QUESTION 1 ANSWER The flexible current asset management strategy calls for management to . . . . True invest large amounts in cash, short-term investments, and inventory. 0 () False QUESTION 2 ANSWER Operating shortage costs that result from lost production and sales are () not holding enough raw materials in inventory. caused by 8 Y All of the above. () running out of finished goods. () restrictive credit policies. QUESTION 3 ANSWER An efficient firm with good working capital management should have a | high average collection period compared to that of its industry. = () True QUESTION 4 Which of the following statements about working capital trade-off is true? ANSWER () If shortage costs dominate carrying costs, the firm will need to move toward a more flexible policy. () If carrying costs are greater than shortage costs, then the firm will maximize value by adopting a more restrictive strategy. All of the above () Financial managers need to balance shortage costs against carrying costs to find an optimal management strategy. QUESTION 5 ANSWER If shortage costs dominate carrying costs, the firm will need to move O False toward a more flexible policy. O TrueQUESTION 6 ANSWER Which of the following statements is NOT true? O Both A and B Cash conversion cycle = DSO + DSI - DPO None of the above Operating cycle = DSO + DSIQUESTION 7 ANSWER The operating cycle begins when the firm uses its cash to purchase raw materials and ends when the firm collects cash payments on its credit True sales. O FalseQUESTION & ANSWER Working capital management involves making decisions regarding the use . True and sources of current assets. () False QUESTION 9 ANSWER The appropriate mix of current assets is not a working capital - () True e O False management decision. QUESTION 10 ANSWER Working capital efficiency refers to the length of time it takes for a firm to () True O False - convert the raw material to a finished product QUESTION 11 ANSWER Trend Foods distributes its products to more than 100 restaurants and delis. The company's collection period is 32 days, and it keeps its inventory (O None of the above for 10 days. What is Trend's operating cycle? () 32days O 42 days () 22 days QUESTION 12 ANSWER Day's payables outstanding (DPQ) is computed as number of days in a . o () False year divided by accounts payable turnover. = O True