Question 1

Which of the following is not true of ﬂoat management?

Accepted Answer

A)  Float management involves controlling the collection and disbursement of cash.
B)  An objective of ﬂoat management is to speed up the collection ﬂoat.
C)  An objective of ﬂoat management is to slow down disbursement ﬂoat.
D)  Float management will succeed if the ﬁrm can collect late and pay early.
E)  All of the above are true of ﬂoat management.F) A) and E)
G) C) and D)

Question 2

The cost of holding cash:

Accepted Answer

A)  Is the opportunity cost of lost return.
B)  Zero because it is the most liquid and desirable asset.
C)  Increases as cash holdings increase.
D)  Both A and B.
E)  Both A and C.F) B) and C)
G) A) and C)

Question 3

Auction-Rate Preferred Stock is similar to Adjustable-Rate Preferred Stock (ARPS)  in that they:

Accepted Answer

A)  are both issued for 90 days.
B)  have a dividend rate set by the issuer.
C)  both have a ﬂoating rate and a dividend tax exclusion.
D)  are equally accessible to the corporate investor directly.
E)  are not similar in any manner.F) A) and E)
G) A) and D)

Question 4

If 25% of the customers pay on day 10 and 75% pay on day 30, the average collection period is:

Accepted Answer

A)  15 days.
B)  20 days.
C)  25 days.
D)  30 days.
E)  40 days.F) None of the above
G) C) and D) C

Question 5

Your ﬁrm receives 10 cheques per month.Of these, 6 are for €1,000 and 4 are for €500.The delay for the €1,000 cheques is 5 days, and the €500 cheques are delayed 8 days.Calculate the average
Daily ﬂoat.

Accepted Answer

A)  €1,533.33
B)  €1,486.87
C)  €1,500.00
D)  €1,530.35
E)  €1,590.04F) A) and B)
G) B) and D)

Question 6

Factoring refers to:

Accepted Answer

A)  determining the aging schedule of the ﬁrm's trade receivables.
B)  the sale of a ﬁrm's trade receivables to a ﬁnancial institution.
C)  the determination of the average collection period.
D)  scoring a customer based on the 5 C's of credit.
E)  All of the above.F) A) and D)
G) None of the above

Question 7

The average collection period measures:

Accepted Answer

A)  the average time necessary to collect a credit sale.
B)  how long the companies money is invested in their customers.
C)  the days sales outstanding.
D)  the days in receivables.
E)  All of the above.F) All of the above
G) B) and C)

Question 8

Determining the appropriate target cash balance involves assessing the trade-off between:

Accepted Answer

A)  income and diversiﬁcation.
B)  the beneﬁt and cost of liquidity.
C)  of balance sheet strength and transaction needs.
D)  the total cost of handling cash and borrowing cost.
E)  None of the above.F) A) and E)
G) A) and B)

Question 9

The net ﬂoat of a ﬁrm is made up of disbursement ﬂoat and collection ﬂoat.Discuss the three
components of collection ﬂoat and how they would work against the ﬁrm.

Accepted Answer

1) Mail ﬂoat--based on time cheques pass through the postal system.
2) In-house processing ﬂoat--time receiver takes to process and deposit cheque in bank.
3) Availability Float--time to clear banking system and have use of funds.
They work against the ﬁrm by increasing the time until ﬁnal payment and use of funds.
Systems can be placed internally and externally to move cheques into clearing system faster.

Question 10

Businesses in deciding to extend credit to new customers try to reduce defaults by:

Accepted Answer

A)  determining the probability of non-payment.
B)  gathering independent credit checks.
C)  determining if it is proﬁtable to extend credit.
D)  determining the less proﬁtable customers.
E)  All of the above.F) B) and E)
G) A) and C)

Question 11

Delta Distributors has an investment in trade receivables of £2,750,000.Daily credit sales are £118,280.If 30% of Delta's credit customers receive a discount by paying within 10 days, what is the
Net period that Delta maintains?

Accepted Answer

A)  10 days
B)  23 days
C)  38 days
D)  45 days
E)  There is not enough information to tell.F) All of the above
G) A) and E)

Question 12

Firms would need to hold zero cash when transactions related needs are:

Accepted Answer

A)  greater than cash inﬂows.
B)  less than cash inﬂows.
C)  not perfectly synchronized with cash inﬂows.
D)  perfectly synchronized with cash inﬂows.
E)  None of the above.F) A) and E)
G) B) and D)

Question 13

A ﬁnancial manager should be concerned about bank cash and net ﬂoat, which is the sum of:

Accepted Answer

A)  collection and book cash.
B)  collection ﬂoat and disbursement ﬂoat.
C)  disbursement ﬂoat and book cash.
D)  disbursement ﬂoat and bank credit.
E)  None of the above.F) B) and C)
G) C) and E) B

Question 14

Floating rate CD's differ from regular CD's in that:

Accepted Answer

A)  they have longer maturity.
B)  they differ substantially in default risk.
C)  they are not taxed.
D)  they have coupons that are frequently reset.
E)  All of the above describe differences.F) A) and B)
G) B) and E)

Question 15

Examples of cash disbursements do not include:

Accepted Answer

A)  wages.
B)  payment for raw materials.
C)  taxes.
D)  dividends.
E)  sales of assets.F) A) and B)
G) A) and C)

Question 16

Delta Distributors has an investment in trade receivables of £2,750,000.Daily credit sales are £118,280.If 30% of Delta's credit customers receive a discount by paying within 10 days and the
Remainder of Delta's customers pay in 40 days, what is the net period that Delta maintains?

Accepted Answer

A)  19 days
B)  31 days
C)  37 days
D)  40 days
E)  None of the above.F) B) and C)
G) B) and D)

Question 17

Which of the following statements is not true?

Accepted Answer

A)  Commercial drafts represent a way to obtain a credit commitment from a customerBefore the goods are delivered.
B)  When a banker's acceptance is discounted in the secondary market it becomes aCommercial note.
C)  Sight drafts require immediate payment.
D)  Banker's acceptances arise when a bank guarantees payment on a commercial draft.
E)  Both A and C.F) C) and D)
G) A) and B)

Question 18

The Mesa Bank is offering your company the use of their lockbox services.They estimate that you
can reduce your average mail time by 2 days and they can save you a combined clearing and
processing time of 1.5 days by putting the cheques into the clearing system sooner.The ﬁrm
receives 320 cheques a day on average written for €2,500.The current T-Bill rate is 4% or .0107%
per day.What is the savings ﬂoat and what can you earn if the ﬁrm takes Mesa's lockbox service?

Accepted Answer

Total days of ﬂoat saved = 2 +...

Question 19

Which of the following statements is not true?

Accepted Answer

A)  An ageing schedule shows only overdue accounts.
B)  An ageing schedule shows the probability that a 67-day account will be unpaid when it is a68-day account.
C)  Average collection period data is somewhat ﬂawed if sales are seasonal.
D)  Collection efforts may involve legal action.
E)  Investments in trade receivables equal average daily sales times average collectionPeriod.F) A) and B)
G) A) and C)

Question 20

The fastest but most expensive way to transfer surplus funds from the local deposit bank to the concentration bank is:

Accepted Answer

A)  a lockbox system.
B)  a mail ﬂoat system.
C)  a wire transfer.
D)  an in-house processing ﬂoat system.
E)  an availability ﬂoat system.F) A) and E)
G) A) and D)

Exam 27: Short-Term Capital Management

Which of the following is not true of ﬂoat management?

Correct Answer
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The cost of holding cash:

Correct Answer
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Auction-Rate Preferred Stock is similar to Adjustable-Rate Preferred Stock (ARPS) in that they:

Correct Answer
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If 25% of the customers pay on day 10 and 75% pay on day 30, the average collection period is:

Correct Answer
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C

Your ﬁrm receives 10 cheques per month.Of these, 6 are for €1,000 and 4 are for €500.The delay for the €1,000 cheques is 5 days, and the €500 cheques are delayed 8 days.Calculate the average Daily ﬂoat.

Correct Answer
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Factoring refers to:

Correct Answer
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The average collection period measures:

Correct Answer
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Determining the appropriate target cash balance involves assessing the trade-off between:

Correct Answer
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The net ﬂoat of a ﬁrm is made up of disbursement ﬂoat and collection ﬂoat.Discuss the three components of collection ﬂoat and how they would work against the ﬁrm.

Businesses in deciding to extend credit to new customers try to reduce defaults by:

Correct Answer
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Delta Distributors has an investment in trade receivables of £2,750,000.Daily credit sales are £118,280.If 30% of Delta's credit customers receive a discount by paying within 10 days, what is the Net period that Delta maintains?

Correct Answer
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Firms would need to hold zero cash when transactions related needs are:

Correct Answer
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A ﬁnancial manager should be concerned about bank cash and net ﬂoat, which is the sum of:

Correct Answer
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B

Floating rate CD's differ from regular CD's in that:

Correct Answer
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Examples of cash disbursements do not include:

Correct Answer
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Delta Distributors has an investment in trade receivables of £2,750,000.Daily credit sales are £118,280.If 30% of Delta's credit customers receive a discount by paying within 10 days and the Remainder of Delta's customers pay in 40 days, what is the net period that Delta maintains?

Correct Answer
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Which of the following statements is not true?

Correct Answer
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Correct Answer
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Total days of ﬂoat saved = 2 +...
View Answer

Which of the following statements is not true?

Correct Answer
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The fastest but most expensive way to transfer surplus funds from the local deposit bank to the concentration bank is:

Correct Answer
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Exam 27: Short-Term Capital Management

Which of the following is not true of ﬂoat management?

Correct AnswerverifiedShow Answer

The cost of holding cash:

Correct AnswerverifiedShow Answer

Auction-Rate Preferred Stock is similar to Adjustable-Rate Preferred Stock (ARPS) in that they:

Correct AnswerverifiedShow Answer

If 25% of the customers pay on day 10 and 75% pay on day 30, the average collection period is:

Correct AnswerverifiedC

Your ﬁrm receives 10 cheques per month.Of these, 6 are for €1,000 and 4 are for €500.The delay for the €1,000 cheques is 5 days, and the €500 cheques are delayed 8 days.Calculate the average Daily ﬂoat.

Correct AnswerverifiedShow Answer

Factoring refers to:

Correct AnswerverifiedShow Answer

The average collection period measures:

Correct AnswerverifiedShow Answer

Determining the appropriate target cash balance involves assessing the trade-off between:

Correct AnswerverifiedShow Answer

The net ﬂoat of a ﬁrm is made up of disbursement ﬂoat and collection ﬂoat.Discuss the three components of collection ﬂoat and how they would work against the ﬁrm.

Businesses in deciding to extend credit to new customers try to reduce defaults by:

Correct AnswerverifiedShow Answer

Delta Distributors has an investment in trade receivables of £2,750,000.Daily credit sales are £118,280.If 30% of Delta's credit customers receive a discount by paying within 10 days, what is the Net period that Delta maintains?

Correct AnswerverifiedShow Answer

Firms would need to hold zero cash when transactions related needs are:

Correct AnswerverifiedShow Answer

A ﬁnancial manager should be concerned about bank cash and net ﬂoat, which is the sum of:

Correct AnswerverifiedB

Floating rate CD's differ from regular CD's in that:

Correct AnswerverifiedShow Answer

Examples of cash disbursements do not include:

Correct AnswerverifiedShow Answer

Delta Distributors has an investment in trade receivables of £2,750,000.Daily credit sales are £118,280.If 30% of Delta's credit customers receive a discount by paying within 10 days and the Remainder of Delta's customers pay in 40 days, what is the net period that Delta maintains?

Correct AnswerverifiedShow Answer

Which of the following statements is not true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedTotal days of ﬂoat saved = 2 +...View AnswerShow Answer

Which of the following statements is not true?

Correct AnswerverifiedShow Answer

The fastest but most expensive way to transfer surplus funds from the local deposit bank to the concentration bank is:

Correct AnswerverifiedShow Answer

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C

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B

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Total days of ﬂoat saved = 2 +...
View Answer

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