CTP Working Capital Management 2

Question 1

A company has a Days Sales Outstanding (DSO) of 45 days and an industry average of 30 days. What does this most likely indicate?

Accepted Answer

The company has a collection problem or lenient credit terms

Answer

A DSO higher than the industry average suggests the company is slower at collecting receivables, indicating potential collection issues or overly lenient credit terms.

Question 2

Which of the following best describes the purpose of a lockbox system in receivables management?

Accepted Answer

To accelerate the collection and processing of customer payments

Answer

A lockbox system routes customer payments directly to a bank's processing center, reducing mail float and accelerating funds availability.

Question 3

Under the cash conversion cycle (CCC) formula, which change would DECREASE the CCC?

Accepted Answer

Increasing days payable outstanding (DPO)

Answer

CCC = DIO + DSO – DPO; increasing DPO (paying suppliers later) reduces the CCC by extending the time the company holds supplier financing.

Question 4

A company offers terms of 2/10 net 30. What is the approximate annualized cost of NOT taking the discount?

Accepted Answer

36.7%

Answer

Annualized cost = (Discount% / (1 – Discount%)) × (365 / (Net days – Discount days)) = (0.02/0.98) × (365/20) ≈ 36.7%.

Question 5

Which inventory management approach aims to minimize inventory holding costs by receiving goods only when needed for production?

Accepted Answer

Just-in-Time (JIT)

Answer

Just-in-Time (JIT) inventory management synchronizes supply deliveries with production schedules to minimize inventory carrying costs.

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Exam Practice Test

CTP Working Capital Management 2