Chapter 16 – Management of Current Assets

1. Involves the maintenance of a cash and marketable securities investment level.

a. Cash Conversion Cycle

b. Cash Management

c. Cash Budget

d. Optimal Cash Balance Model

2. Is the average length of time involved – from the payment of raw materials to the collection
of receivable.

a. Cash Conversion Cycle

b. Cash Management

c. Cash Budget

d. Optimal Cash Balance Model

3. A pre-arranged loan where the company can withdraw anytime within the period agreed
upon.

A. Temporary investments

B. Lines of credit

C. Prompt billing

D. Zero balance accounts

4. Part of the cash management job is to see to it that the company maintains the same level of
activity and profitability without using as much cash as before one started managing cash.
Techniques for lessening cash needs include all of the following, except:

A. Slowing disbursements

B. Accelerating collections

C. Determining target cash balance

D. Reducing the transactions and precautionary idle cash

5. The risk of declines in market values of the security due to rising interest rates.

a. Default risk

b. Interest rate risk

c. Inflation risk

d. Liquidity risk
6. The risk that the issuer of the security cannot pay the principal or interest at due dates.

a. Default risk

b. Interest rate risk

c. Inflation risk

d. Liquidity risk

7. These are inventories that are being moved or transported from one location to another and
they fill up the pipelines between stages of entire production-distribution system.

A. Pipeline or transit inventories

B. Seasonal or anticipation stock

C. Batch or lot-size inventories

D. Safety or buffer stock

8. These are built up in anticipation of the heavy selling season or in anticipation of price
increases or as part of promotional sales campaign.

A. Pipeline or transit inventories

B. Seasonal or anticipation stock

C. Batch or lot-size inventories

D. Safety or buffer stock

9. What is the formula for Total Inventory Cost?

A. Total ordering costs + Total carrying costs

B. Annual demand in units/EOQ or order size x Ordering costs per order

C. Average inventory + Carrying costs per unit

D. EOQor order size/2

10. What is the formula for reorder point?

A. Total ordering costs + Total carrying costs

B. Lead time usage + Safety stock

C. Average inventory + Carrying costs per unit

D. EOQor order size/2