in the question is insufficient to calculate the average age of inventory. We only have the operating cycle, average collection period, and average payment period.  We need the inventory turnover ratio or the average age of inventory formula, which is not provided. Therefore, none of the given options is the correct answer.

Question 5

BP has an average age of inventory of 60 days, an average collection period of 45 days, and an average payment period of 30 days.Based on this information, BPs cash conversion cycle is ________ days.
A)55
B)65
C)75
D)85
E)none of the above

Accepted Answer

The answer of BP has an average age of inventory...

Question 6

BP has a cash conversion cycle of 80 days, an average collection period of 25 days, and an average age of inventory of 70 50 days.Based on this information, BPs operating cycle is ________ days.
A)85
B)75
C)65105
D)55130
E)none of the above

Accepted Answer

The answer of BP has a cash conversion cycle of...

Question 7

Which of the following statements is most correct?
A)The financial crisis and recession of 2007-2009 had little effect on the ability of borrower firms to obtain short-term financing and for firms with surplus funds to invest in short-term instruments.
B)The financial crisis and recession of 2007-2009 had strong effects on the ability of borrower firms to obtain short-term financing and for firms with surplus funds to invest in short-term instruments.
C)The financial crisis and recession of 2007-2009 had strong effects on the ability of borrower firms to obtain short-term financing but made it easy for firms with surplus funds to invest in short-term instruments.
D)The financial crisis and recession of 2007-2009 had little effect on the ability of borrower firms to obtain short-term financing but made it easy for firms with surplus funds to invest in short-term instruments.
E)none of the above

Accepted Answer

The financial crisis and recession of 2007-2009 had strong effects on the ability of borrower firms to obtain short-term financing, as financial institutions became more risk-averse and less willing to lend. Additionally, firms with surplus funds also had difficulty finding safe and profitable short-term investments as interest rates and yields decreased sharply.

Question 8

Which of the following statements is most correct? None of the above clone of prior item.
A)The financial crisis and recession of 2007-2009 had little effect on the ability of borrower firms to obtain short-term financing and for firms with surplus funds to invest in short-term instruments.
B)The financial crisis and recession of 2007-2009 had no effect on the ability of borrower firms to obtain short-term financing and for firms with surplus funds to invest in short-term instruments.
C)The financial crisis and recession of 2007-2009 had strong effects on the ability of borrower firms to obtain short-term financing but made it easy for firms with surplus funds to invest in short-term instruments.
D)The financial crisis and recession of 2007-2009 had little effect on the ability of borrower firms to obtain short-term financing but made it easy for firms with surplus funds to invest in short-term instruments.
E)none of the above

Accepted Answer

The financial crisis of 2007-2009 significantly affected both the ability of firms to obtain short-term financing and the ability to invest in short-term instruments, contradicting all the given statements.

Question 9

The ________ is the time period that elapses from the point when the firm makes the outlay to purchase raw materials on account to the point when payment is made to the supplier of the goods. None of the above clone of prior item.
A)cash conversion cycle
B)operating cycle
C)average age of inventory
D)average collection period
E)none of the above

Accepted Answer

The correct term for the described time period is the "accounts payable period" or "payables deferral period," which is not listed among the options.

Question 10

A firm can reduce its cash conversion cycle by
A)increasing its average age of inventory
B)increasing its average collection period
C)decreasing its average payment period
D)increasing its average payment period
E)none of the above

Accepted Answer

Increasing the average payment period allows the firm to hold onto its cash longer, thus reducing the cash conversion cycle.

Question 11

A firm can reduce its cash conversion cycle by
A)increasing its average age of inventory
B)increasing its average collection period
C)decreasing its average payment period
D)none of the above

Accepted Answer

The answer of A firm can reduce its cash conversion...

Question 12

BP has an average age of inventory of 60 70 days, an average collection period of 45 days, and an average payment period of 30 days.Based on this information, BPs cash conversion cycle is ________ days.
A)2515
B)3540
C)4555
D)5585
E)none of the above

Accepted Answer

The cash conversion cycle is calculated as: Inventory period + Collection period - Payment period. So, 60-70 + 45 - 30 = 75-85 days, which does not match any of the given options.

Question 13

All of the following statements is correct EXCEPT
A)The financial crisis and recession of 2007-2009 had strong effects on the ability of borrower firms to obtain short-term financing and for firms with surplus funds to invest in short-term instruments.
B)During the 2007-2009 financial crisis and recession, major spikes in the risk premium between commercial paper and T-bills indicate major stresses to the financial system-both for issuers and investors.
C)During the 2007-2009 financial crisis and recession, major spikes in the risk premium between commercial paper and T-bills indicate periods of investors fleeing investments of perceived risk (commercial paper) and placing funds in the safest assets (T-Bills).
D)During the 2007-2009 financial crisis and recession, major spikes in the risk premium between commercial paper and T-bills indicate periods of investors fleeing investments of perceived risk (T-Bills) and placing funds in the safest assets (corporate bonds).
E)all of the above are correct

Accepted Answer

All statements are true except for statement D, which incorrectly states that investors were fleeing investments in T-bills during the crisis. In fact, T-bills were considered a safe haven during the crisis and experienced increased demand, leading to lower yields and reduced risk premiums compared to other short-term instruments like commercial paper. Therefore, statement D is incorrect.

Question 14

The ________ is the time period that elapses from the point when the firm makes the outlay to purchases raw materials on account to the point when payment is made to the supplier of the goods.
A)cash conversion cycle
B)average payment period
C)average age of inventory
D)average collection period
E)none of the above

Accepted Answer

The average payment period is the time period between when a firm purchases raw materials on account and when it pays the supplier.

Question 15

BP has a cash conversion cycle of 80 days, an average collection period of 25 days, and an average age of inventory of 70 days.Based on this information, BPs operating cycle is ________ days.
A)95
B)85
C)75
D)65
E)none of the above

Accepted Answer

The operating cycle is calculated by adding the average collection period and the average age of inventory: 25 days + 70 days = 95 days.

Question 16

A (n) ________ in current liabilities ________ net working capital, thereby ________ the risk of technical insolvency.
A)decrease; increases; increasing
B)decrease; decreases; reducing
C)increase; decreases; increasing
D)increase; increases; reducing

Accepted Answer

An increase in current liabilities decreases net working capital, thereby increasing the risk of technical insolvency. This is because net working capital is calculated as current assets minus current liabilities, so an increase in liabilities reduces the net working capital.

Question 17

The objective of managing current assets and 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 a balance between profitability and risk that contributes to the firm's value.
D)achieve as high a level of current liabilities as possible.
E)none of the above

Accepted Answer

The objective of managing current assets and liabilities is to achieve a balance between profitability and risk that contributes to the firm's value. This involves ensuring that the company has enough current assets to meet its operational needs but not so much that it ties up unnecessary capital. Similarly, the company should aim to have a manageable level of current liabilities that can be comfortably serviced without affecting its financial stability. Ultimately, the goal is to optimize the use of these resources in a way that enhances the company's profitability and value.

Question 18

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 bad debt.
A)cash conversion cycle
B)operating cycle
C)average age of inventory
D)average collection period
E)none of the above

Accepted Answer

The correct term should be "cash conversion cycle," but the definition provided incorrectly mentions "cash is collected from bad debt," which is not part of the cash conversion cycle. The cash conversion cycle involves the time taken to convert inventory and other resources into cash flows from sales, not specifically from bad debts.

Question 19

BP has an operating cycle of 120 days, an average collection period of 40 days, and an average payment period of 30 days.Based on this information, BPs average age of inventory is ________ days.
A)80
B)50
C)90
D)70
E)none of the above

Accepted Answer

The operating cycle is the sum of the average age of inventory and the average collection period. Therefore, the average age of inventory is 120 days (operating cycle) - 40 days (average collection period) = 80 days.

Question 20

The objective of managing current assets and liabilities is to None of the above clone of prior item.
A)achieve as low a level of current assets as possible.
B)achieve as low a level of current liabilities as possible.
C)achieve a balance between profitability and risk that detracts from the firm's value.
D)achieve as high a level of current liabilities as possible.
E)none of the above

Accepted Answer

The objective of managing current assets and liabilities is to achieve a balance between profitability and risk that enhances, not detracts from, the firm's value. Therefore, none of the given options correctly describe this objective.

Quiz 15: Managing Working Capital

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

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

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

BP has an operating cycle of 120 150 days, an average collection period of 40 days, and an average payment period of 30 20 days.Based on this information, BPs average age of inventory is ________ days.

BP has an average age of inventory of 60 days, an average collection period of 45 days, and an average payment period of 30 days.Based on this information, BPs cash conversion cycle is ________ days.

BP has a cash conversion cycle of 80 days, an average collection period of 25 days, and an average age of inventory of 70 50 days.Based on this information, BPs operating cycle is ________ days.

Which of the following statements is most correct?

Which of the following statements is most correct? None of the above clone of prior item.

The ________ is the time period that elapses from the point when the firm makes the outlay to purchase raw materials on account to the point when payment is made to the supplier of the goods. None of the above clone of prior item.

A firm can reduce its cash conversion cycle by

A firm can reduce its cash conversion cycle by

BP has an average age of inventory of 60 70 days, an average collection period of 45 days, and an average payment period of 30 days.Based on this information, BPs cash conversion cycle is ________ days.

All of the following statements is correct EXCEPT

The ________ is the time period that elapses from the point when the firm makes the outlay to purchases raw materials on account to the point when payment is made to the supplier of the goods.

BP has a cash conversion cycle of 80 days, an average collection period of 25 days, and an average age of inventory of 70 days.Based on this information, BPs operating cycle is ________ days.

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

The objective of managing current assets and liabilities is to

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 bad debt.

BP has an operating cycle of 120 days, an average collection period of 40 days, and an average payment period of 30 days.Based on this information, BPs average age of inventory is ________ days.

The objective of managing current assets and liabilities is to None of the above clone of prior item.