Gitman Testbank - [PDF Document] (2024)

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Multiple Choice Questions
1. Net working capital is defined as
(a) a ratio measure of liquidity best used in cross-sectionalanalysis.
(b) the portion of the firms assets financed with short-termfunds.
(c) current liabilities minus current assets.
(d) current assets minus current liabilities.
Answer: D
2.The portion of a firms current assets financed with long-termfunds may be called
(a) working capital. (b) accounts receivable. (c) net workingcapital. (d) inventory.
Answer: C
3.In working capital management, risk is measured by theprobability that a firm will become
(a) liquid.
(b) technically insolvent.
(c) unable to meet long-term obligations.
(d) less profitable.
Answer: B
4.The conversion of current assets from inventory to receivablesto cash provides the _________ of cash used to pay th
current liabilities, which represents a(n) _________ of cash.(a)outflow; inflow (b) use; source (c) source; use (d) inflow;outflow
Answer: C
5. The goal of working capital management is to
(a) balance current assets against current liabilities.
(b) pay off short-term debts.
(c) achieve a balance between risk and return in order tomaximize the firms value.
(d) achieve a balance between short-term and long-term assets sothat they add to the achievement of the firms overall
goals.
Answer: C
6. Current liabilities can be viewed as
(a) debts due in one year.
(b) debts due in less than a year.
(c) sources of cash inflows.
(d) sources of cash outflows.
Answer: D
7. The most difficult set of accounts to predict are
(a) current assets. (b) current liabilities. (c) fixed assets.(d) long-term debt.
Answer: A
8.Current liabilities are
(a )easy to obtain.(b) lower in cost than long-termliabilities.
(c) tied to the level of fixed assets.(d) a function ofcollection policy.
Answer: B
9. In general, the more working capital a firm has,
(a) the greater its risk.
(b) the lower its risk.
(c) the less likely are creditors to lend to the firm.
(d) the lower its level of long-term funds.
Answer: B
10. A(n) ______in current assets ________net working capital,thereby ________the risk of technical insolvency.
(a) decrease; increases; increasing (b) increase; decreases;increasing
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(c) increase; increases; reducing (d) decrease; decreases;reducing
Answer: C
11. A(n) ______ in current liabilities ________ net workingcapital, thereby ________ the risk of technical insolvency
(a) decrease; increases; increasing
(b) increase; decreases; increasing
(c) increase; increases; reducing
(d) decrease; decreases; reducing
Answer: B
12. When a portion of the firms fixed assets are financed withcurrent liabilities, the firm(a) has positive net workingcapital.
(b) has negative net working capital.
(c) has excessive amounts of current assets.
(d) is in a low-risk position.
Answer: B
13. The purpose of managing current assets and currentliabilities is to
(a) achieve as low a level of current assets as possible.
(b) achieve as low a level of current liabilities aspossible.
(c) achieve a balance between profitability and risk thatcontributes to the firms value.
(d) achieve as high a level of current liabilities aspossible.
Answer: C
14. Relative to cash flows affecting net working capital, all ofthe following are true EXCEPT
(a) cash inflows are generally more predictable than cashoutlays.
(b) cash outlays for current liabilities are relativelypredictable.
(c) the more predictable the cash inflows, the less net workingcapital a firm needs.
(d) because most firms are unable to match cash inflows tooutflows with certainty, current assets that more than cover
outflows for current liabilities are necessary.
Answer: A
15. The firms permanent financing requirement is financed with_________ in the aggressive financing strategy.
(a) long-term sources
(b) short-term sources
(c) retained earnings
(d) accounts payableAnswer: A
16. Most firms employ _________ financing strategy.
(a) an aggressive
(b) a conservative
(c) a trade-off
(d) a seasonal
Answer: C
17. The firms financing requirements can be separated into
(a) current liabilities and long-term funds.
(b) current assets and fixed assets.
(c) current liabilities and long-term debt.
(d) seasonal and permanent.
Answer: D
18. The basic strategies for determining the appropriatefinancing mix are
(a) seasonal and permanent.
(b) short-term and long-term.
(c) aggressive and conservative.
(d) current and fixed.
Answer: C
19. If a firm uses an aggressive financing strategy,
(a) it increases return and increases risk.
(b) it increases return and decreases risk.
(c) it decreases return and increases risk.
(d) it decreases return and decreases risk.
Answer: A
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20. One major risk a firm assumes in an aggressive financingstrategy is
(a) the possibility that collections will be slower thanexpected.
(b) the possibility that long-term funds may not be availablewhen needed.
(c) the possibility that short-term funds may not be availablewhen needed.
(d) the possibility that it will run out of cash.
Answer: C
21. The _________ is the time period that elapses from the pointwhen the firm makes the outlay to purchase raw
materials on account to the point when payment is made to thesupplier of the goods.(a) cash conversion cycle
(b) average payment period
(c) average age of inventory
(d) average collection period
Answer: B
22. When managing inventories, a good strategy is to increaseinventory turnover by doing the following EXCEPT
(a) increase raw materials turnover.
(b) shorten the production cycle.
(c) produce low-cost short cycle goods.
(d) increase finished goods turnover.
Answer: C
23. The basic strategies that should be employed by the businessfirm in managing cash include all of the following
EXCEPT(a)paying accounts payable as late as possible withoutdamaging the firms credit rating.
(b) turning over inventory as quickly as possible, avoidingstockouts.
(c) operating in a fashion that requires maximum cash.
(d) collecting accounts receivable as quickly as possiblewithout damaging customer rapport.
Answer: C
24. The _________ of a firm is the amount of time that elapsesfrom the point when the firm makes an outlay to purcha
raw materials to the point when cash is collected from the saleof the finished good.
(a) cash turnover
(b) cash conversion cycle
(c) average age of inventory
(d) average collection period
Answer: B
25. The _________ of a firm is the amount of time that elapsesfrom the point when the firm inputs material and labor i
the production process to the point when cash is collected fromthe sale of the finished product that contains these
production inputs.
(a) cash conversion cycle
(b) average age of inventory
(c) operating cycle
(d) average collection period
Answer: C
26. A firm has an average age of inventory of 90 days, anaverage collection period of 40 days, and an average paymen
period of 30 days. The firms operating cycle is _________days.
(a) 110 (b) 130 (c) 120 (d) 70Answer: B
27. A firm has an operating cycle of 120 days, an averagecollection period of 40 days, and an average payment period
30 days. The firms average age of inventory is _________days.
(a) 80 (b) 50 (c) 90 (d) 70
Answer: A
28. A firm has a cash conversion cycle of 80 days, an averagecollection period of 25 days, and an average age of
inventory of 70 days. Its operating cycle is _________ days.
(a) 95 (b) 105 (c) 60 (d) 130
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Answer: A
29. A firm has an average age of inventory of 60 days, anaverage collection period of 45 days, and an average paymen
period of 30 days. The firms cash conversion cycle is _________days.
(a) 15 (b) 45 (c) 75 (d) 135
Answer: C
30. A firm has a cash conversion cycle of 120 days, an averagecollection period of 25 days, and an average payment
period of 50 days. The firms average age of inventory is_________ days.(a) 45 (b) 95 (c) 125 (d) 145
Answer: D
31. A firm purchased raw materials on account and paid for themwithin 30 days. The raw materials were used in
manufacturing a finished good sold on account 100 days after theraw materials were purchased. The customer paid for
the finished good 60 days later. The firms cash conversion cycleis _________ days.
(a) 10 (b) 70 (c) 130 (d) 190
Answer: C
32. The _________ is the time period that elapses from the pointwhen the firm uses the raw materials in manufacturin
finished good to the point when the finished good is sold.(a)cash turnover
(b) cash conversion cycle
(c) average age of inventory
(d) average collection period
Answer: C
33. The _________ is the time period that elapses from the pointwhen the firm sells a finished good on account to the
point when the receivable is collected.
(a) cash conversion cycle
(b) average payment period
(c) average age of inventory
(d) average collection period
Answer: D
34. A firm has an average age of inventory of 101 days, anaverage collection period of 49 days, and an average paymeperiod of60 days. The firms cash conversion cycle is
(a) 150 days. (b) 90 days. (c) 112 days. (d) 8 days.
Answer: B
35. A firm can reduce its cash conversion cycle by
(a) increasing the average age of inventory.
(b) increasing the average collection period.
(c) decreasing the average payment period.
(d) increasing the average payment period.
Answer: D
36. A firm with a cash conversion cycle of 175 days can stretchits average payment period from
30 days to 45 days. This will result in a/an
(a) decrease of 15 days in the cash conversion cycle.
(b) increase of 15 days in the cash conversion cycle.
(c) decrease of 30 days in the cash conversion cycle.
(d) increase of 30 days in the cash conversion cycle.
Answer: A
37. A firm has an average age of inventory of 20 days, anaverage collection period of 30 days, and an average paymen
period of 60 days. The firms cash conversion cycle is _________days.
(a) 70 (b) 50 (c)10 (d) 110
Answer: C
38. An increase in the average collection period will result in_________ in the operating cycle.
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(a) an increase
(b) a decrease
(c) an undetermined change
(d) no change
Answer: A
39. An increase in the average payment period will result in_________ in the operating cycle.
(a) an increase
(b) a decrease
(c) an undetermined change
(d) no change
Answer :D
40. A decrease in the average age of inventory will result in_________ in the cash conversion cycle.
(a) an increase
(b) a decrease
(c) an undetermined change
(d) no change
Answer: B
41. An increase in the average payment period will result in_________ in the cash conversion cycle.
(a) an increase
(b) a decrease
(c) an undetermined change
(d) no change
Answer: B
42.A firm has an average age of inventory of 60 days, an averagecollection period of 45 days, and an average paymentperiod of 30days. The firms operating cycle is _________ days.
(a) 75 (b) 105 (c) 90 (d) 135
Answer:B
43. A firm has an operating cycle of 170 days, an averagepayment period of 50 days, and an average age of inventory
145 days. The firms average collection period is _________days.
(a)25 (b)75 (c)95 (d)120
Answer:A
44.A firm has a cash conversion cycle of 60 days and averagecollection period of 40 days. The firms operating cycle i
_________ days.(a)20
(b)100
(c)50
(d)Cannot be determined
Answer:D
45.A firm has an average age of inventory of 101 days, anaverage collection period of 49 days, and an average paymen
period of 60 days. The firms inventory turnover is_________.
(a)3.2 (b)4.0 (c)2.5 (d)3.6
Answer:D
46.The goal of a firms cash management is to
(a)increase the cash conversion cycle.
(b)increase the payment period.
(c)minimize cash requirement.
(d)maximize cash outflows.
Answer:C
47.One way to improve the cash conversion cycle is to
(a)speed up collections.
(b)slow down credit approvals.
(c)reduce inventory turnover.
(d)borrow funds.
Answer:A
48.If a firm increases its current assets relative to totalassets,
(a)it increases return and reduces risk. (b)it increases returnand increases risk.
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(c)it reduces return and reduces risk. (d)it reduces return andincreases risk.
Answer: C
49.A firm with highly unpredictable sales revenue would bestchoose _________ financing strategy to minimize risk.
(a)the aggressive
(b)the conservative
(c)the trade-off
(d)a seasonal
Answer: B
50.Certain financing plans are termed conservativewhen(a)short-term financing is used frequently.
(b)working capital is relatively high.
(c)working capital is relatively low.
(d)risk is increased.
Answer:B
51.An increase in the current asset to total asset ratio has theeffects of _________ on profits and _________ on risk.
(a)an increase; an increase
(b)an increase; a decrease
(c)a decrease; a decrease
(d)a decrease; an increase
Answer:C
52.A decrease in the current asset to total asset ratio has theeffects of _________ on profits and _________ on risk.
(a)an increase; an increase(b)an increase; a decrease
(c)a decrease; a decrease(d)a decrease; an increase
Answer:A
53.An increase in the current liabilities to total assets ratiohas the effects of _________ on profits and _________ on ri
(a)an increase; an increase
(b)an increase; a decrease
(c)a decrease; a decrease
(d)a decrease; an increase
Answer:A
54.A decrease in the current liabilities to total assets ratiohas the effects of _________ on profits and _________ on ris
(a)an increase; an increase
(b)an increase; a decrease
(c)a decrease; a decrease
(d)a decrease; an increaseAnswer:C
55.The aggressive financing strategy results in the firmfinancing its short-term needs with _________ funds and its lon
term needs with _________ funds.
(a)long-term; short-term
(b)short-term; long-term
(c)permanent; seasonal
(d)seasonal; permanent
Answer:B
Irish Air Services has determined several factors relative toits asset and financing mix.
(a)The firm earns 10 percent annually on its current assets.
(b)The firm earns 20 percent annually on its fixed assets.
(c)The firm pays 13 percent annually on current liabilities.
(d)The firm pays 17 percent annually on long-term funds.
(e)The firms monthly current, fixed and total asset requirementsfor the previous year are summarized in the table belo
Table 14.1
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Table 14.1
MonthCurrentAssets
FixedAssets
TotalAssets
January $45,000 $100,000 $145,000
February 40,000 100,000 140,000
March 50,000 100,000 150,000
April 55,000 100,000 155,000
May 60,000 100,000 160,000June 75,000 100,000 175,000
July 75,000 100,000 175,000
August 75,000 100,000 175,000
September 60,000 100,000 160,000
October 55,000 100,000 155,000
November 50,000 100,000 150,000
December 50,000 100,000 150,000
56.The firms monthly average permanent funds requirement is (SeeTable 14.1)
(a)$100,000. (b)$57,500. (c)$140,000. (d)$157,500.
Answer:C
57.The firms monthly average seasonal funds requirement is (SeeTable 14.1)
(a)$17,500. (b)$57,500. (c)$40,000. (d)$157,500.
Answer:A
58.The firms annual financing costs of the aggressive financingstrategy are (See Table 14.1)
(a) $21,175. (b)$26,075. (c)$24,475. (d)$22,775.
Answer:B
59.The firms annual financing costs of conservative financingstrategy are (See Table 14.1)
(a)$22,775. (b)$26,075. (c)$29,750. (d)$21,175.Answer:C
60.The firms annual profits on total assets for the previousyear were (See Table 14.1)
(a)$20,000. (b)$21,500. (c)$23,625. (d)$25,750.
Answer:D
61.If the firms current liabilities in December were $40,000,the net working capital was (See
Table 14.1)
(a)$140,000. (b)$60,000. (c)$10,000. (d)$10,000.
Answer:C
Table 14.2
Flum Packages, Inc.
Assets Liabilities & Equity
Current assets $10,000 Current Liabilities $ 5,000
Fixed assets 20,000 Long-term debt 12,000
Equity 13,000
Total $30,000 Total $30,000
The company earns 5percent on current assets and 15 percent onfixed assets. The firms current liabilities cost 7 perce
to maintain and the average annual cost of long-term funds is 20percent.
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62.The firms initial ratio of current to total asset is_________. (See Table14.2)
(a)1:3 (b)3:1 (c)2:3 (d)3:2
Answer:A
63.The firms initial net working capital is (See Table 14.2)
(a)$ 5,000. (b)$13,000. (c)$ 5,000. (d)$10,000.
Answer:C
64.The firms initial annual profits on total assets are (SeeTable 14.2)(a)$2,500. (b)$3,500. (c)$3,000. (d)$4,500.
Answer:B
65.If the firm was to shift $3,000 of current assets to fixedassets, the firms net working capital would _________, the
annual profits on total assets would _________, and the risk oftechnical insolvency would _________, respectively. (S
Table 14.2)
(a)increase; decrease; increase
(b)decrease; increase; decrease
(c)increase; decrease; decrease
(d)decrease; increase; increase
Answer:D
66.If the firm was to shift $7,000 of fixed assets to currentassets, the firms net working capital would _________, theannualprofits on total assets would _________, and the risk of not beingable to meet current obligations would
_________, respectively. (See Table 14.2)
(a)increase; decrease; increase
(b)decrease; increase; decrease
(c)increase; decrease; decrease
(d)decrease; increase; increase
Answer:C
67.If the firm was to shift $2,000 of current liabilities tolong-term funds, the firms net working capital would
_________, the annual cost of financing would _________, and therisk of technical insolvency would _________,
respectively. (See Table 14.2)
(a)decrease; decrease; increase
(b)increase; increase; decrease
(c)decrease; increase; decrease
(d)increase; decrease; decreaseAnswer:B
68.The firm would like to increase its current ratio. This goalwould be accomplished most profitably by (See Table 14
(a)increasing current liabilities.
(b)decreasing current liabilities.
(c)increasing current assets.
(d)decreasing current assets.
Answer:C
69.In the aggressive financing strategy, a firm anticipating alarge increase in sales should finance the increase in worki
capital with
(a)the sale of common stock.
(b)the sale of a bond issue.
(c) a line of credit.
(d) a long-term note from the bank.Answer: C
70.The aggressive financing strategy is risky in two respects:the firm operates with a low level of _________, and the
firm has only a limited amount of _________ capacity.
(a)current liabilities; short-term borrowing
(b)net working capital; short-term borrowing
(c)current assets; long-term borrowing
(d)net working capital; long-term borrowing
Answer:B
71.The conservative financing strategy results in financing allprojected funds requirements with _________ funds and
use of _________ funds in the event of an unexpected cashoutflow.
See Also
CISCM STUDY GUIDE - Weeblyramsharandhakal.weebly.com/.../ciscmstudyguide9526.pdf · CISCM STUDY GUIDE ©International Purchasing and Supply Chain Management Institute, 2006 1 ... - [PDF Document]Proposed Rules Title 30 US Patent for Computer implemented methods for the automated analysis or use of data, including use of a large language model Patent (Patent # 11,989,527 issued May 21, 2024)Nguyen v. JNK Investments CA6 | California Court of Appeal | 06-30-2015 | www.anylaw.com
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(a)long-term; short-term
(b)short-term; long-term
(c)permanent; seasonal
(d)seasonal; permanent
Answer:A
72.In theory, the conservative financing strategy ignores
(a)all current liabilities.
(b)the spontaneous forms of short-term financing.
(c)current assets.
(d)the high risk associated with this strategy.
Answer:B
73.In economic conditions characterized by a scarcity ofshort-term funds, a firm would best choose the _________
financing strategy.
(a)aggressive (b)conservative (c)permanent (d)seasonal
Answer: B
74.A risk of the _________ financing strategy is unpredictableinterest expense.
(a)aggressive (b)conservative (c)permanent (d)seasonal
Answer:A
75.The _________ financing strategy requires the firm to payinterest on excess funds borrowed but not needed
throughout the entire year.(a)aggressive (b)conservative(c)permanent (d)seasonal
Answer:B
76.The aggressive financing strategy is _________ method whilethe conservative financing strategy is _________
method.
(a)a high-profit, high-risk; a low-profit, low-risk
(b)a high-profit, low-risk; a low-profit, high-risk
(c) a low-profit, high-risk; a high-profit, low-risk
(d) a low-profit, low-risk; a high-profit, high-risk
Answer:A
77. In economic conditions characterized by short-term interestrates which exceed long-term interest rates, the
financing strategy which would maximize profits is _________strategy.(a)the aggressive
(b)the conservative
(c)the trade-off
(d)a seasonal
Answer:B
78. An increase in the average payment period will result in_________ in the operating cycle and _________ in th
cash conversion cycle.
(a)an increase; a decrease
(b)a decrease; a decrease
(c)a decrease; no change
(d)no change; a decrease
Answer:D
79. The difference between the number of days resources are tiedup in the operating cycle and the number of days
the firm can use spontaneous financing before payment is made isthe
(a)cash conversion cycle.
(b)average payment period.
(c)average collection period.
(d)average age of inventory.
Answer:A
80.A decrease in the production time to manufacture a finishedgood will result in ________ in the cash conversion cyc
(a)an increase
(b)a decrease
(c)an undetermined change
(d)no change
Answer:B
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81.A firm has annual operating outlays of $1,800,000 and a cashconversion cycle of 60 days. If the firm currently pays
percent for negotiated financing and reduces its cash conversioncycle to
50 days, the annual savings is
(a)$50,000 (b)$200,000 (c)$ 6,000. (d)$216,000.
Answer:C
82.A firm has a cash conversion cycle of 60 days. Annual outlaysare $12 million and the cost of negotiated financing i
12 percent. If the firm reduces its average age of inventory by10 days, the annual savings is _________.
(a)$104,000 (b)$144,000 (c) $ 28,800 (d)$40,000Answer:D
83.Ideally a firm would like to have a
(a)negative operating cycle.
(b)positive operating cycle.
(c)negative cash conversion cycle.
(d)positive cash conversion cycle.
Answer:C
84.A negative cash conversion cycle
(a)means that the operating cycle exceeds the average paymentperiod.
(b)means that the average payment period exceeds the operatingcycle.
(c)indicates that the firm is shortening its average paymentperiod and lengthening its average collection period.(d)is easy fora manufacturing firm to attain.
Answer:B
85.A firm may have a negative cash conversion cycle if it
(a)carries very little inventory and sells its products on
credit.
(b)carries high inventory and sells its products on credit.
(c)carries very little inventory and sells its products fo
cash.
(d)carries high inventory and sells its products for cas
Answer:C
86.Improvements to cash management include all of the followingEXCEPT a reduction in
(a)the cash turnover.(b)the cash conversion cycle.
(c)the average age of inventory.(d)the average collectionperiod.
Answer:A
87.A firm with a cash conversion cycle of 175 days can stretchits average payment period from
30 days to 45 days. This will result in a(n) _________ in thecash conversion cycle of _________ days.
(a)increase; 15
(b)decrease; 15
(c)increase; 45
(d)decrease; 45
Answer: B
88.A firm with a very low current ratio in comparison to theindustry standard could lower the risk of unavailable short
term funds by moving toward _________ financing strategy.(a)theaggressive
(b)the conservative
(c)a permanent
(d)a seasonal
Answer:B
89.A firm which uses the aggressive financing strategy plans topurchase a major fixed asset financed with a loan. The
most likely consequence of this action is
(a)a decrease in the current ratio.
(b)an increase in net working capital.
(c)a decrease in the risk of technical insolvency.
(d)an increase in long-term debt.
Answer:D
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90.A firm which uses the aggressive financing strategy plans topurchase raw materials in large quantities to take price
discounts. The firm will finance the purchase with a loan. Themost likely consequence of this action is
(a)a decrease in the current ratio.
(b)an increase in net working capital.
(c)an undetermined change in the current ratio.
(d)an increase in long-term debt.
Answer: C
91.The _________ inventory contains the basic components of theproduction process.
(a)raw materials (b)work-in-process (c)finished goods (d)capitalgoods
Answer:A
92.The _________ inventory consists of all items currently inthe production process.
(a)raw materials (b)work-in-process (c)finished goods (d)capitalgoods
Answer:B
93.The _________ inventory consists of items that have beenproduced but not yet sold.
(a)raw materials (b)work-in-process (c)finished goods (d)capitalgoods
Answer:C
94.The three basic types of inventory are all of the followingEXCEPT
(a)raw materials (b)work-in-process (c)finished goods (d)capitalgoodsAnswer:D
95.All of the following managers would like to have largeinventories EXCEPT the _________ manager.
(a)financial (b)marketing (c)manufacturing (d)purchasing
Answer:A
96.The _________ is a technique that divides inventory intothree groups, according to dollar investment.
(a)exponential smoothing technique
(b)ABC system
(c)EOQ model
(d)LIFO model
Answer:B
97.In the ABC system of inventory management, the _________method or system could be utilized to control C items
(a)basic economic order quantity
(b)materials requirement planning
(c)red-line
(d)just-in-time
Answer: C
98.In the ABC system of inventory management, the _________method or system is appropriate for monitoring B item
(a)basic economic order quantity.
(b)materials requirement planning
(c)red-line
(d)just-in-time
Answer:A
99.The _________ is an inventory technique that takes intoaccount various operating and financial costs to determine t
order quantity for a specific inventory item.
(a)exponential smoothing technique
(b)ABC system
(c)EOQ model
(d)LIFO model
Answer:C
100. A computerized inventory system that simulates neededmaterials requirements for the finished product, and th
compares production needs to available inventory balances todetermine when orders should be placed is the
(a)basic economic order quantity system.
(b)materials requirement planning system.
(c)just-in-time system.
(d)red-line method.
Answer:B
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101.The philosophy of the _________ is that the firm would haveonly work-in-process inventory.
(a)basic economic order quantity system
(b)materials requirement planning system
(c)just-in-time system
(d)red-line method
Answer:C
102.The costs associated with inventory can be divided into thefollowing groups EXCEPT
(a)order costs. (b)marginal costs. (c)carrying costs. (d)totalcosts.
Answer:B
103.Inventory insurance costs are an example of _________costs.
(a)order (b)marginal (c)carrying (d)total
Answer:C
104.The _________ uses no, or very little, safety stock.
(a)basic economic order quantity system
(b)materials requirement planning system
(c)just-in-time system
(d)red-line method
Answer:C
105.In the EOQ model, _________ costs are the variable costs perunit of holding an item of inventory for a specified
time period.(a)basic (b)order (c)carrying (d)processing
Answer:C
106.The economic order quantity (EOQ) is the order quantitywhich minimizes
(a)the order cost per order.
(b)the total inventory costs.
(c)the carrying costs per unit per period.
(d)order quantity in units
Answer:B
107.In the EOQ model, if carrying costs increase while all othercosts remain unchanged, the number of orders placed
would be expected to
(a)increase.(b)decrease. (c)remain unchanged.(d)change withoutregard to carrying costs.
Answer:A
108.The _________ is an inventory management technique thatcompares production needs to available inventory
balances and determines when orders should be placed for variousmaterial inputs.
(a)ABC system (b)EOQ model (c)MRP system (d)JIT system
Answer:C
109.The _________ is an inventory management technique thatminimizes inventory investment by having materials
inputs arrive at exactly the time they are needed forproduction.
(a)ABC system (b)EOQ model (c)MRP system (d)JIT system
Answer:D
110.The disposition of the financial manager, marketing manager,and manufacturing manager toward inventory levels
to keep them _________, _________, and _________,respectively.
(a)high; low; high (b)low; high; low (c)low; high; high (d)high;low; low
Answer:C
111.Because managing inventory is just like managing any otherinvestment, decisions about the level of inventory sho
be guided by
(a)the value of the inventory.
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(b)the effect of inventory levels on sales.
(c)a cost-benefit analysis.
(d)the effect of inventory levels on customer relations.
Answer:C
Bowring Ball Bearings has 10 different items in its inventory.The average number of units held in inventory and the
average unit cost are listed for each item. The firm uses an ABCsystem of inventory control
Table 14.3
Average Numberof Units
AverageUnit Cost
1 5,000 $0.05
2 2,000 1.50
3 100 8.50
4 500 45.00
5 650 3.50
6 10,000 100.00
7 5,100 0.25
8 3,100 5.00
9 20 0.7510 1,150 2.00
112.Inventory items that belong in the A category include (SeeTable 14.3)
(a) Items 4 and 6.
(b) Items 1, 6, and 7.
(c) Items 3 and 9.
(d) Items 1 and 7.
Answer:A
113.Inventory items that belong in the C category include (SeeTable 14.3)
(a) Items 4 and 6. (b) Items 1, 6, and 7. (c) Items 1, 3, and 9.(d) Items 1 and 7.
Answer:C
114.In the EOQ model, _________ costs are the fixed clericalcost of writing a purchase order, processing the paper woandverifying the invoice.
(a)basic (b)order (c)carrying (d)processing
Answer:B
115.The Steel Works, Inc. is required to carry a minimum of 40days raw steel, which is 250 tons. It takes 15 days
between order and delivery. At what level of steel would SteelWorks reorder?
(a)3,750 tons (b)600 tons (c)667 tons (d)344 tons
Answer: D
116.The General Chemical Company uses 150,000 gallons ofhydrochloric acid per month. The cost of carrying the
chemical in inventory is 50 cents per gallon per year, and thecost of ordering the chemical is $150 per order. The firmuses thechemical at a constant rate throughout the year. It takes 18 daysto receive an order once it is placed. The reord
point is
(a) 7,500 gallons. (b) 25,000 gallons. (c) 90,000 gallons. (d)105,000 gallons.
Answer:C
117.The General Chemical Company uses 150,000 gallons ofhydrochloric acid per month. The cost of carrying the
chemical in inventory is 50 cents per gallon per year, and thecost of ordering the chemical is $150 per order. The firm
uses the chemical at a constant rate throughout the year. Thechemicals economic order quantity is
(a)32,863 gallons. (b)11,619 gallons.
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(c)9,487 gallons. (d)1,900 gallons.
Answer:A
118.A firms credit _________ provides guidelines for determiningwhether to extend credit to a customer and how mu
credit to extend.
(a)scoring (b)terms (c)policy (d)standards
Answer:C
119._________ is a procedure resulting in a number reflectingthe applicants credit strength, derived as a weightedaverage of thescores obtained on a variety of key financial and creditcharacteristics.
(a) Credit scoring
(b) Aging of receivables
(c) Credit analysis
(d) The economic order quantity model
Answer:A
120.The firms credit _________ defines the minimum criteria forthe extension of credit to a customer.
(a)scoring (b)terms (c)policy (d)standards
Answer:D
121._________ are established to eliminate the necessity ofchecking a major customers credit each time a major
purchase is made.(a)Credit standards (b)Credit policies(c)Credit departments (d)Lines of credit
Answer:D
122._________ is the procedure for evaluating mercantile creditapplicants.
(a)Credit scoring (b)Credit standards (c)Credit policy (d)Creditanalysis
Answer:D
123.A firms _________ specifies the repayment terms required ofall credit customers.
(a) credit scoring (b)credit terms (c)credit policy (d)creditstandards
Answer:B
124.Which of the following is NOT one of the five Cs ofcredit?
(a)character (b)capital (c)capability (d)collateral
Answer:C
125.When the creditworthiness of a customer is established, thefirm will grant that customer
(a)a credit policy. (b)a line of credit. (c)a credit rating.(d)a credit position.
Answer:B
126.The credit applicants _________ is its ability to repay therequested credit.
(a)character (b)capacity (c)capital (d)collateral
Answer:B
127.The credit applicants _________ is the financial strength ofthe applicant as reflected by its ownership position.
(a)character (b)capacity (c)capital (d)collateral
Answer:C
128.The credit applicants _________ is the amount of assets theapplicant has available for use in securing the credit.
(a)character (b)capacity (c)capital (d)collateral
Answer:D
129.The major external sources of credit information are all ofthe following EXCEPT
(a)financial statement. (b)customers. (c)Dun & Bradstreet.(d)bank checking.
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Answer:B
130.A credit manager typically gives primary attention to_________ in extending credit to an applicant.
(a)collateral and capacity
(b)collateral and conditions
(c)character and capacity
(d)character and capital
Answer:C
131.While credit scoring provides sound credit information, itis frequently NOT used in business because
(a)the scoring information is difficult to obtain.(b)scoringstandards are too rigid.
(c)most business transactions involve mercantile credit whichcannot be scored.
(d)mercantile credit decisions are easily quantifiable.
Answer:C
132.The most important of the five Cs of credit are
(a)collateral and capacity.
(b)capital and collateral.
(c)character and capacity.
(d)character and conditions.
Answer: C
133.The credit applicants character includes all of thefollowing EXCEPT(a)moral commitment to pay.
(b)level of liquid assets.
(c)past payment history.
(d)pending legal judgments.
Answer:B
134.As credit standards are relaxed, sales are expected to_________ and the investment in accounts receivable is
expected to _________.
(a)increase; increase (b)increase; decrease (c)decrease;decrease (d)decrease; increase
Answer:A
135.As credit standards are tightened, sales are expected to_________ and the investment in accounts receivable is
expected to _________.(a)increase; increase (b)increase;decrease (c)decrease; decrease (d)decrease; increase
Answer:C
136.The major variables that should be considered whenevaluating proposed changes in credit standards are all of the
following EXCEPT
(a)sales volume.
(b)the investment in accounts receivable.
(c)bad debt expenses.
(d)level of liquid assets.
Answer:D
137.An applicants capacity to repay the requested credit isshown by
(a)financial statement analysis.
(b)bank account balances.
(c)the applicants payment history.
(d)the level of assets the applicant can pledge toward theloan.
Answer:A
138.A firm is analyzing a relaxation of credit standards that isexpected to increase sales 10 percent. The firm is current
selling 400 units at an average sale price per unit of $575, andthe variable cost per unit is $400 at the current sales
volume. The average cost per unit is $425. What is theadditional profit contribution from sales if credit standardsare
relaxed?
(a)$23,000 (b)$16,000 (c)$6,000 (d)$7,000
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Answer:D
139.When should credit standards be relaxed?
(a)When sales are expected to increase.
(b)When costs are expected to decrease.
(c)When costs are expected to increase faster than sales if thestandards are not relaxed.
(d)When the profit contribution from sales is greater than thecost contribution.
Answer:D
Table 14.4
Carens Canoes is considering relaxing its credit standards toencourage more sales. As a result, sales are expected to
increase 15 percent from 300 canoes per year to 345 canoes peryear. The average collection period is expected to incre
to 40 days from 30 days and bad debts are expected to double thecurrent 1 percent level. The price per canoe is $850, t
variable cost per canoe is $650 and the average cost per unit atthe 300 unit level is $700. The firms required return on
investment is 20 percent.
140.What is the firms additional profit contribution from salesunder the proposed relaxation of credit standards? (See
Table 14.4.)
(a)$2,250 (b)$6,750 (c)$9,000 (d)$69,000
Answer:C
141.What is the cost of marginal investments in accountsreceivable under the proposed plan? (See
Table 14.4)
(a)$1,817 (b)$1,867 (c)$1,733 (d)$1,617
Answer:C
142.What is the cost of marginal bad debts under the proposedplan? (See Table 14.4)
(a)$383 (b)$765 (c)$3,315 (d)$5,100
Answer:C
143.What is the net result of implementing the proposed plan?(See Table 14.4)
(b)$3,868 (d)$2,083Answer:A
144. A firm is considering relaxing credit standards, which willresult in annual sales increasing from $1.5 million to
$1.75 million, the cost of annual sales increasing from$1,000,000 to $1,125,000, and the average collection period
increasing from 40 to 55 days. The bad debt loss is expected toincrease from 1 percent of sales to 1.5 percent of sales.
The firms required return on investments is 20 percent. Thefirms cost of marginal investment in accounts receivable
(a)$5,556. (b)$9,943. (c)$12,153. (d)$152,778.
Answer:C
145.A firm is considering relaxing credit standards which willresult in an increase in annual sales from $3 million to
$3.75 million, a decrease in the cost of annual sales from$2,225,000 to $2,000,000, an increase in additionalprofitcontribution from sales of $10,000, and an increase in theaverage collection period of 15 days, from 20 to 35 days. The
bad debt loss is expected to increase from
1 percent to 1.5 percent of sales. The firms required return oninvestments is 15 percent. The net result of the firm
relaxing its credit standards is
(a)$10,000. (b)$16,250. (c)$26,875. (d)$16,875.
Answer:D
146.A firms credit terms cover all of the following EXCEPT
(a)cash discount. (b)cash discount period. (c)credit standards.(d)credit period.
Answer:C
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147.Company _________ are the procedures followed to collectaccounts receivable when they come due.
(a)collection policies (b)credit scorings (c)credit policies(d)credit analyses
Answer:A
148.The most stringent step in the collection process is
(a)letters. (b)personal visits. (c)collection agencies. (d)legalaction.
Answer:D
149.The first step in the collection of overdue accounts is(a) aletter.
(b) contacting a collection agency.
(c) legal actions.
(d) a personal visit.
Answer:A
150.2/15 net 45 translates as
(a)15 percent cash discount if paid in 2 days, net 45-day creditperiod.
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(b)45 percent of account due in 15 days, payment prior to day 15receives a 2 percent discount.
(c)2 percent cash discount if paid prior to 15 days, if customerdoes not take a cash discount, the balance is due in 45 da
(d)2 percent of the balance is due in 15 days, the remainingbalance is due in 45 days.
Answer:C
151.A technique that provides the analyst with the informationconcerning the proportion of each type of account that hbeenoutstanding for a specified period of time is called
(a)credit analysis.
(b)credit scoring.
(c)aging of receivables.
(d)the economic order quantity model.
Answer:C
152.When a firm initiates or increases a cash discount, salesare expected to _________, the investment in accounts
receivable is expected to _________, the bad debt expense isexpected to _________, and the profit per unit is expected
_________.
(a)decrease; increase; increase; increase
(b)decrease; decrease; increase; increase
(c)increase; increase; decrease; decrease
(d)increase; decrease; decrease; decrease
Answer:D
153.When a firm decreases or cancels a cash discount, sales areexpected to _______, the investment in accounts
receivable is expected to _______, the bad debt expense isexpected to ______, and the profit per unit is expected to
________.
(a)decrease; increase; increase; increase
(b)decrease; decrease; increase; increase
(c)increase; increase; decrease; decrease
(d)increase; decrease; decrease; decrease
Answer:A
154.If the cash discount period is increased, the firmsinvestment in accounts receivable due to
non-discount takers now paying earlier is expected to
(a)increase.
(b)decrease.
(c)not change.
(d)change in an undetermined direction.Answer:B
155.If the cash discount period is increased, the firmsinvestment in accounts receivable due to discount takers still
getting cash discounts but paying later is expected to
(a)increase.
(b)decrease.
(c)not change.
(d)change in an undetermined direction.
Answer:A
156.If the firms cash discount period is decreased or cancelled,the sales volume can be expected to _________, the ba
debt expenses can be expected to _________, and the profit perunit can be expected to _________.
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(a)increase; decrease; decrease
(b)increase; increase; decrease
(c)decrease; increase; increase
(d)decrease; decrease; increase
Answer:C
157.If the firms cash discount period is increased, the salesvolume can be expected to _________, the bad debt expen
can be expected to _________, and the profit per unit can beexpected to _________.
(a)increase; decrease; decrease
(b)increase; increase; decrease
(c)decrease; increase; increase
(d)decrease; decrease; increase
Answer:A
158.If the firms credit period is increased, the sales volumecan be expected to _________, the investment in accounts
receivable can be expected to _________, and the bad debtexpenses can be expected to _________.
(a)increase; decrease; decrease
(b)increase; increase; decrease
(c)increase; increase; increase
(d)decrease; decrease; decrease
Answer:C
159.If the firms credit period is decreased, the sales volumecan be expected to _________, the investment in accounts
receivable can be expected to _________, and the bad debtexpenses can be expected to _________.
(a)increase; decrease; decrease
(b)increase; increase; decrease
(c)increase; increase; increase
(d)decrease; decrease; decreaseAnswer:D
A breakdown of Teffan, Inc.s outstanding accounts receivabledated June 30, 2003 on the basis of the month in which
credit sale was initially made follows. The firm extends 30-daycredit terms.
Table 14.5
Monthof Credit Sale
AccountsReceivable
June, 2003 $ 410,000
May, 2003 340,000
April, 2003 270,000March, 2003 200,000
February, 2003 or before 100,000
Total $1,320,000
160. Accounts receivable over 90 days total (See Table 14.5)
(a)$200,000. (b)$470,000. (c)$300,000. (d)$100,000.
Answer: C
161.An evaluation of the firms collection efforts based on theaging schedule would suggest (See
Table 14.5)
(a)poor credit management.
(b)satisfactory credit management.
(c)superior credit management.
(d)overzealous collection efforts.Answer:A
162.An increase in collection efforts will result in _________in sales volume, _________ in the investment in account
receivable, _________ in bad debt expenses, and _________ incollection expenditures.
(a)an increase; a decrease; an increase; a decrease
(b)an increase; a decrease; a decrease; an increase
(c)an increase; a decrease; an increase; an increase
(d)a decrease; a decrease; a decrease; an increase
Answer:D
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163.A decrease in collection efforts will result in _________ insales volume, _________ in the investment in accounts
receivable, _________ in bad debt expenses, and _________ incollection expenditures.
(a)an increase; an increase; an increase; a decrease
(b)an increase; a decrease; an increase; an increase
(c)an increase; a decrease; an increase; a decrease
(d)a decrease; a decrease; a decrease; an increase
Answer:A
164.An increase in accounts receivable turnover due to anincrease in collection efforts will(a)decrease the firms marginalinvestments in accounts receivable.
(b)increase the firms marginal investments in accountsreceivable.
(c)decrease the firms collection expense.
(d)increase the firms bad debt expense.
Answer:A
Table 14.6
Dizzy Animators, Inc. currently makes all sales on credit andoffers no cash discount. The firm is considering a 3 perce
cash discount for payment within 10 days. The firms currentaverage collection period is 90 days, sales are 400 films p
year, selling price is $25,000 per film, variable cost per filmis $18,750 per film, and the average cost per film is $21,00
The firm expects that the change in credit terms will result ina minor increase in sales of 10 films per year, that 75 perc
of the sales will take the discount, and the average collectionperiod will drop to 30 days. The firms bad debt expense i
expected to become negligible under the proposed plan. The baddebt expense is currently 0.5 percent of sales. The firm
required return on equal-risk investments is 20 percent.
165.What is the firms marginal profit contribution from salesunder the proposed plan of initiating the cash discount?
(See Table 14.6)
(a)$22,500 (b)$40,000 (c)$62,500 (d)$100,000
Answer:C
166.What is the marginal investment in accounts receivable underthe proposed plan? (See Table 14.6)
(a)$1,234,375 (b)$1,382,500 (c)$1,567,300 (d)$1,841,570
Answer:A
167.What is the cost of marginal investment in accountsreceivable under the proposed plan? (See
Table 14.6)
(a)$313,460 (b)$276,500 (c)$246,875 (d)$368,314
Answer:C
168.What are the savings of marginal bad debts under theproposed plan? (See Table 14.6)
(a)$500,000 (b)$50,000 (c)$10,000 (d)$5,000
Answer:B
169.What is the cost of the marginal cash discount? (See Table14.6)(a)$768,750 (b)$300,000 (c)$307,500 (d)$230,625
Answer:D
170.What is the net result of increasing the cash discount? (SeeTable 14.6)
(b)$33,750 (d)$58,750
Answer:C
171.When managing accounts payable, a good strategy to employthat wont hurt your creditrating is to
(a)pay early.
(b)pay as late as possible.
(c)never pay.
(d)pay on the due date.
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Answer:B
172.Delaying the payment of accounts payable in order to improvecash management is known as
(a)ruining the firms credit rating.
(b)stretching the payables.
(c)reducing optimal cash requirements.
(d)float.
Answer:B
173.When managing accounts receivable, a good strategy to employwithout losing future sales is to
(a)send the accounts to a collection agency.(b)tighten thecredit terms.
(c)offer cash discount.(d)make frequent personal visits to thecustomer.
Answer:C
174._________ are short-term money market instruments that canbe easily converted into cash.
(a) Preferred stocks
(b) Treasury bonds
(c) Accounts receivable
(d) Marketable securities
Answer:D
175.The depth of a market is determined by
(a)the ability to absorb the purchase or sale of a large numberof securities.
(b)the number of participants.(c)the ability to absorb thepurchase or sale of a large dollar amount of securities.
(d)the safety of principal.
Answer:C
180._________ is a short-term, unsecured promissory note issuedby a corporation with a very high credit standing.
(a)A negotiable certificate of deposit
(b)A repurchase agreement
(c)A money market mutual fund
(d)A commercial paper
Answer:D
181._________ arise from a short-term credit arrangement used bybusinesses to finance transactions involving firms in
foreign countries or firms with unknown creditcapacities.(a)Negotiable certificates of deposit
(b)Eurodollar deposits
(c)Bankers acceptances
(d)Money market mutual funds
Answer: C
183.A _________ is a professionally managed portfolio ofmarketable securities and is sold in fractional parts.
(a)negotiable certificate of deposit
(b)repurchase agreement
(c)money market mutual fund
(d)commercial paper issue
Answer:C
184.The nongovernmental issues typically have slightly higheryields than government issues with similar maturities du
to the slightly _________ associated with them.
(a) higher profitability
(b) higher risk
(c) lower risk
(d) stronger secondary market
Answer:B
186.Funds on deposit at commercial banks having variablematurities and yields based on size, maturity, and prevailing
money market conditions are
(a)negotiable certificates of deposit.
(b)commercial paper.
(c)savings accounts.
(d)money market mutual funds.
Answer:A
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187._________ refers to funds that have been dispatched by apayer but are not in a form that can be spent by the payee
(a) The cash conversion cycle
(b)Float
(c)A direct send
(d) Lockboxes
Answer:B
188._________ float results from the delay between the time whena customer deducts a payment from the checking
account ledger and the time when the vendor actually receivesthe funds in a spendable form.
(a)Mail (b)Processing (c)Collection (d)Disbursem*nt
Answer: C
189._________ float results from the lapse between the time whena firm deducts a payment from its checking account
ledger and the time when funds are actually withdrawn from itsaccount.
(a)Mail (b)Processing (c)Collection (d)Disbursem*nt
Answer:D
190.The basic components of collection float include all of thefollowing EXCEPT _________ float.
(a)mail (b)processing (c)clearing (d)disbursem*nt
Answer:D
191._________ float is the time that elapses between the depositof a check by the payee and the actual availability offunds. Thiscomponent is attributable to the time required for a check to gothrough the banking system.
(a)Mail (b)Processing (c)Clearing (d)Disbursem*nt
Answer:C
192.A customer sends payment to a post office box which isemptied by the firms bank daily. The bank then processes
the payments and notifies the firm of the days collections. Thiscollection technique is known as
(a)a direct send.
(b)concentration banking.
(c)the lockbox system.
(d)controlled disbursing.
Answer: C
193._________ float is the delay between the receipt of a checkand the actual deposit of it into the firms account.(a)Disbursem*nt(b)Deposit (c)Processing (d)Clearing
Answer: C
194.Disbursem*nt float has all of the following basic componentsEXCEPT
(a)mail. (b)processing. (c)collection. (d)clearing
Answer:C
195.A_________ is an unsigned check drawn on one of the firmsbank accounts and deposited into its account at anot
bank.
(a)direct send
(b)wire transfer
(c)depository transfer check
(d)preauthorized check
Answer:C
196.A_________ is a telegraphic communication that, viabookkeeping entries, removes funds from the payers bank a
deposits them in an account of the payees bank.
(a)direct send
(b)wire transfer
(c)depository transfer check
(d)preauthorized check
Answer:B
197._________ involves the strategic use of mailing points andbank accounts to lengthen mail and clearing floats.
(a)A direct send (b)Concentration banking
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(c)A lockbox (d)Controlled disbursing
Answer:D
198._________ is a method of consciously anticipating the mail,processing, and clearing time involved with the paym
process.
(a)Controlled disbursing
(b)Concentration banking
(c)Playing the float
(d)An overdraft system
Answer:C
199.A _________ is not a specific security but an arrangementwhereby a bank or security dealer sells specific marketa
securities to a firm and agrees to repurchase the securities inthe future.
(a)negotiable certificate of deposit
(b)repurchase agreement
(c)money market mutual fund
(d)commercial paper issue
Answer:B
200.The yield on commercial paper is generally higher than theyield on
(a) negotiable CDs. (b) a corporate bond. (c) common stock. (d)a Treasury bill.
Answer:D
201.Each of the following instruments demonstrates the safety ofprincipal characteristic common to marketable securiEXCEPT
(a) Treasury bills.
(b) Treasury notes.
(c) bankers acceptances.
(d) common stock
Answer:D
202.The ease of salability of marketable securities refersto
(a) safety of return. (b) safety of principal. (c) safety ofmaturity. (d) risk of payments.
Answer:B
204.Sound cash management techniques would support
(a)minimizing collection float, maximizing disbursem*nt float,and minimizing the cash conversion cycle.(b)minimizing collectionfloat, maximizing disbursem*nt float, and minimizing the cashturnover.
(c)maximizing collection float, minimizing disbursem*nt float,and minimizing operating cash.
(d)minimizing collection float, maximizing disbursem*nt float,and maximizing operating cash.
Answer:A
205.A firm expects to have funds of $150,000 idle for 60 days.If the firm could purchase marketable securities yieldin
10 percent and pay brokerage fees of $1,500, the firm
(a)should make the investment since interest earned exceedsbrokerage fees.
(b)should not make the investment since brokerage fees exceedinterest earned.
(c)should leave the $150,000 in cash.
(d)should invest the funds for more than 60 days due to thefavorable rate.Answer:A
209.A firm has arranged for a lockbox system to reducecollection time of accounts receivable. Currently the firm hasa
average collection period of 43 days, an average age ofinventory of 50 days, and an average payment period of 10 day
The lockbox system will reduce the average collection period by3 days by reducing processing, mail, and clearing floa
The firms cash conversion cycle _________.
(a) increases by 3 days (b) decreases by 3 days (c) will notchange (d) is 93 days
Answer:B
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210.A popular extension of materials requirement planning thatintegrates data from numerous areas such as accountin
finance, engineering, and manufacturing using a sophisticatedcomputer system is called
(a)computerized materials integration II.
(b)manufacturing resource planning II.
(c)inventory allocation planning II.
(d)none of the above.
Answer:B
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. Minny Fishing Products is analyzing the performance of itscash management. On the average, the firm holdsinventory 65 days,pays its suppliers in 35 days, and collects its receivables in 15days. The firm has a currentannual outlay of $1,960,000 onoperating cycle investments. Minny currently pays 10 percent forits negotiatedfinancing. (Assume a 360 day year.)
(a) Calculate the firms cash conversion cycle.
(b) Calculate the firms operating cycle.
(c) Calculate the daily expenditure and the firms annual savingsif the operating cycle is reduced by 15 days.
Answers:
(a) CCC 65 1535 45
(b) OC 65 15 80
(c) Daily expenditure $1,960,000/360 $5,444.44
Annual savings $5,444.44 15 0.10 $8,167
2. A firm has arranged for a lockbox system to reduce collectiontime of accounts receivable. Currently the firm haaveragecollection period of 43 days, an average age of inventory of 50days, and an average payment period of 1days. The lockbox systemwill reduce the average collection period by three days by reducingprocessing, mail, aclearing float. The firm has total annualoutlays of $15,000,000 and currently pays 9 percent for itsnegotiatedfinancing.
(a) Calculate the cash conversion cycle before and after thelockbox system.
(b) Calculate the savings in financing costs from the lockboxsystem.Answers:
(a) CCC before lockbox 43 5010 83
CCC after lockbox 40 5010 80
(b) $15,000,000/360 $41,666.67 per day 3 0.09 $11,2503. LigureJewelers has seasonal financing needs that vary from $250,000 to$2,725,000. The permanent financing
requirement is $4,100,000. Check the appropriate box indicatingthe better strategy for each of the following eve
EventAggressiveFinancingStrategy
ConservativeFinancingStrategy
1. Due to high
inflation, short-term interest rates
are much higher than
long-term rates.
2. Sales revenue is
unpredictable.
3. The firm has a
large proportion
of its assets in
fixed assets.
4. The average
seasonal financing
need is $1,000,000.
5. The average
seasonal financing
need is $2,000,000.
Answer:
EventAggressive
Financing StrategyConservative
Financing Strategy
1. Due to high X
inflation, short-
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term interest rates
are much higher than
long-term rates.
2. Sales revenue is X
unpredictable.
3. The firm has a X
large proportion
of its assets in
fixed assets.4. The average X
seasonal financing
need is $1,000,000.
5. The average X
seasonal financing
need is $2,000,000.
Table 14.7
Ace Business Forms
MonthCurrentAssets
FixedAssets
TotalAssets
January $125,000 $250,000 $375,000February 130,000 250,000380,000
March 135,000 250,000 385,000
April 150,000 250,000 400,000
May 150,000 250,000 400,000
June 125,000 250,000 375,000
July 115,000 250,000 365,000
August 120,000 250,000 370,000
September 115,000 250,000 370,000
October 100,000 250,000 350,000
November 110,000 250,000 360,000December 115,000 250,000365,000
4. Ace Business Forms has compiled several factors relative toits financing mix. The firm pays8 percent on short-term funds and10 percent on long-term funds. The firms monthly current, fixed andtotal assrequirements for the previous year are summarized in Table14.7.
Determine:
(a) the monthly average permanent funds requirement
(b) the monthly average seasonal funds requirement
(c) the annual financing costs (aggressive strategy)
(d) the annual financing costs (conservative strategy)
Answers:(a) $350,000(b)
MonthTotalAssets
PermanentRequirement
SeasonalRequirement
January $375,000 $350,000 $25,000
February 380,000 350,000 30,000
March 385,000 350,000 35,000
April 400,000 350,000 50,000
May 400,000 350,000 50,000
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June 375,000 350,000 25,000
July 365,000 350,000 15,000
August 370,000 350,000 20,000
September 370,000 350,000 15,000
October 350,000 350,000 0
November 360,000 350,000 10,000
December 365,000 350,000 15,000
Monthly Average $24,167
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(c)
$350,000 (0.10) $35,000
24,167 (0.08) 1,933
Total financing cost $36,933
(Aggressive strategy)
(d) Total financing cost (Conservative strategy) $400,000 (0.10)$40,000
5. Ace Business Forms pays 8 percent on short-term funds and 10percent on long-term funds. Determine its annuafinancing costsusing the trade-off strategy described: Ace Business Forms hasseasonal financing requirementsranging from zero to $50,000 permonth. Based on this range, the firm has decided to finance $25,000per monththe seasonal funds with long-term debt and the rest of theseasonal funds with short-term debt. The permanent furequirementwill be financed with long-term funds. (See Table 14.7)
Answer: Trade-off strategy annual financing costs:
($350,000 $25,000) (0.10) $37,500
($ 5,417) (0.08) 433
$37,933
6. Studio One, a dealer in contemporary art, has forecasted itsseasonal financing needs for the next six months asfollows:
Month Seasonal Requirement
January $1,450,000
February 1,895,000
March 2,000,000
April 1,575,000
May 1,342,000
June 1,562,000
(a) The firm projects short-term funds will cost 11 percent andlong-term funds will cost 13 percent annually.(b) The firmspermanent funds requirement is $500,000.
Calculate financing costs for the first six months using theaggressive and conservative strategies.
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Answer: Average monthly seasonal funds requirement:
$9,824,000/6 $1,637,333
Aggressive strategy:
$1,637,333 (0.11/2) $ 90,053
500,000 (0.13/2) 32,500
$122,553
Conservative strategy:$2,500,000 (0.13/2) $162,500
7. Tims Sons Company is interested in making sure they haveenough money to finance their assets. The companycurrent assets andfixed assets for the months of January through December are givenin the following table.
Month Current Assets Fixed Assets Total Assets
January $60,000 $70,000 $130,000
February 58,000 70,000 128,000
March 55,000 70,000 125,000
April 47,000 70,000 117,000
May 40,000 70,000 110,000
June 41,000 70,000 111,000
July 40,000 70,000 110,000
August 37,000 70,000 107,000
September 38,000 70,000 108,000
October 33,000 70,000 103,000
November 40,000 70,000 110,000
December 50,000 70,000 120,000
(a) Find the average monthly seasonal and permanent fundsrequirement.
(b) What is the total cost of financing under the aggressive andconservative strategies. Assume short-term fund
costs 4.5 percent and the interest rate for long-term funds is12 percent.(c) Find the net working capital under the aggressiveand conservative strategies.
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Answers:
MonthCurrentAssets
FixedAssets
TotalAssets
PermanentRequirement
SeasonalRequirement
January $60,000 $70,000 $130,000 $103,000 $27,000
February 58,000 70,000 128,000 $103,000 25,000
March 55,000 70,000 125,000 $103,000 22,000
April 47,000 70,000 117,000 $103,000 14,000
May 40,000 70,000 110,000 $103,000 7,000June 41,000 70,000111,000 $103,000 8,000
July 40,000 70,000 110,000 $103,000 7,000
August 37,000 70,000 107,000 $103,000 4,000
September 38,000 70,000 108,000 $103,000 5,000
October 33,000 70,000 103,000 $103,000 0
November 40,000 70,000 110,000 $103,000 7,000
December 50,000 70,000 120,000 $103,000 17,000
$143,000
(a) Monthly permanent requirement $103,000
Average seasonal requirement 143,000/12 $11,916.67
(b) Aggressive:
Total costs 11,916.67 0.045 103,000 0.12 $12,896.25
Conservative:
Total costs 103,000 0.12 $15,600
(c) Net Working Capital:
Aggressive Strategy: $33,000Conservative Strategy: $60,000
8. Sansatrip Products has ten different items in its finishedgoods inventory. The average number of units held in
inventory and the average unit cost are listed for each item.The firm uses an ABC system of inventory control.
ItemAverage Number
of Units in InventoryAverage Cost
Per Unit
1 3,000 $1.50
2 500 10.00
3 4,000 12.00
4 50 40.00
5 10,000 5.00
6 340 15.00
7 1,500 3.00
8 460 30.00
9 2,500 25.00
10 390 4.10
(a) Which items should be considered to be in the A category ofan ABC system of inventory?
(b) Which items should be considered to be in the B category ofan ABC system of inventory?
Answers:
ItemAverage Cost
Per UnitAverage Number
of Units in InventoryAverage
Investment
1 $1.50 3,000 $ 4,500
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2 10.00 500 5,000
3 12.00 4,000 48,000
4 40.00 50 2,000
5 5.00 10,000 50,000
6 15.00 340 5,100
7 3.00 1,500 4,500
8 30.00 460 13,800
9 25.00 2,500 62,50010 4.10 390 1,599
Total $196,999
(a) Items 3, 5, and 9 should be considered in the A category.(b)Item 10 clearly belongs to the C category. All the rest of theinventory items have about an equal
investment and most likely belong in the B category.
9. Contex, Inc. uses 800 units of a product per year on acontinuous basis. The product has carrying costs of $50 peunit peryear and order costs of $300 per order. It takes 30 days to receivea shipment after an order is placed andthe firm requires a safetystock of 5 days usage in inventory.
(a) Calculate the economic order quantity (EOQ).
(b) Determine the reorder point.
Answers:
(a) EOQ (2 800 $300)/50 98 units
(b) Reorder point [30 days (800/360)] [5 (800/360)] 66.7 11.1177.8178 units10. Sharons Apple Farm uses 12,600 baskets a year forapple shipment. Determine the optimum order quantity of
baskets assuming the order costs per order is $600 and it costs$2 to carry a unit of basket in inventory per period
Answer: EOQ (2 12,600 $600)/2 2,750 units
11. Sharon uses 35 baskets each day to pack apples for shipping.It takes 5 days to receive a shipment of baskets aftean order isplaced and she would like a safety stock of 3 days in inventory. Atwhat level of inventory shouldSharon place an order forbaskets?
Answer: Reorder point 5 35 3 35 280 units
12. Data products, Inc., uses 2,400 units of a product per yearon a continuous basis. The product carrying costs are $per year andordering costs are $250 per order. It takes 20 days to receive ashipment after an order is placed andfirm requires a safety stockof 8 days of usage in inventory.
(a) Calculate the economic order quantity (round up to thenearest whole unit).
(b) Calculate the total cost per year to order and carry thisitem.
(c) Their supplier has notified the company that if theyincrease their order quantity by 58 units they will give thcompanya discount. Calculate the dollar discount that the company willhave to give Dataproducts to result net benefit to the company.
Answers:
(a) EOQ (2 2, 400 250)/60 142 units
(b) Total cost (2,400/142)($250) (142/2)($60) $8,485
(c) Total cost at new level (2,400/200)($250) (200/2)($60)$9,000
The yearly discount will have to be at least $515 ($9,000$8,485)to make the decision neutral; over $5to result in a net benefit tothe company.
13. Nellies Finery
Credit Scoring Policy
Financial andCredit Characteristics
PredeterminedWeight
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Credit references 0.25
Education 0.05
Home ownership 0.15
Income range 0.30
Payment history 0.15
Years on job 0.10
Financial and
Credit Characteristics Applicant A Applicant B
Credit references 90 70
Education 80 95
Home ownership 70 50
Income range 50 95
Payment history 75 70
Years on job 80 70
Nellies Finery uses the credit scoring technique to evaluateretail applications. The financial and creditcharacteristicsconsidered and weights indicating their relative importance in thecredit decision are shown aboveThe firms credit standards are toaccept all applicants with credit scores of 85 or more, to extendlimited credit to
applicants with scores ranging from 75 to 84, and to reject allapplicants below 75. The firm is currently processitwo applicants.The scores of each applicant on each of the financial and creditcharacteristics are summarizedabove. Would you recommend either ofthese applicants for credit extension?
Answer: Applicant As credit score 71.25
Applicant Bs credit score 75.75Reject Applicant A and acceptApplicant B on a limited basis.
14. Krug Gold Coin, Inc. is considering shortening its creditperiod from 30 days to 20 days and believes, as a result thischange, its average collection period will decrease from 36 days to30 days. Bad debt expenses are alsoexpected to decrease from 1.2percent to 0.8 percent of sales. The firm is currently selling300,000 units butbelieves as a result of the change, sales willdecline to 275,000 units. On 300,000 units, sales revenue is$4,200,0variable costs total $3,300,000, and fixed costs are$300,000. The firm has a required return on similar-risk
investments of 15 percent. Evaluate this proposed change andmake a recommendation to the firm.Answer: 300,000275,000 25,000units decline in sales
Price P 4,200,000/300,000 $14
Variable cost per unit v 3,300,000/300,000 $11
Reduction in profit contribution from decline in sales
(300,000275,000 units)(1411) $75,000
Cost of marginal investment in A/R:
Turnover of A/R with proposed plan 360/30 12
Average investment with proposed plan (275,000)(11)
$252,08312
Turnover of A/R with present plan 360/36 10
Average investment with proposed plan (300,000)(11)
$330,00010
Marginal investment in A/R $ 77,917
Reduction in cost of marginal investment in A/R 77,917 (0.15)$11,687
Reduction in marginal bad debts:
Bad debts with proposed plan (0.012)(4,200,000) $50,400
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Bad debts with present plan (0.008)(275,000)(14) $30,800
Net loss from implementation of proposed plan $19,600
Do not recommend. $43,71315. Brunswick Ad Agencys accountsreceivable totaled $451,000 on January 30, 2003. An aging summaryof
receivables at this date follows:
End of Month Amount
January, 2003 $250,000December, 2002 100,000
November, 2002 50,000
October, 2002 30,000
September, 2002 before 21,000
Total $451,000
The firm extends 30-day credit terms to all its creditcustomers.
(a) Prepare an aging schedule for Brunswick Ad Agency.
(b) Evaluate the firms collection performance.
Answers:(a)
Aging Schedule
030 days 3160 6190 91120 121 and Above
$250,000 100,000 50,000 30,000 21,000
55% 22% 11% 7% 5%
(b) 45 percent of the firms receivables are overdue (greaterthan 30 days). Improvement is needed incollections or some otherarea of credit policy (credit standards or credit terms).
16. Landrum Distributing, Inc. has completed an analysis ofcheck-clearing times of five key suppliers. On a weekly
basis, the firm has a $50,000 check disbursed to each of thesesuppliers, totaling $250,000. In examining the checlearing times ofeach supplier, the firm revealed:
Number of Business Daysfor Check to Clear Supplier
3 1
5 2
6 3
7 4
8 5
Given this information, what recommendation would you give thefirm with respect to paying its suppliers weekl
Explain.
Answer:
Deposit: $50,000 on day 3 to cover Supplier 1
$50,000 on day 5 to cover Supplier 2
$50,000 on day 6 to cover Supplier 3
$50,000 on day 7 to cover Supplier 4
$50,000 on day 8 to cover Supplier 5
The financial manager should monitor clearings by calling thebank at the start of the business day.
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17. Dons Sons Company has been offered by its bank to manage itscash at a cost of $35,000 per year. Under theproposed cashmanagement, the firm can reduce the cash required on hand by$180,000. Since the bank is alsodoing a lot of record keeping, thefirms administrative cost would decrease by $2,000 per month.Whatrecommendation would you give the firm with respect to theproposed cash management assuming the firmsopportunity cost is 12percent?
Answers:
Additional benefit from reduced required cash
$180,000 0.12 $21,600
Reduction in administrative costs $2,000 12 $24,000
Total Benefit $45,600
Less: Cost (Banks fee) $35,000
Additional benefit $10,600
Since benefits ($45,600) are greater than costs ($35,000), thefirm should accept the proposed cashmanagement.
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Answer: Average monthly seasonal funds requirement:
$9,824,000/6 $1,637,333
Aggressive strategy:
$1,637,333 (0.11/2) $ 90,053
500,000 (0.13/2) 32,500
$122,553
Conservative strategy:$2,500,000 (0.13/2) $162,500
7. Tims Sons Company is interested in making sure they haveenough money to finance their assets. The companycurrent assets andfixed assets for the months of January through December are givenin the following table.
Month Current Assets Fixed Assets Total Assets
January $60,000 $70,000 $130,000
February 58,000 70,000 128,000
March 55,000 70,000 125,000
April 47,000 70,000 117,000
May 40,000 70,000 110,000
June 41,000 70,000 111,000
July 40,000 70,000 110,000
August 37,000 70,000 107,000
September 38,000 70,000 108,000
October 33,000 70,000 103,000
November 40,000 70,000 110,000
December 50,000 70,000 120,000
(a) Find the average monthly seasonal and permanent fundsrequirement.
(b) What is the total cost of financing under the aggressive andconservative strategies. Assume short-term fund
costs 4.5 percent and the interest rate for long-term funds is12 percent.(c) Find the net working capital under the aggressiveand conservative strategies.
Answers:
MonthCurrentAssets
FixedAssets
TotalAssets
PermanentRequirement
SeasonalRequirement
January $60,000 $70,000 $130,000 $103,000 $27,000
February 58,000 70,000 128,000 $103,000 25,000
March 55,000 70,000 125,000 $103,000 22,000
April 47,000 70,000 117,000 $103,000 14,000
May 40,000 70,000 110,000 $103,000 7,000
June 41,000 70,000 111,000 $103,000 8,000July 40,000 70,000110,000 $103,000 7,000
August 37,000 70,000 107,000 $103,000 4,000
September 38,000 70,000 108,000 $103,000 5,000
October 33,000 70,000 103,000 $103,000 0
November 40,000 70,000 110,000 $103,000 7,000
December 50,000 70,000 120,000 $103,000 17,000
$143,000
(a) Monthly permanent requirement $103,000
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Average seasonal requirement 143,000/12 $11,916.67
(b) Aggressive:
Total costs 11,916.67 0.045 103,000 0.12 $12,896.25
Conservative:
Total costs 103,000 0.12 $15,600
(c) Net Working Capital:
Aggressive Strategy: $33,000
Conservative Strategy: $60,000
8. Sansatrip Products has ten different items in its finishedgoods inventory. The average number of units held ininventory andthe average unit cost are listed for each item. The firm uses anABC system of inventory control.
ItemAverage Number
of Units in InventoryAverage Cost
Per Unit
1 3,000 $1.50
2 500 10.00
3 4,000 12.00
4 50 40.00
5 10,000 5.00
6 340 15.007 1,500 3.00
8 460 30.00
9 2,500 25.00
10 390 4.10
(a) Which items should be considered to be in the A category ofan ABC system of inventory?
(b) Which items should be considered to be in the B category ofan ABC system of inventory?
Answers:
Item
Average Cost
Per Unit
Average Number
of Units in Inventory
Average
Investment1 $1.50 3,000 $ 4,500
2 10.00 500 5,000
3 12.00 4,000 48,000
4 40.00 50 2,000
5 5.00 10,000 50,000
6 15.00 340 5,100
7 3.00 1,500 4,500
8 30.00 460 13,800
9 25.00 2,500 62,500
10 4.10 390 1,599
Total $196,999
(a) Items 3, 5, and 9 should be considered in the A category.(b)Item 10 clearly belongs to the C category. All the rest of theinventory items have about an equal
investment and most likely belong in the B category.
9. Contex, Inc. uses 800 units of a product per year on acontinuous basis. The product has carrying costs of $50 peunit peryear and order costs of $300 per order. It takes 30 days to receivea shipment after an order is placed andthe firm requires a safetystock of 5 days usage in inventory.
(a) Calculate the economic order quantity (EOQ).
(b) Determine the reorder point.
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Answers:
(a) EOQ (2 800 $300)/50 98 units
(b) Reorder point [30 days (800/360)] [5 (800/360)] 66.7 11.1177.8178 units10. Sharons Apple Farm uses 12,600 baskets a year forapple shipment. Determine the optimum order quantity of
baskets assuming the order costs per order is $600 and it costs$2 to carry a unit of basket in inventory per period
Answer: EOQ (2 12,600 $600)/2 2,750 units
11. Sharon uses 35 baskets each day to pack apples for shipping.It takes 5 days to receive a shipment of baskets afte
an order is placed and she would like a safety stock of 3 daysin inventory. At what level of inventory shouldSharon place anorder for baskets?
Answer: Reorder point 5 35 3 35 280 units
12. Data products, Inc., uses 2,400 units of a product per yearon a continuous basis. The product carrying costs are $per year andordering costs are $250 per order. It takes 20 days to receive ashipment after an order is placed andfirm requires a safety stockof 8 days of usage in inventory.
(a) Calculate the economic order quantity (round up to thenearest whole unit).
(b) Calculate the total cost per year to order and carry thisitem.
(c) Their supplier has notified the company that if theyincrease their order quantity by 58 units they will give thcompanya discount. Calculate the dollar discount that the company willhave to give Dataproducts to result
net benefit to the company.Answers:
(a) EOQ (2 2, 400 250)/60 142 units
(b) Total cost (2,400/142)($250) (142/2)($60) $8,485
(c) Total cost at new level (2,400/200)($250) (200/2)($60)$9,000
The yearly discount will have to be at least $515 ($9,000$8,485)to make the decision neutral; over $5to result in a net benefit tothe company.
13. Nellies Finery
Credit Scoring Policy
Financial andCredit Characteristics PredeterminedWeight
Credit references 0.25
Education 0.05
Home ownership 0.15
Income range 0.30
Payment history 0.15
Years on job 0.10
Financial andCredit Characteristics Applicant A Applicant B
Credit references 90 70Education 80 95
Home ownership 70 50
Income range 50 95
Payment history 75 70
Years on job 80 70
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Nellies Finery uses the credit scoring technique to evaluateretail applications. The financial and creditcharacteristicsconsidered and weights indicating their relative importance in thecredit decision are shown aboveThe firms credit standards are toaccept all applicants with credit scores of 85 or more, to extendlimited credit toapplicants with scores ranging from 75 to 84, andto reject all applicants below 75. The firm is currentlyprocessitwo applicants. The scores of each applicant on each of thefinancial and credit characteristics are summarizedabove. Would yourecommend either of these applicants for credit extension?
Answer: Applicant As credit score 71.25
Applicant Bs credit score 75.75
Reject Applicant A and accept Applicant B on a limited basis.14.Krug Gold Coin, Inc. is considering shortening its credit periodfrom 30 days to 20 days and believes, as a result
this change, its average collection period will decrease from 36days to 30 days. Bad debt expenses are alsoexpected to decreasefrom 1.2 percent to 0.8 percent of sales. The firm is currentlyselling 300,000 units butbelieves as a result of the change, saleswill decline to 275,000 units. On 300,000 units, sales revenue is$4,200,0variable costs total $3,300,000, and fixed costs are$300,000. The firm has a required return on similar-riskinvestmentsof 15 percent. Evaluate this proposed change and make arecommendation to the firm.
Answer: 300,000275,000 25,000 units decline in sales
Price P 4,200,000/300,000 $14
Variable cost per unit v 3,300,000/300,000 $11
Reduction in profit contribution from decline in sales
(300,000275,000 units)(1411) $75,000
Cost of marginal investment in A/R:
Turnover of A/R with proposed plan 360/30 12
Average investment with proposed plan (275,000)(11)
$252,08312
Turnover of A/R with present plan 360/36 10
Average investment with proposed plan (300,000)(11)
$330,00010
Marginal investment in A/R $ 77,917
Reduction in cost of marginal investment in A/R 77,917 (0.15)$11,687
Reduction in marginal bad debts:
Bad debts with proposed plan (0.012)(4,200,000) $50,400
Bad debts with present plan (0.008)(275,000)(14) $30,800
Net loss from implementation of proposed plan $19,600
Do not recommend. $43,71315. Brunswick Ad Agencys accountsreceivable totaled $451,000 on January 30, 2003. An aging summaryof
receivables at this date follows:
End of Month Amount
January, 2003 $250,000
December, 2002 100,000
November, 2002 50,000
October, 2002 30,000
September, 2002 before 21,000
Total $451,000
The firm extends 30-day credit terms to all its creditcustomers.
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(a) Prepare an aging schedule for Brunswick Ad Agency.
(b) Evaluate the firms collection performance.
Answers:
(a)
Aging Schedule
030 days 3160 6190 91120 121 and Above
$250,000 100,000 50,000 30,000 21,000
55% 22% 11% 7% 5%
(b) 45 percent of the firms receivables are overdue (greaterthan 30 days). Improvement is needed incollections or some otherarea of credit policy (credit standards or credit terms).
16. Landrum Distributing, Inc. has completed an analysis ofcheck-clearing times of five key suppliers. On a weeklybasis, thefirm has a $50,000 check disbursed to each of these suppliers,totaling $250,000. In examining the checlearing times of eachsupplier, the firm revealed:
Number of Business Daysfor Check to Clear Supplier
3 1
5 2
6 3
7 4
8 5
Given this information, what recommendation would you give thefirm with respect to paying its suppliers weeklExplain.
Answer:
Deposit: $50,000 on day 3 to cover Supplier 1
$50,000 on day 5 to cover Supplier 2
$50,000 on day 6 to cover Supplier 3
$50,000 on day 7 to cover Supplier 4
$50,000 on day 8 to cover Supplier 5
The financial manager should monitor clearings by calling thebank at the start of the business day.
17. Dons Sons Company has been offered by its bank to manage itscash at a cost of $35,000 per year. Under theproposed cashmanagement, the firm can reduce the cash required on hand by$180,000. Since the bank is alsodoing a lot of record keeping, thefirms administrative cost would decrease by $2,000 per month.Whatrecommendation would you give the firm with respect to theproposed cash management assuming the firmsopportunity cost is 12percent?
Answers:
Additional benefit from reduced required cash$180,000 0.12$21,600
Reduction in administrative costs $2,000 12 $24,000
Total Benefit $45,600
Less: Cost (Banks fee) $35,000
Additional benefit $10,600
Since benefits ($45,600) are greater than costs ($35,000), thefirm should accept the proposed cashmanagement.