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A. Increased by $70,000.
B. Did not change.
C. Decreased by $170,000.
Increased by $170,000.Correct Answer: D Net
working capital is the excess of current assets
over current liabilities. An increase in current
D. assets or a decrease in current liabilities
increases working capital. Thus, net working
capital increased by $170,000 ($120,000 +
$50,000).
Working Capital Answer 1
• Correct Answer: D
Net working capital is the excess of current assets over current
liabilities. An increase in current assets or a decrease in current
liabilities increases working capital. Thus, net working capital
increased by $170,000 ($120,000 + $50,000).
Incorrect Answers:
A: Both the increase in current assets and the decrease in current
liabilities increase working capital.
B: Net working capital did change.
C: Net working capital increased.
Working Capital Question 2
A. Option 1.
B. Option 2.
C. Option 3.
D. Option 4.
Working Capital Answer 2
• Net working capital is the excess of current assets over current
liabilities. An increase in current assets or a decrease in current
liabilities will increase net working capital. Option 1 maximizes
Mason Company’s net working capital, increasing it by $170 ($120 +
$50).
Incorrect Answers:
Net working capital is defined as the excess of current assets over current
liabilities. Refinancing short-term debt with long-term debt decreases
current liabilities with no effect on current assets, resulting in an increase in
working capital.
Incorrect Answers:
D: The purchase of trading securities does not affect total current assets.
Cash is replaced by trading securities, another current asset.
Working Capital Question 4
Net working capital is the excess of current assets over current liabilities. The current
ratio equals current assets divided by current liabilities. Selling stock for cash increases
current assets and stockholders’ equity, with no effect on current liabilities. The result is
an increase in working capital and the current ratio.
Incorrect Answers:
• Methods to
• Speed up cash flows (see example 1 & 2 page 220)
• Slow down cash flows
Cash Management Question 1
Question 1 - CMA2 Study Unit 6:
Managing Current Assets
The economic order quantity (EOQ)
formula can be adapted in order for a
firm to determine the optimal split
between cash and marketable
securities. The EOQ model assumes all
of the following except that
Incorrect Answers:
A: Use of the EOQ model assumes that the cost of a transaction is
independent of the dollar amount of the transaction.
B: Use of the EOQ model assumes that interest rates are constant
over the short run.
C: Use of the EOQ model assumes that there is an opportunity cost
associated with holding cash, beginning with the first dollar.
Cash Management Question 2
Incorrect Answers:
A. $1,200,000
B. $750,000
C. $600,000
D. $450,000
Cash Management Answer 3
• Correct Answer: A
Incorrect Answers:
A. $(30,000)
B. $30,000
C. $66,000
D. $63,000
Cash Management Answer 4
Correct Answer: B
Incorrect Answers:
D: The discount may have been increased, which has led to quicker
payments.
Receivable Management
Question 2
Question 2 - CMA2 Study Unit 6:
Managing Current Assets
A change in credit policy has caused an
increase in sales, an increase in discounts
taken, a decrease in the amount of bad
debts, and a decrease in the investment
in accounts receivable. Based upon this
information, the company’s
Incorrect Answers:
A. 20 days.
B. 24 days.
C. 27 days.
D. 30 days.
Receivable Management
Answer 3
Correct Answer: C
The days’ sales outstanding can be determined by weighting the
collection period for each group of receivables by its collection
percentage. Hence, the projected days’ sales outstanding equal 27
days [(15 days × 40%) + (30 days × 40%) + (45 days × 20%)].
Incorrect Answers:
A: Average receivables are outstanding for much more than 20 days.
B: Twenty-four days assumes 40% of receivables are collected after
15 days and 60% after 30 days.
D: More receivables are collected on the 15th day than on the 45th
day; thus, the average must be less than 30 days.
Receivable Management
Question 4
Question 4 - CMA2 Study Unit 6:
Managing Current Assets
A firm averages $4,000 in sales per day
and is paid, on an average, within 30
days of the sale. After they receive their
invoice, 55% of the customers pay by
check, while the remaining 45% pay by
credit card. Approximately how much
would the company show in accounts
receivable on its balance sheet on any
given date?
A. $4,000
B. $48,000
C. $54,000
D. $120,000
Receivable Management
Answer 4
Correct Answer: D
Incorrect Answers:
• Inventory costs
• Discounted Loans
Continued
SU – 6.6 Short-term Financing
• Loans with Compensating Balances
• Market-Based Instruments
• Secured Financing
• Factoring Receivables
• Maturity Matching
Questions