CFC Treasury Management & Cash Flow 2

Question 1

A company's days sales outstanding (DSO) increased from 35 to 52 days. What is the most likely impact on the cash conversion cycle?

Accepted Answer

The CCC increases by 17 days

Answer

DSO is a component of the CCC; a 17-day increase in DSO directly lengthens the cash conversion cycle by 17 days.

Question 2

Which instrument is most commonly used by treasurers to protect against rising short-term borrowing costs?

Accepted Answer

Interest rate cap

Answer

An interest rate cap sets a maximum interest rate on floating-rate debt, protecting the borrower from rising short-term rates.

Question 3

Under a zero-balance account (ZBA) structure, subsidiary accounts are swept daily to a master account. What is the primary treasury benefit?

Accepted Answer

Maximizes idle cash by concentrating balances centrally

Answer

ZBA structures concentrate cash into a master account so idle subsidiary balances earn returns or offset borrowing costs centrally.

Question 4

A treasurer is evaluating a $10M commercial paper issuance at a 5.2% discount rate for 90 days. What is the approximate dollar amount of discount?

Accepted Answer

$130,000

Answer

Discount = Face × Rate × (Days/360) = $10M × 0.052 × (90/360) = $130,000.

Question 5

Which cash flow forecasting method builds projections from individual transaction-level data and is most accurate for short-term (1–30 day) horizons?

Accepted Answer

Direct method

Answer

The direct (receipts and disbursements) method uses scheduled transaction data, providing the greatest short-term accuracy.

(CFC) Certified Financial Controller Practice Test