TOPIC 3 - MCQ

The relaxed current asset investment policy is one in which

• Provides liberal financing to customers

• Current assets are turned over more frequently

• Offer highest expected return

• Holding for cash, securities, inventories and receivable are minimized

Net operating working capital is defined as _______

• current assets used in operations

• current assets minus current liabilities

• current assets divided by current liabilities

• current assets minus non-interest bearing current liabilities

The ____________ equals to the length of time between the firms' actual cash expenditures to pay productive resources and its own cash receipts from the sales of products

• Payable deferral period

• Cash conversion cycle

• Receivable collection period

• Inventory conversion period

The goal of cash management is to achieve the following EXCEPT

• To maintain its credit rating

• To meet unexpected cash needed

• Minimized the amount of cash the firm must hold

• Not to take trade discount

Speculative balances are held to _____

• Provide cash needed to conduct normal business operation

• Enable the firm to take advantage of bargain purchases

• Reserve for unforeseen fluctuations

• Reserve balance required by banks for providing loans

__________ associated with inventories include cost of capital tied up, storage and handling cost, insurance, property taxes and depreciation.

• Ordering cost

• Carrying cost

• Cost of running short

• Receiving cost

The goal of credit policy is to _________

• Minimize bad debt losses

• Minimize average collection period

• Minimize collection expenses

• Extend credit to the point where marginal profits equal marginal cost

Which of the following defined cash conversion cycle?

• Inventory conversion period + payable deferral period

• Inventory conversion period + receivable collection period

• Inventory conversion period + receivable collection period - payable deferral period

• Inventory conversion period + payable deferral period - receivable collection period

Which of the following statements concerning commercial paper is most correct?

• commercial paper is secured debt of large firms

• commercial paper is sold primarily to individual investors

• maturities of commercial paper generally exceed one year

• none of the above statements is correct

Which of the following is NOT correct to describe short-term financing?

• Short-term debt is less flexible than long term debt

• Short term financing can be obtained faster than long term credit

• Short term interest rates normally lower than long term rates

• Short term debt usually more risky than long term debt