Accrued wages and accrued taxes are considered to be

a. permanent sources of financing because companies must always pay wages and taxes.

b. spontaneous sources of unsecured short-term financing.

c. secured sources of short-term financing.

d. current assets.

Q26. Krause Precision Tools, Inc. will use an estimated 700,000 small processors in its manufacturing process next year. The carrying cost of processor inventory is $3.00 per unit and the cost of reordering processors is $100 per order. What is Krause's economic ordering quantity for small processors?

a. 6,340

b. 6,831

c. 7,118

d. 7,300

Q27. Salamander Insurance Company tries to settle claims as quickly as possible. In certain cases, agents can present payments to claimants which are cleared through the banking system like a check, but must be passed through the Insurance Company for approved prior to payment. This is an example of a

a. zero balance account.

b. payable-through draft.

c. insurance float voucher.

d. post-dated check.

Q28. Assume that liquid funds can be invested to yield 4.5 percent. If annual remittance checks total $2 billion, what is it worth for the firm to reduce float by 1 day?

a. $388,349

b. $246,575

c. $257,534

d. $24,658

Q29. Determine the effective annualized cost of forgoing the trade discount on terms 2/15 net 65.

a. 11.30%

b. 14.69%

c. 32.6%

d. 48.98%

Q30. Effective cash management involves the tradeoff between the risk of insolvency (resulting in higher near cash balances) and the desire to earn higher returns (resulting in lower near cash balances).

a. True

b. False

Q31. Transit float is caused by

a. the time necessary for a deposited check to clear the banking system and become usable funds to the company.

b. the time funds are not available, through the company's bank account, until its payment check has cleared the banking system.

c. the elapsed time from the moment a customer mails his remittance check until the firm begins to process it.

d. the time required for the firm to process remittance checks.

Q32. Flashbinder Guitars, Inc. is considering a lockbox system that will increase its check processing cost by $.15 per check. The company estimates an average check size of $1,700 and expects the lockbox to reduce check collection time by 3 days. What annual before-tax yield must Flashbinder Guitars, Inc. earn on its marketable securities for the lockbox system to be beneficial?

a. 1.825%

b. 1.118%

c. 1.074%

d. 0.735%

Q33. Mountain Snow Sports, Inc. is trying to determine the optimal order quantity for snow boards for the next twelve months. Annual sales are expected to be 1,000,000 units at a retail price of $400 each. The cost of carrying snow boards is $80 per year. Studies show that it costs Mountain Snow $250 to prepare and receive an order. What is the EOQ?

a. 2,750

b. 2,500

c. 2,000

d. 1,850

Q34. Which of the following is generally under the control of the financial manager?

a. the percentage of credit sales to total sales

b. the actual level of sales

c. the credit policies

d. A and B

Q35. Money market funds

a. are tax exempt.

b. typically invest in a diversified portfolio of short-term, high-grade debt instruments.

c. are generally very profitable but fail to provide liquidity to the small investor.

d. typically sell shares to the public in $25,000 denominations.

Q36. One advantage of zero balance accounts is an increase in disbursing float.

a. True

b. False

Q37. One of the attractive features of commercial paper is an active secondary market.

a. True

b. False

Q38. The forward-spot differential is the difference between the forward rate and the expected future spot rate.

a. True

b. False