Activity 1 Select the best answer for each question. 1. When it comes to managing the disbursement cycle, the objective is to: Shorten the disbursement cycle. Lengthen the disbursement cycle Equalize disbursements with receipts. Borrow for all disbursements. a. b. c. d. One way of decreasing the collection time for cash receipts is to: a. b. c. d. 2. Accept cash payments only. Issue vendor payments immediately. Invoice customers quickly. Treat all customers the same. We can estimate total cash flow cycle times by calculating three ratios: (a) Average Days in Accounts Receivable, (b) Average Days in Inventory and (c) Average Days in Accounts Payable. Using these three ratios, the formula for calculating the total cash flow cycle time would be: a. (a) (b) (c) 3. (a) x (b) x(c) c. The amount of cash that should be held is a function of four amounts: Transaction Amount (includes compensating balances), Precautionary Amount, Speculative Amount, and Financial Amount. As a general rule, the minimal amount of cash that should be held is: a. Transaction Amount b. Speculative Amount c. Transaction Amount+ Precautionary Amount d. Speculative Amount + Financial Amount 4. Assume the following: Beginning Cash on Hand is $ 4,000, projected cash inflows are $ 28,000 and projected cash outflows are $ 39,000. You want to have an ending cash balance of $ 2,000. What is your total projected cash deficit? a. $ 11,000 b. $ 4,000 c. $ 7,000 d. $9,000 5. 6. Spontaneous financing or trade credit is simply a way of obtaining more cashb Establishing a Line of Credit b. Lengthening the Disbursement Cycle c. Borrowing against your assets d. Selling your receivables Two common ways of borrowing against accounts receivable are: a. Factoring and Assignment b. Trust Receipts and Blanket Liens c. Leasing and Buy Backs d. Warranties and Options 7. 8. In order to arrange financing against your inventory, your inventory must be: a. Slow moving b. Certified by the IRS c. Highly Marketable d. Obsolete Your company has two major customers, Ajax and Miller. Ajax owes you $ 10,000 and Miller owes you $ 20,000 for the current month. Collection probabilities show that Ajax pays 70% of the time in the current month and 30% of the time the following month. Collection probabilities show that Miller pays 40% of the time in the current month and 60% of the time in the following month, using expected values, what is the total amount of cash receipts for the current month? a. $ 10,000 b. 15,000 c. 7,000 d. 3,000 9. 10. One of the early warning signs of cash flow distress is: a. High inventory turnover b. Early distribution of payroll checks c. Late vendor payments d. Excessive cash balances