Working Capital Management Multiple Choice Questions and Answers for Practice

16. What is a lockbox system?

1. A system that allows customers to mail payments to a post office box
2. A system that allows customers to pay bills online
3. A system that allows customers to pay bills by credit card
4. A system that allows customers to pay bills by debit card

17. What is the primary source of short-term financing?

1. Long-term debt
2. Equity
3. Accounts payable
4. Bank loans

18. What is a line of credit?

1. A prearranged borrowing agreement with a bank
2. A loan that is secured by collateral
3. A loan that is unsecured
4. A loan that is used to finance the purchase of inventory

19. What is a commercial paper?

1. Short-term unsecured promissory notes issued by corporations
2. Short-term secured promissory notes issued by corporations
3. Long-term unsecured promissory notes issued by corporations
4. Long-term secured promissory notes issued by corporations

20. What is factoring?

1. The process of selling accounts receivable to a third party at a discount
2. The process of borrowing money from a bank
3. The process of issuing commercial paper
4. The process of leasing equipment

21. What is trade credit?

1. Credit extended by suppliers to their customers
2. Credit extended by banks to their customers
3. Credit extended by investors to corporations
4. Credit extended by governments to businesses

22. What is the cost of trade credit?

1. The interest rate that a company pays for using trade credit
2. The discount that a company receives for paying early
3. The cost of lost sales due to tight credit policies
4. The cost of bad debts

23. What is the cash discount?

1. A discount offered to customers who pay their bills early
2. A discount offered to suppliers who sell on credit
3. A discount offered to investors who buy stock
4. A discount offered to employees who work overtime

24. What is the primary goal of working capital management?

1. Maximize profitability
2. Minimize risk
3. Optimize liquidity and profitability
4. Maximize market share

25. What is the opportunity cost of holding cash?

1. The return that could be earned on cash if it were invested
2. The cost of borrowing money to cover cash shortages
3. The cost of lost sales due to insufficient cash
4. The cost of bank fees

26. What is the Baumol model?

1. A model that determines the optimal amount of cash to hold
2. A model that determines the optimal credit terms
3. A model that determines the optimal inventory level
4. A model that determines the optimal level of production

27. What is the Miller-Orr model?

1. A model that determines the optimal cash balance range
2. A model that determines the optimal credit terms
3. A model that determines the optimal inventory level
4. A model that determines the optimal level of production

28. What is the primary goal of cash management?

1. To maximize the return on cash
2. To minimize the cost of holding cash
3. To ensure that the company has enough cash to meet its obligations
4. All of the above

29. What is the primary goal of inventory management?

1. To minimize the cost of holding inventory
2. To maximize the availability of inventory
3. To minimize the risk of stockouts
4. All of the above

30. What is the primary goal of accounts receivable management?

1. To maximize sales
2. To minimize the risk of bad debts
3. To collect payments quickly
4. All of the above