Feb 13 Cash Management Quiz Flashcards
Which is NOT a benefit of holding excess cash
a. Reduces the risk of insolvency
b. Increases the company’s ability to pay dividends
c. Maximizes the return on investment
d. Provides the flexibility to take advantage of business opportunities
ANSWER: c. Maximizes the return on investment
Which of the following is the primary objective of cash management
a. To maximize short-term investments
b. To minimize the amount of cash held
c. To ensure that sufficient liquidity is available for operations
d. To increase debt financing
ANSWER: c. To ensure that sufficient liquidity is available for operations
Which cash holding motive is associated with the ability to take advantage of unexpected investment opportunities
a. Transaction motive
b. Speculative motive
c. Precautionary motive
d. Operating motive
ANSWER: b. Speculative motive
Why is cash management important for a business
a. It helps in reducing debt
b. It ensures the company has enough liquidity to meet its obligations
c. It improves inventory management
d. It reduces tax liabilities
ANSWER: b. It ensures the company has enough liquidity to meet its obligations
Which factor directly influences the target cash balance of a company
a. The company’s dividend payout policy
b. Expected cash inflows and outflows
c. External market interest rates
d. Tax rates on capital gains
ANSWER: b. Expected cash inflows and outflows
The greater the variability in a company’s cash flow, the
a. Larger the target cash balance
b. Smaller the target cash balance
c. Less likely it is to use the Baumol model
d. More likely it is to invest in long-term bonds
ANSWER: a. Larger the target cash balance
Which of the following would likely cause a company to reduce its target cash balance
a. Increasing transaction costs
b. Increasing financial uncertainty
c. Lowering cash inflows
d. Improving cash management efficiency
ANSWER: d. Improving cash management efficiency
What is the main reason for firms to hold cash for speculative motives
a. To meet short-term obligations
b. To handle emergencies
c. To exploit investment opportunities
d. To pay salaries and wages
ANSWER: c. To exploit investment opportunities
Which of the following would improve a company’s cash flow
a. Delaying payment to suppliers
b. Lengthening customer credit periods
c. Speeding up collection of receivables
d. Increasing inventory holdings
ANSWER: c. Speeding up collection of receivables
Which of the following is the first step in managing cash flow
a. Forecasting future cash inflows and outflows
b. Identifying the target cash balance
c. Deciding on the optimal cash management model
d. Analyzing financial ratios
ANSWER: a. Forecasting future cash inflows and outflows
The optimal cash balance is determined by
a. Maximizing cash holdings
b. Balancing the cost of holding cash with the cost of running short of cash
c. Forecasting the future dividend payments
d. Reducing cash flow volatility
ANSWER: b. Balancing the cost of holding cash with the cost of running short of cash
How does reducing the cash conversion cycle contribute to maximizing cash
a. It allows a company to receive cash sooner, reducing the need for external financing
b. It increases the time to pay suppliers
c. It maximizes the company’s fixed assets
d. It minimizes the company’s revenue
ANSWER: a. It allows a company to receive cash sooner, reducing the need for external financing
What is a common strategy for companies to manage cash efficiently during peak sales periods
a. Increase inventory levels
b. Use short-term financing or lines of credit
c. Delay payments to suppliers
d. Decrease the accounts payable period
ANSWER: b. Use short-term financing or lines of credit
Which of the following factors is NOT relevant in determining the optimal cash balance
a. Transaction costs of transferring funds
b. The interest rate on short-term investments
c. The company’s debt level
d. The company’s credit rating
ANSWER: d. The company’s credit rating
What is the primary purpose of having a target cash balance
a. To maximize interest income
b. To ensure there is enough cash for operations without holding excess cash
c. To reduce financial liabilities
d. To avoid taxes on cash holdings
ANSWER: b. To ensure there is enough cash for operations without holding excess cash
Cash flow forecasting is important for a company because it
a. Helps determine the optimal dividend payout
b. Provides insight into expected liquidity needs
c. Predicts future sales trends
d. Determines pricing strategies
ANSWER: b. Provides insight into expected liquidity needs
In order to maximize cash flow, a company should focus on
a. Delaying payments to suppliers
b. Reducing sales prices
c. Increasing inventories
d. Maximizing cash collection from customers
ANSWER: d. Maximizing cash collection from customers
A company that experiences unpredictable cash flows may
a. Hold a larger target cash balance
b. Reduce its debt levels
c. Issue more equity
d. Invest in long-term securities
ANSWER: a. Hold a larger target cash balance
When a company maintains a minimum level of cash, this is known as
a. Cash reserve
b. Target cash balance
c. Operating cash flow
d. Excess liquidity
ANSWER: a. Cash reserve
Which of the following would help maximize cash for a business?
a. Offering longer credit terms to customers
b. Selling obsolete inventory at a discount
c. Paying suppliers early
d. Increasing inventory levels
ANSWER: b. Selling obsolete inventory at a discount
Which of the following is an example of an internal control over cash receipts?
a. Allowing one employee to handle both the receipt and deposit of cash
b. Reconciling bank accounts regularly
c. Keeping the cash register open at all times
d. Making all payments through cash
ANSWER: b. Reconciling bank accounts regularly
How can a company increase cash availability while managing working capital?
a. Delaying cash payments to suppliers
b. Financing operations with long-term debt
c. Speeding up customer collections
d. Reducing customer orders
ANSWER: c. Speeding up customer collections
To prevent embezzlement, a company should
a. Increase cash sales
b. Implement strong internal controls and segregate duties
c. Use only one method of payment
d. Allow employees to handle cash without supervision
ANSWER: b. Implement strong internal controls and segregate duties
Which of the following strategies can help a company maximize its cash position
a. Shortening the cash conversion cycle
b. Increasing inventory turnover
c. Increasing customer payment terms
d. Delaying accounts receivable collections
ANSWER: a. Shortening the cash conversion cycle
