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Chapter 19
Cash and Liquidity Management
Multiple Choice Questions
1.
Yesterday, the president of RB Enterprises received a phone call from DLK,
a competitor. DLK is a sole proprietorship. An unexpected family situation
has caused the owner to suddenly want to retire and relocate closer to his
family. Thus, the assets of DLK are being offered to RB Enterprises at a
bargain basement price. While RB Enterprises had not anticipated
purchasing these assets, it was decided that the opportunity was too good
to pass up. This illustrates which of the following needs to hold cash?
2.
GT Motors regularly issues short-term debt to finance its daily operations.
Suddenly, the credit markets froze and no funds were available for
borrowing. Fortunately, the firm had some cash reserves saved that it was
able to use to fund its operations until additional credit was available. The
need to retain cash for situations such as this is referred to as which one of
the following motives for holding cash?
3.
The cash found in a cash drawer that a check-out clerk uses to make
change is an example of which of the following motives for holding cash?
4.
Float is defined as the:
5.
A lockbox is a:
6.
The Presque Isle Center has branch operations in three states. Each branch
deals with a local bank. However, all excess funds in these branch bank
accounts are transferred on a daily basis to the firm's primary bank located
near the firm's home office. This routine of transferring cash to the primary
bank on a regular basis is referred to as:
7.
An account into which funds are deposited only in an amount equal to the
value of the checks presented for payment that day is called a _____
account.
8.
An account into which a firm transfers funds, usually from a master
account, in an amount sufficient to cover the checks presented for payment
that day is called a _____ account.
9.
The Snow Hut has analyzed the carrying and shortage costs associated with
its cash holdings and determined that the firm should ideally maintain a
cash balance of $3,600. This $3,600 represents which one of the following
to the firm?
10.
Adjustment costs is another name for which one of the following?
11.
Why do firms need liquidity?
I. to meet compensating balance requirements
II. to take advantage of an opportunity that suddenly arises
III. to conduct daily business activities
IV. to be prepared for a financial emergency
12.
Cash management primarily involves:
13.
Disbursements float:
14.
Collection float:
15.
Which one of the following statements is correct?
16.
Check kiting is:
17.
Which of the following will reduce collection time?
I. billing customers electronically rather than by mail
II. accepting debit cards but not checks as payment for a sale
III. offering cash discounts for early payment
IV. reducing the processing delay by one day
18.
Which of the following should help reduce the total collection time for a
firm?
I. opening a post office box so mail can be received earlier in the morning
II. assigning additional staff in the morning to process incoming payments
III. providing a discount for customers who pay electronically
IV. establishing preauthorized payments from customers
19.
Which one of the following collection times is correctly described?
20.
A lockbox system:
