When managing cash and short-term investments, a corporate treasurer is primarily concerned with:
Answer(s): D
Cash and short-term investments are crucial to an entity's continuing success. Sufficient liquidity must be available to meet payments as they come due. At the same time, liquid assets are subject to significant control risk. Therefore, liquidity and safety are the primary concerns of the treasurer when dealing with highly liquid assets. Cash and short term investments are held because of their ability to facilitate routine operations of the entity. These assets are not held for purposes of achieving investment returns.
Which of the following financial instruments can be traded in international money markets?
Answer(s): C
Funds are borrowed or lent for short periods less than one year) in money markets. Examples of instruments traded in money markets are U.S. Treasury bills, bankers' acceptances, commercial paper, negotiable certificates of deposit, money market mutual funds, Eurodollar market time deposits, and consumer, credit loans. Capital markets trade shares and long-term debt.
The average collection period for an entity measures the number of days:
Answer(s): A
The average collection period measures the number of days between the date of sale and the date of collection. It should be related to an entity's credit terms. For example, an entity that allows terms of 2/15, net 30, should have an average collection period of somewhere between 15 and 30 days.
An entity average of inventory US $4,000 in sales per day and is paid on an average within 30 days of the sale. After they receive their invoke, 55% of the customers pay by check, while the remaining 45% pay by credit card. Approximately how much would the entity show in accounts receivable on its balance sheet on any given date?
Answer(s): B
If sales are US $400 per day, and customers pay in 30 days. 30 days of sales are outstanding, or US $120,000.Whether customers pay by credit card or cash collection requires 30 days.
If the average age of inventory is 60 days, the average age of the accounts payable is 30 days, and the average age of accounts receivable is 45 days, the number of days in the cash flow cycle is:
The cash flow cycle begins when the entity pays for merchandise it has purchased and ends when the entity receives cash from the sale of the merchandise. Inventory is held for an average of 60 days prior to sale, but the average age of accounts payable is 30 days.Consequently, the average time between outlay and sale is 30 days. Receivables are collected an average of 45 days after sale, so the length of the cash flow cycle is 75 days (30 + 45).
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