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All of the following are valid reasons for a business to hold cash and marketable securities, except to:
The three primary motives for holding cash are transaction demand, precautionary demand, and speculative demand.
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A company has total costs of $100,000, of which 40% is variable costs. What is the operating leverage?
Operating leverage is calculated as fixed costs divided by variable costs. If 40% of $100,000 are variable costs, the remaining $60,000 must be fixed costs. Thus, $60,000/$40,000=1.5.
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As a company becomes more conservative with respect to working capital policy, it would tend to have a(n):
An increase in the ratio of current assets to non-current assets would be indicative of an increasingly conservative working capital policy.
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Each of the following items is included when computing a firm's target cash conversion cycle, except the:
The cash conversion cycle does not include the cash discount period. Cash discounts would be considered as a component of receivables collections and payables deferrals.
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An increase in sales collections resulting from an increased cash discount for prompt payment would be expected to cause a:
An increase in sales collections would decrease the cash conversion cycle.
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The cash conversion cycle is the length of time from an initial expenditure for production to the date:
This is the definition and purpose of the cash conversion cycle which exists to quantify a firm's ability to generate cash flow.
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Which inventory costing method would a company that wishes to maximize profits in a period of rising prices use?
Using the FIFO method during a period of rising prices would account for the inventory that is the least expensive from the warehouse, thus maximizing profit.
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Under US GAAP, during periods of inflation, a perpetual system would result in the same dollar amount of ending inventory as a periodic system under which of the following valuation methods?
Only under FIFO would the use of a perpetual system result in the same dollar amount of ending inventory as a periodic system.
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A corporation issues quarterly interim financial statements and uses the lower cost or market method to value its inventory in its annual financial statements. Which of the following statements is correct regarding how the corporation should value its inventory in its interim financial statements?
Using the IFRS lower of cost or market process would entail recognizing inventory losses during interim periods.
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What is the cost of ending inventory given the following factors? Beginning Inventory = $5,000 Total Production Costs = $60,000 Cost of Goods Sold = $55,000 Direct Labor = $40,000.
$5,000 + $60,000 - $55,000 = $10,000
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What was ABC company's cost of goods manufactured if cost of goods sold is $43,000, ending finished goods inventory is $21,000, beginning finished goods inventory is $16,000 and net income is $19,000.
COGM = $43,000 + $21,000 - $16,000 = $48,000
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The moving average method requires ____, while the weighted average method requires ______.
Both the weighted average method and moving average methods are alternatives to LIFO and FIFO.
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A stock priced at $50 per share is expected to pay $5 in dividends and trade for $60 per share in one year. What is the expected return on this stock?
The expected return is $15, which consists of $5 in dividends and the $10 increase in stock value from $50 to $60. A $15 return on a $50 investment yields a return of 30%.
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An analyst is reviewing a company with no net earnings. If the analyst wants to use a price multiples approach to valuation rather than a DCF method, the analyst would most likely select:
Price-sales ratio projection approaches can provide meaningful information in the event that net earnings data is not available.
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An investor wants to buy shares of XYZ Corporation. If the investor uses a zero growth model, a desired rate of return of 20%, and a dividend of $10, what was XYZ's price?
Using a zero growth model, the price of a company's stock is equal to the dividend divided by the discount rate. P=D/R. In this case P=$10/20%. P=$50.
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Which of the following transactions does not change the current ratio or total current assets?
This does not change the current assets or the current ratio because the reduction of cash is offset by an increase in A/R.
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The collection of A/R can be accelerated by the use of:
Lockbox systems are mailboxes in many locations where customers send payments. The bank checks these frequently.
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The general formula for return on investment is calculated as:
To calculate the return on something purchased, whether a stock, machine or employee, divide the cash inflows divided by the cash outflows.
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The amount of inventory that a company would tend to hold in safety stock would increase as the:
The amount of inventory that a company would tend to hold in stock would increase as the cost of carrying inventory decreases.
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When selecting suppliers before implementing a just-in-time (JIT) purchasing system, a company must take extreme care because a JIT purchasing system:
JIT does not entail keeping a significant amount of inventory on hand. So, suppliers must be ready to provide products as soon as there is need.
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