Chapter 14 Working Capital Management and Policies Answer Key
Multiple Choice Questions
1.
The area of management concerned with designing and overseeing the process of
production is which of the following?
A.
Production science
Production management
Operations management
Operations science
2.
A production strategy that attempts to improve a firm’s return on investment by reducing
in-process inventory and associated carrying costs as much as possible is which of the
following?
A.
Production management
3.
Barabas economic order quantity (EOQ)
Cornett economic order quantity (EOQ)
Operations management
Production management
The inventory order quantity that minimizes total holding and ordering costs is which of
the following?
Operations management
Almost late
Just in time
4.
Which of the following is defined as costs associated with not having sufficient cash,
inventory, or accounts receivable?
5.
Which of the following is defined as the cost or forgone opportunity of using an asset
already in use by the firm, or a person already employed by the firm, in a new project?
6.
To trace cash flows through the firm’s operations, we must measure which of the
following? (It is the time necessary to acquire raw materials, turn them into finished
goods, sell them, and receive payment for them.)
7.
Operating cycle is measured as:
8.
Which of the following is NOT one of the five basic elements of the kaizen approach of
productivity improvement?
9.
Choosing the optimal level of investment in each current asset type involves a trade–off
between carry costs and:
10.
Which of the following current asset financing policies reflects the decision to finance the
peaks of current assets with long-term debt and equity that provides the firm with a
surplus of cash and marketable securities most of the time, except during peak asset
demand?
11.
Which of the following current asset financing policies reflects the firm financing the
seasonally-adjusted average level of asset demand with long-term debt and equity
enabling it to use both short-term financing and short-term investing as needed?
12.
For most businesses, particularly smaller ones, the most common way to cover a short–
term financing need is to apply at a bank for which of the following?
13.
Which of these is the requirement of the firm to keep a certain percentage of the borrowed
money deposited in the firm’s bank accounts, whereby the bank agrees to lend money to
the firm?
14.
Which of these is a short-term loan secured by a company’s assets?
15.
Which of these is an entity who will buy accounts receivable before they are due on a
discounted basis, with the spread between the discounted price and the receivable’s face
value providing them with the expected compensation for both the time value of money
and for the expected level of defaults amongst the accounts receivable?
16.
Which of the following is NOT an example of an inventory loan?
17.
Which of the following is a money-market security, issued by large banks and medium–to–
large corporations, that matures in nine months or less?
18.
Which of the following is a short-term promissory note issued by a corporation, bearing
the unconditional guarantee of a major bank?
19.
Which of the following is NOT a reason for holding cash?
20.
Which of the following is NOT one of the Baumol Model’s unrealistic assumptions?
21.
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?
22.
Which of the following is NOT a fundamental factor ignored by the target cash balance
models?
23.
Which of these is defined as the excess amounts of a current asset kept on hand to meet
unexpected shocks in demand?
24.
Which of these is the period of time after a check has been written, but not yet cleared
and deposited?
25.
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?
26.
Which of the following describes the place over which the bank–to-bank transfers are
conducted within the United States?
27.
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?
28.
Which of the following resemble checks, but differ in that they are payable by the firm
issuing them rather than payable by a bank?
29.
Which of the following is NOT one of the “five C‘s” of credit analysis?
30.
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?
31.
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?
32.
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?
33.
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?
34.
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?
35.
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?
36.
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?