IFM10 Ch 23 Test Bank

IFM10 Ch 23 Test Bank - CHAPTER 23 OTHER TOPICS IN WORKING...

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CHAPTER 23 OTHER TOPICS IN WORKING CAPITAL MANAGEMENT (Difficulty: E = Easy, M = Medium, and T = Tough) True-False Medium: (23.2) Target cash balance Answer: b Diff: M 1 . The cash balances of most firms consist of transactions, compensating, precautionary, and speculative balances. We can produce a total desired cash balance by calculating the amount needed for each purpose and then summing them together. a. True b. False (23.2) Precautionary balance Answer: b Diff: M 2 . The easier a firm's access to borrowed funds the higher its precautionary balances will be, in order to protect against sudden increases in interest rates. a. True b. False (23.2) Cash balances Answer: a Diff: M 3 . For some firms, holding highly liquid marketable securities is a substitute for holding cash because a marketable securities portfolio can accomplish the same objective as cash. a. True b. False (23.3) Inventory systems Answer: b Diff: M 4 . A just-in-time system is designed to stretch accounts payable as long as possible. a. True b. False (23.6) EOQ Extension Answer: b Diff: M 5 . If a company increases its safety stock, then its EOQ will go up. a. True b. False Chapter 23: Other Topics in Working Capital Management Page 1
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(23.6) EOQ Extension Answer: a Diff: M 6 . If a company increases its safety stock, then its average inventory will go up. a. True b. False Multiple Choice: Conceptual Medium: (23.3) Inventory management Answer: e Diff: M 7 . All of the following have to do with inventory management except a. EOQ b. JIT c. FIFO d. LIFO e. DSO (23.3) Inventory management Answer: a Diff: M 8 . Which of the following has to do with inventory management? a. Economic Order Quintile b. In the Nick of Time c. Few In, Lots Out d. Red-line e. None of the above (23.3) Average inventory Answer: d Diff: M 9 . Which of the following would cause average inventory holdings to decrease, other things held constant? a. Fixed order costs double. b. The purchase price of inventory items decreases by 50 percent. c. The carrying price of an item decreases (as a percent of purchase price). d. The sales forecast is revised downward by 10 percent. e. None of the above (all would cause average inventory to increase). (23.5) EOQ Answer: e Diff: M 10 . The economic ordering quantity will rise due to an increase in which of the following variable(s)? a. Product demand (sales). b. Carrying costs. c. Ordering costs. d. Both a and b. e. Both a and c. Page 2 Chapter 23: Other Topics in Working Capital Management
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(23.4) Inventory accounting Answer: b Diff: M 11 . During times of inflation, which of these inventory accounting methods is best for cash flow? a. FIFO, because the cheapest goods are recorded as being sold first, resulting in lower cost of goods sold and higher reported net income. b. LIFO, because the most expensive goods are recorded as being sold
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IFM10 Ch 23 Test Bank - CHAPTER 23 OTHER TOPICS IN WORKING...

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