Managing Financial Assets Assignment Essay

Managing Financial Assets Assignment

1. Determining the appropriate level of working capital for a firm requires
A. Evaluating the risks associated with various levels of fixed assets and the types of debt used to finance
these assets.
B. Changing the capital structure and dividend policy for the firm.
C. Maintaining short-term debt at the lowest possible level because it is ordinarily more expensive than
long-term debt.
D. Offsetting the profitability of current assets and current liabilities against the risk of running short of
cash.
2. Crystal is a retail mail order firm that currently uses a central collection system that requires all checks to be
sent to its Boston headquarters. An average of 5 days is required for mailed checks to be received, 4 days for
Crystal to process them and 1½ days for the checks to clear through its bank. A proposed lockbox system would
reduce the mail and process time to 3 days and the check clearing time to 1 day. Crystal has an average daily
collection of $100,000. If Crystal should adopt the lockbox system, its average cash balance would increase by
A. $650,000.
B. $250,000.
C. $800,000.
D. $400,000.
3. A compensating balance
A. Compensates a financial institution for services rendered by providing it with deposits of funds.
B. Is used to compensate for possible losses on a marketable securities portfolio.
C. Is a level of inventory held to compensate for variations in usage rate and lead time.
D. Is the amount of prepaid interest on a loan.
4. Methods of accelerating cash collections include compensating balances. True or False?
5. Treasury bills are most often held as a substitute for cash. True or False
6. Using a 360-day year, what is the opportunity cost to a buyer of NOT accepting terms 3/10, net 45?
124
A. 55.67%
B. 31.81%
C. 22.27%
D. 101.73%
7. When a company offers credit terms of 2/10, net 30, the annual interest cost, based on a 360-day year, is
10.3%. True or False?

Managing Financial Assets Assignment Essay

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