Managerial Finance
CHAPTER 15
MANAGING CURRENT ASSETS (Difficulty: E = Easy, M = Medium, and T = Tough)
Multiple Choice: Conceptual
Easy:
Working capital Answer: c Diff: E
[i]. Other things held constant, which of the following will cause an increase in working capital?
a. Cash is used to buy marketable securities. b. A cash dividend is declared and paid. c. Merchandise is sold at a profit, but the sale is on credit. d. Long-term bonds are retired with the proceeds of a preferred stock issue. e. Missing inventory is written off against retained earnings.
Working capital Answer: d Diff: E N
[ii]. Which of the following statements is most correct?
a. The current ratio is calculated as net working capital divided by current liabilities. b. Gross working capital represents current assets used in operations. c. Net working capital is defined as current assets minus current liabilities. d. Statements b and c are correct. e. Statements a, b, and c are correct.
Cash conversion cycle Answer: b Diff: E
[iii]. Helena Furnishings wants to sharply reduce its cash conversion cycle. Which of the following steps would reduce its cash conversion cycle?
a. The company increases its average inventory without increasing its sales. b. The company reduces its DSO. c. The company starts paying its bills sooner, which reduces its average accounts payable without reducing its sales. d. Statements a and b are correct. e. All of the statements above are correct.
Cash budget Answer: e Diff: E
[iv]. Which of the following is typically part of the cash budget?
a. Payments lag. b. Payment for plant construction. c. Cumulative cash. d. Statements a and c are correct. e. All of the above statements are correct.
Cash budget Answer: a Diff: E
[v]. Which of the following statements concerning the cash budget is correct?
a.
MANAGING CURRENT ASSETS (Difficulty: E = Easy, M = Medium, and T = Tough)
Multiple Choice: Conceptual
Easy:
Working capital Answer: c Diff: E
[i]. Other things held constant, which of the following will cause an increase in working capital?
a. Cash is used to buy marketable securities. b. A cash dividend is declared and paid. c. Merchandise is sold at a profit, but the sale is on credit. d. Long-term bonds are retired with the proceeds of a preferred stock issue. e. Missing inventory is written off against retained earnings.
Working capital Answer: d Diff: E N
[ii]. Which of the following statements is most correct?
a. The current ratio is calculated as net working capital divided by current liabilities. b. Gross working capital represents current assets used in operations. c. Net working capital is defined as current assets minus current liabilities. d. Statements b and c are correct. e. Statements a, b, and c are correct.
Cash conversion cycle Answer: b Diff: E
[iii]. Helena Furnishings wants to sharply reduce its cash conversion cycle. Which of the following steps would reduce its cash conversion cycle?
a. The company increases its average inventory without increasing its sales. b. The company reduces its DSO. c. The company starts paying its bills sooner, which reduces its average accounts payable without reducing its sales. d. Statements a and b are correct. e. All of the statements above are correct.
Cash budget Answer: e Diff: E
[iv]. Which of the following is typically part of the cash budget?
a. Payments lag. b. Payment for plant construction. c. Cumulative cash. d. Statements a and c are correct. e. All of the above statements are correct.
Cash budget Answer: a Diff: E
[v]. Which of the following statements concerning the cash budget is correct?
a.