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Free CMA Exam Braindumps (page: 198)

Page 198 of 336
PDF with 1336 Questions
View Related Case Study

Which of the following models is essentially an application to cash management of the inventory economic order quantity (EOQ) formula?

  1. Miller-Or cash management model.
  2. Baumol cash management model.
  3. Altman's Z-Score model.
  4. Arbitrage pricing model.

Answer(s): B

Explanation:

The Bauman cash management model is essentially the inventory EOQ model in that it minimizes the total of fixed trading costs and cash carrying costs. It is a deterministic model in the same way that the icon model is deterministic.



View Related Case Study

A topical firm doing business nationally cannot expect to accelerate its cash inflow by

  1. Establishing multiple collection centers throughout the country.
  2. Employing a lockbox arrangement.
  3. Initiating controls to accelerate the deposit and collection f large checks.
  4. Maintaining compensating balances rather than paying cash for bank services.

Answer(s): D

Explanation:

Compensating balances are either (1) an absolute minimum balance or (2) a minimum average balance that bank customers must keep at the bank. These are generally required by the bank to compensate for the cost of services rendered. Maintaining compensating balances will not accelerate a company's cash inflows because less cash will be available even though the amount of cash coming in remains unchanged.



View Related Case Study

Some managers express the opinion that their "cash management problems are nothing more than inventory problems." They then proceed to use cash management models, such as the EOQ model, to determine the

  1. Credit and collection policies.
  2. Marketable securities level.
  3. Proper relationship between current assets and current liabilities.
  4. Proper blend of marketable securities and cash.

Answer(s): D

Explanation:

Since cash and inventory are both nonearning assets, in principle they may be treated similarly. The alternative to holding cash, however, is to hold marketable securities that do earn interest or dividends. Thus, a cash management model would determine how much of a firm's liquidly should be held as cash and how much in the 1torm of marketable securities.



View Related Case Study

According to John Maynard Keynes, the three major motives for holding cash are for

  1. Transactional, psychological, and social purposes.
  2. Speculative, fiduciary, and transactional purposes.
  3. Speculative, social, and precautionary purposes.
  4. Transactional, precautionary, and speculative purposes.

Answer(s): D

Explanation:

John Maynard Keynes, founder of Keynesian economics, concluded that there were three major motives for holding cash: for transactional purposes as a medium of exchange. Precautionary purposes and speculative purposes (but only during deflationary periods).



Page 198 of 336



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