CIA Working Capital Management 2

Question 1

A company's accounts receivable balance is $150,000 and annual credit sales are $900,000. What is the days sales outstanding (DSO)?

Accepted Answer

60.8 days

Answer

6 days

Answer

166.7 days

Answer

45 days

Question 2

Which inventory management technique is designed to minimize holding costs by receiving goods only as they are needed?

Accepted Answer

Just-in-time (JIT)

Answer

Economic order quantity (EOQ)

Answer

Safety stock model

Answer

ABC analysis

Question 3

The economic order quantity (EOQ) model minimizes the total of which two costs?

Accepted Answer

Ordering costs and holding costs

Answer

Purchase price and shipping costs

Answer

Storage costs and insurance costs

Answer

Lead time costs and stockout costs

Question 4

A conservative working capital policy typically results in:

Accepted Answer

Lower risk but higher financing costs

Answer

Higher risk but lower financing costs

Answer

Maximum asset utilization

Answer

Minimum current assets

Question 5

When a company offers credit terms of '2/10, net 30', what does this mean?

Accepted Answer

A 2% discount is available if paid within 10 days; full amount due in 30 days

Answer

Payment is due in 10 days with a 2% penalty after 30 days

Answer

2% interest accrues after 10 days up to 30 days

Answer

Full payment required within 2 days or net due in 30 days

Question 6

Which of the following best describes a lockbox system used in cash management?

Accepted Answer

A bank collects payments directly from customers on behalf of the company

Answer

A secure vault for storing physical cash and securities on-site

Answer

A system that delays outgoing payments to preserve cash

Answer

An electronic fund transfer system for payroll disbursements

Question 7

What does the term 'float' refer to in cash management?

Accepted Answer

The time between when a check is written and when funds are actually deducted from the account

Answer

Surplus cash held in low-risk money market instruments

Answer

The difference between book value and market value of cash

Answer

Short-term borrowings used to fund seasonal operations