Finance Final Multiple Choice

What are the minimum total costs of carrying and ordering inventory for a firm that sells 1,500 units with a carrying cost of $2 per unit and places orders in lots of 100?

$400

ABC Corp. shows a ledger balance of $50,000 prior to writing a cheque for $5,000 and depositing $1,000 in cheques. What is the amount of their net float?

$4,000

The economic order quantity for a product is 500 units. However, new orders require five working-days lead time during which time 60 units will be used. Given this information, the correct economic order quantity is:

500 units.

What is the economic order quantity for firm that sells 30,000 units annually, each unit has a $6 carrying cost, and the fixed cost of placing an order is $100?

707 units

A firm's safety stock represents the:

reorder point that considers lags and uncertainties.

Potential savings from a lockbox system will be reduced by:

local bank charges.

Which of the following is correct about wire transfer of funds, given that wire transfer saves three days, the annual interest rate is 6 percent, and the cost of wire transfer is $20?

wire transfers should be preferred for amounts exceeding $40,556

In addition to the domestic money market, there is also an international market for short-term dollar investments, which is known as the ______ market.

eurodollar

Major international banks in London lend dollars to one another at the

LIBOR

Calculate the accounts receivable period for a firm with annual credit sales of $10 million and average accounts receivable of $2 million.

73.00 days

What is the cash conversion cycle for a firm with a receivables period of 40 days, a payables period of 30 days, and an inventory period of 60 days?

70 days

What strategy regarding long- versus short-term financing is not being followed if managers resort to short-term investing during downturns in the business cycle?

a restrictive strategy

A line of credit would be considered:

an agreement to borrow up to a specific total amount on demand from a bank.

Optimizing cash balances involves the equating of:

marginal benefits and marginal opportunity costs

Which of the following statements is correct concerning marketable securities on a firm's balance sheet?

not all are guaranteed against loss

Bank lines of credit must be judiciously requested because the lines often:

require payment of a commitment fee to establish

Which of the following would not be included in a cash budget?

depreciation

The safety margin kept by the bank on loan against liquid assets is called:

a haircut

Which of the following would act to reduce the carrying costs of inventory?

general interest rates decrease in the economy

When financial managers take action to minimize the carrying costs of current assets, they:

may increase costs due to shortages

The longer the firm's accounts payable period, the:

less the firm must invest in working capital

You are buying goods worth $75,000 from a firm that offers the credit terms of 2

10, net 30. What will be the actual payment if you paid within 10 days? / $73,500

What is the minimum probability of collection that should be accepted by firms that have a 25% profit margin? Ignore the time value of money.

75%

Which of the following elements of credit terms might discourage purchasers from paying with a discount?

A longer payment period with lower discount period.

The Five C's of Credit refer to the:

Attributes that help determine creditworthiness

Which of the following terms of sale is the most restrictive?

COD

Samana Corporation expects to receive $1,500 along with costs of $1,000 on each non-delinquent sale on credit. The probability of collection is 60%. Determine whether credit should be extended.

Do not extend credit - net detriment of $100

Which of the following changes to the terms of credit would make the effective annual rate increase?

Increase the cash discount percentage

A retailer buys Christmas merchandize from the manufacturer on Sep. 1. The manufacturer postdates the invoice to Dec. 31, and the credit terms of the sale are 2

10, net 30. When is the payment due? / Jan. 30

Which of the following assets is likely to be considered the most liquid?

marketable securities

Which of the following items should not be included in a listing of current assets?

accounts payable

Which one of these ratios is commonly referred to as the acid-test ratio?

quick ratio.

A firm has $600,000 in current assets and $150,000 in current liabilities. Which of the following is correct if it uses cash to pay off $50,000 in accounts payable?

current ratio will increase to 5.0.

An asset's liquidity measures its:

ease and cost of being converted to cash.

High levels of liquidity are most apt to indicate:

inefficient use of assets.