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Unformatted text preview: Chapter 19 - Cash and Liquidity Management Chapter 19 Cash and Liquidity Management Multiple Choice Questions 1. Yesterday, the president of RB Enterprises received a phone call from DLK, a competitor. DLK is a sole proprietorship. An unexpected family situation has caused the owner to suddenly want to retire and relocate closer to his family. Thus, the assets of DLK are being offered to RB Enterprises at a bargain basement price. While RB Enterprises had not anticipated purchasing these assets, it was decided that the opportunity was too good to pass up. This illustrates which of the following needs to hold cash? A. precautionary B. transaction C. speculative D. compensation E. float 2. GT Motors regularly issues short-term debt to finance its daily operations. Suddenly, the credit markets froze and no funds were available for borrowing. Fortunately, the firm had some cash reserves saved that it was able to use to fund its operations until additional credit was available. The need to retain cash for situations such as this is referred to as which one of the following motives for holding cash? A. speculative B. float C. compensating D. precautionary E. transaction 3. The cash found in a cash drawer that a check-out clerk uses to make change is an example of which of the following motives for holding cash? A. speculative B. daily float C. compensating balance D. precautionary E. transaction 19-1 Chapter 19 - Cash and Liquidity Management 4. Float is defined as the: A. amount of cash a firm can immediately withdraw from its bank account. B. difference between book cash and bank cash. C. change in a firm's cash balance from one accounting period to the next. D. amount of cash a firm has on hand. E. cash balance according to a firm's records. 5. A lockbox is a: A. special safe used by a firm for overnight storage of any cash or undeposited checks. B. special safe used by a firm that can only be opened at prespecified times of the day. C. box located in a bank's vault that is rented by a firm and used to hold unprocessed checks. D. special post office box which can only be opened by prespecified postal inspectors for direct delivery to the addressee. E. post office box strategically located so that a firm's receivables can be collected faster. 6. The Presque Isle Center has branch operations in three states. Each branch deals with a local bank. However, all excess funds in these branch bank accounts are transferred on a daily basis to the firm's primary bank located near the firm's home office. This routine of transferring cash to the primary bank on a regular basis is referred to as: A. cash concentration. B. strategic cash disbursement. C. transfer flotation....
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This note was uploaded on 01/16/2012 for the course ECON 2035 taught by Professor Stahl during the Spring '08 term at LSU.
- Spring '08