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Exam 7: Current Asset Management

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Question 41

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Every message routed through SWIFT is encrypted and every money transaction is authorized by another code for security purposes.

A) True
B) False

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verified

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Question 42

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Seasonal production allows for maximum efficiency in machinery and manpower use.

A) True
B) False

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Question 43

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Maintaining a safety stock will always guard against an "EOQ point" from occurring.

Warren Enterprises expects 20,000 unit sales, has ordering costs of $20 per order, carrying costs of $1.00 per unit, and desires to keep 100 units in safety stock. Assuming level production, what should be their average inventory?

The difference between the amount of cash on the firm's books and the amount credited to it by its bank is

All of the following are methods of controlling receivables except

Certificates of deposit purchased in small denominations of $1,000 at commercial banks or savings and loan organizations are readily marketable.

How will widespread adoption of electronic funds transfer affect the use of "float"?

The most subjective and also significant segment of the 5 Cs of credit for giving final approval is

The "SWIFT" transfer system was developed to aid regional bank fund transfers within the United States.

One of the first considerations in cash management is

Cash flow does not rely on which of the following?

When considering risk and popularity, banker's acceptances rank behind Treasury bills and commercial paper as a vehicle for short-term investments.

Companies that are mostly influenced by seasonal sales have to make a choice between

Stretching out the maturity of marketable securities can rarely result in a loss.

Tanner Co. is a highly successful supplier of leather to manufacturers of leather goods. Tanner is considering expanding into the U.S. luxury auto seat market. It is estimated that although selling leather to U.S. auto manufacturers will bring additional annual sales of $1,000,000, a high 15% of those accounts will be uncollectible. The cost of conditioning and selling the leather is 70% of sales. Tanner's tax rate is 30%. a) Calculate Tanner's incremental net income on the new sales. b) Assume Tanner has a receivables turnover of 4. Calculate Tanner's incremental accounts receivable investment and after-tax return on that investment. c) Tanner's minimum required ROI is 15%. Should Tanner expand into the auto market?

Which of the following is not a valid reason for holding cash?

Proper management of sales, receivables, payables, and inventory form the basis of cash flow.

Cost savings from JIT inventory management include(s)

If a firm averages $2,000 in daily credit sales and offers 60-day terms, the average accounts receivable balance will be $120,000. Avg. A/R = Daily credit sales × Credit terms $120,000 = $2,000 × 60 days