Working Capital Management

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Question 1

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Large payments between businesses are generally made electronically through either CHIPS or Fedwire.

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Question 2

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Inventory makes up the bulk of the current assets of retail firms.

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Question 3

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The potential benefits of additional credit analysis should always be weighed against the incremental costs.

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Question 4

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Absent any possibility of repeat orders,if the default probability is less than the profit margin,you should extend credit for the sale.

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Question 5

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Firms are more likely to grant credit the higher the probability that a potential customer will become a repeat customer.

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Question 6

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The more liberal the terms of the collection policy,the lower the potential for bad debts and unprofitable sales.

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Question 7

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A firm that buys on credit is in effect borrowing from its supplier.

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Question 8

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Just-in-time inventory management seeks to reduce inventory levels.

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Question 9

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Commercial paper is usually used to finance overseas trade.

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Question 10

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Extending trade credit can increase the probability of repeat orders.

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Question 11

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The decision to offer credit depends on the probability of payment.You should grant credit if the expected profit from doing so is greater than the profit from refusing.

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Question 12

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Bond ratings are an expensive source of credit information on publicly traded companies.

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Question 13

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An aging schedule is a statement sent to customers who are delinquent in their payments.

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Question 14

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Optimal inventory levels are lower when carrying costs are high,and when the cost of restocking inventories is low.

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Question 15

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Since defaults can be costly,it is cost-effective to undertake a full credit analysis of all customers.

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Question 16

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Checks that have been mailed but not yet cleared result in float.

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Question 17

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Short-term securities have high interest-rate risk.

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Question 18

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As the number of inventory orders per year increases,the total order costs decrease.

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Question 19

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Checks tend to be a more popular method of payment in the United States than in many other developed countries.

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Question 20

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Most money market instruments have a high degree of liquidity.

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