TIF_ch22 - Test Bank Chapter 22 WORKING CAPITAL MANAGEMENT...

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Test Bank Chapter 22: WORKING CAPITAL MANAGEMENT EFS I. True or False (Definitions and Concepts) F 1. Working capital management includes several basic business relationships including the sales impact and liquidity, but not the relations with stakeholders. (FALSE: Should be and relations with stakeholders instead of but not the relations with stakeholders.) T 2. Working capital management consists of managing a firm's current assets and current liabilities (where current refers to one year or less). T 3. In the maturity-matching approach, the firm hedges its risk by matching the maturities of its assets and liabilities. F 4. The cash conversion cycle is the length of time between the payment of accounts payable and the receipt of cash from marketable securities. (FALSE: Should be from accounts receivable instead of from marketable securities.) T 5. The receivables collection period is the average number of days that it takes to collect on accounts receivable. F 6. A transaction balance is an account balance that the firm agrees to maintain. (FALSE: Should be compensation instead of transaction.) F 7. The precautionary demand is based on the desire to take advantage of unexpected profitable opportunities that require cash. (FALSE: Should be speculative instead of precautionary.) T 8. U.S. federal agency securities are backed by U.S. government but give slightly higher rates that U.S. Treasury securities. T 9. Cash and marketable securities are managed together. F 10. Commercial papers are drafts that a commercial bank has "accepted." (FALSE: Should be Bankers' acceptances instead of Commercial paper.) T 11. Commercial paper has an original maturity of more than 270 days. F 12. The cash conversion cycle is equal to the inventory conversion period plus the receivables collection period plus the payables deferral period. (FALSE: Should be minus the payables deferral period instead of plus the payables deferral period.) T 13. Electronic data interchange is the direct exchange of information between the computers of two businesses. F 14. Optimal deposit size is the difference between the checking account balance at the bank and the balance on the firm's ledgers. (FALSE: Should be Float instead of Optimal deposit size.) T 15. Trade credit, bank loans, and commercial paper are the main sources of short- term financing.
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II. Multiple Choice (Definitions and Concepts) b 16. The Baumol cash management model assumes . a. the firm cannot predict its future cash requirements with certainty. b. the cash disbursements are spread uniformly over the period. c. the interest rate (the opportunity cost of holding cash) is not fixed. d. all of these b 17. The Miller-Orr cash management model . a.
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TIF_ch22 - Test Bank Chapter 22 WORKING CAPITAL MANAGEMENT...

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