FAR EASTERN UNIVERSITY

INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE

Marjorie Theresa Ann C. Espino
QUIZ NO. 3 – Working Capital Management Faculty, Accountancy Department

Name: ________________________________________ Score: _____________

Student no. ____________________________________ Date: ______________

Answer Sheet

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15 30

Multiple Choice Quiz:

1. During 2019, Mayana Company’s current assets increased by Php120, current liabilities
decreased by Php50, and net working capital
A. increased by Php70. C. decreased by Php170.
B. did not change. D. increased by Php170.

2. Lordie Company’s total assets fluctuate between Php320,000 and Php410,000, while its fixed
assets remain constant at Php260,000. If the firm follows a maturity matching or moderate
working capital financing policy, what is the likely level of its long-term financing?
A. Php 90,000 D. Php410,000
B. Php260,000 E. Php320,000
C. Php350,000

Liyana Company has total fixed assets of P100,000 and no current liabilities. The table below
displays its wide variation in current asset components:
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Cash P 20,000 P 10,000 P 15,000 P 20,000
Accounts 66,000 25,000 47,000 88,000
receivable
Inventory 20,000 65,000 59,000 10,000
Total P106,000 P100,000 P121,000 P118,000

3. If Liyana’s policy is to finance all fixed assets and half the permanent current assets with long-
term financing and the rest with short-term financing, what is the level of long-term financing?
A. P68,000 C. P150,000
B. P100,000 D. P155,625

Questions numbers 4 to 9 are based on the following information.

Lipa Services has determined several factors relative to its asset and financing mix.
The firm earns 10 percent annually on its current assets.
The firm earns 20 percent annually on its fixed assets.
FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Marjorie Theresa Ann C. Espino
QUIZ NO. 3 – Working Capital Management Faculty, Accountancy Department

The firm pays 13 percent annually on current liabilities.

The firm pays 17 percent annually on longterm funds.
The firm's monthly current, fixed and total asset requirements for the previous year are
summarized in the table below:
Month Current Assets Fixed Assets Total Assets
January Php45,000 Php100,000 Php145,000
February 40,000 100,000 140,000
March 50,000 100,000 150,000
April 55,000 100,000 155,000
May 60,000 100,000 160,000
June 75,000 100,000 175,000
July 75,000 100,000 175,000
August 75,000 100,000 175,000
September 60,000 100,000 160,000
October 55,000 100,000 155,000
November 50,000 100,000 150,000
December 50,000 100,000 150,000

4. The firm's monthly average permanent funds requirement is

A. Php100,000. C. Php140,000.
B. Php57,500. D. Php157,500.

5. The firm's monthly average seasonal funds requirement is

A. Php17,500. C. Php40,000.
B. Php57,500. D. Php157,500.

6. The firm's annual financing costs of the aggressive financing strategy is

A. Php21,175. C. Php24,475.
B. Php26,075. D. Php22,775.

7. The firm's annual financing costs of conservative financing strategy is

A. Php22,775. C. Php29,750.
B. Php26,075. D. Php21,175.

8. The firm's annual profits on total assets for the previous year was
A. Php20,000. C. Php23,625.
B. Php21,500. D. Php25,750.

9. If the firm's current liabilities in December were Php40,000, the net working capital was
A. Php140,000. C. Php10,000.
B. Php60,000. D. Php10,000.

10. A firm has an average age of inventory of 60 days, an average collection period of 45 days,
and an average payment period of 30 days. The firm's cash conversion cycle is ______ days.
A. 15 C. 75
B. 45 D. 135

11. You have recently been hired to improve the performance of Modilex Corporation, which has
been experiencing a severe cash shortage. As one part of your analysis, you want to
determine the firm’s cash conversion cycle. Using the following information and a 360-day
year, what is your estimate of the firm’s current cash conversion cycle?
▪ Current inventory Php120,000
▪ Annual sales Php600,000
▪ Accounts receivable Php160,000
▪ Accounts payable Php25,000
FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Marjorie Theresa Ann C. Espino
QUIZ NO. 3 – Working Capital Management Faculty, Accountancy Department

▪ Total annual purchases Php360,000

▪ Purchases credit terms net 30 days
▪ Receivables credit terms net 50 days
A. 49 days D. 168 days
B. 193 days E. 143 days
C. 100 days

12. XYZ Co. has annual operating outlays of Php1,800,000 and a cash conversion cycle of 60
days. If the firm currently pays 12 percent for negotiated financing and reduces its cash
conversion cycle to 50 days, the annual savings is
A. Php 50,000 C. Php 6,000.
B. Php200,000 D. Php216,000.

13. What is the opportunity cost of keeping a cash balance of Php2 million, if the daily interest rate
is 0.02% and the average transaction cost of investing money overnight is Php50?
A. Php50 C. Php400
B. Php350 D. Php40,000

14. Ripa makes large cash payments averaging P17,000 daily. The company changed from using
checks to sight drafts which will permit it to hold unto its cash for one extra day. If Ripa can
use the extra cash to earn 14% annually, what annual peso return will it earn?
A. P652.10 C. P6.52
B. P6,521.00 D. P2,380

15. Rose Inc. has Php2 million invested in Treasury bills yielding 8% per annum; this investment
will satisfy the firm's need for funds during the coming year. If it costs Php50 to sell these bills,
regardless of the amount, how much should be withdrawn at a time?
A. Php50,000 C. Php250,000
B. Php100,000 D. Php500,000

Liz Inc. is interested in purchasing a Php100 U.S. Treasury bill and was presented with the
following options:
Due Date Discount Rate
Option 1 180 days 6%
Option 2 360 days 3.5%
Option 3 120 days 8%
Option 4 240 days 4.5%

16. If Liz wishes to buy the Treasury bill at the lowest purchasing price, which option should be
chosen, assuming a 360-day year?
A. Option 1. C. Option 3.
B. Option 2. D. Option 4.

17. Fordie company sells 10,000 units at a unit selling price of 66 annually. Assume that the
average collection period is 25 days. After the credit policy is well established, what is the
expected average accounts receivable balance for the company at any moment in time,
assuming a 365-day year?
A. 684.93 C. 27,123.30
B. 1,808.22 D. 45,205.48

18. Electrice Company sells on terms 3/10, net 30. Total sales for the year are P900,000. Forty
percent of the customers pay on the tenth day and take discounts, the other 60 percent pay,
on average, 45 days after their purchases. What is the average amount of receivables?
A. P70,000 C. P77,200
B. P77,500 D. P67,500
FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Marjorie Theresa Ann C. Espino
QUIZ NO. 3 – Working Capital Management Faculty, Accountancy Department

19. Kuay Inc. grants credit terms of 1/15, net 30 and projects gross sales for next year of
Php2,000,000. The credit manager estimates that 40% of their customers pay on the discount
date, 40% on the net due date, and 20% pay 15 days after the net due date. Assuming
uniform sales and a 360-day year, what is the projected days’ sales outstanding rounded to the
nearest whole day?
A. 20 days. C. 27 days.
B. 24 days. D. 30 days.

20. The Tikya Company has an inventory conversion period of 60 days, a receivable conversion
period of 30 days, and a payable payment period of 45 days. Tikya’s variable cost is 60% and
annual fixed costs of P600,000. The current cost of capital for Tikya is 12%.
If Tikya’s annual sales are P3,375,000 and all sales are on credit, what is the firm’s carrying cost
on accounts receivable, using 360 days year?
A. P281,250 C. P20,250
B. P168,750 D. P56,250

21. Compared to other firms in the industry, a company that maintains a conservative working
capital policy will tend to have a
A. greater percentage of short-term financing.
B. greater risk of needing to sell current assets to repay debt.
C. higher ratio of current assets to fixed assets.
D. higher total asset turnover.

22. A firm following an aggressive working capital strategy would

A. hold substantial amount of fixed assets.
B. minimize the amount of short-term borrowing.
C. finance fluctuating assets with long-term financing.
D. minimize the amount of funds held in very liquid assets.

23. Other things held constant, which of the following will cause an increase in working capital?
A. Cash is used to buy marketable securities.
B. A cash dividend is declared and paid.
C. Merchandise is sold at a profit, but the sale is on credit.
D. Long-term bonds are retired with the proceeds of a preferred stock issue.
E. Missing inventory is written off against retained earnings.

24. According to John Maynard Keynes, the three major motives for holding cash are for
A. transactional, psychological, and social purposes.
B. speculative, fiduciary, and transactional purposes.
C. speculative, social, and precautionary purposes.
D. transactional, precautionary, and speculative purposes.

25. Checks written by the firm are said to generate

A. availability float C. disbursement float
B. ledger float D. book float

26. The difference between bank cash and book cash is called
A. disbursement float C. availability float
B. net float D. none of the above

27. Which of the following statements concerning zero balance accounts is not correct?
A. They are set up to handle disbursement activity
B. The account always has a minimum amount
C. Checks are automatically transferred into the account as checks presented for payment
D. The transfer is automatic and involves an accounting entry only
E. The master and the zero balance account locate at the same bank
FAR EASTERN UNIVERSITY
INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE
Marjorie Theresa Ann C. Espino
QUIZ NO. 3 – Working Capital Management Faculty, Accountancy Department

28. A working capital technique that increases the payable float and therefore delays the outflow of
cash is
A. concentration banking. C. electronic Data Interchange (EDI).
B. a draft. D. a lockbox system.

29. When managing cash and short-term investments, a corporate treasurer is primarily concerned
with
A. maximizing rate of return.
B. minimizing taxes.
C. investing in Treasury bonds since they have no default risk.
D. liquidity and safety.

30. In cash management, which of the following statements is false?

A. Capital costs, delinquency costs, and default costs are costs associated with cash
management.
B. Short costs, long costs, and procurement costs are costs associated with optimal cash
balance model approach
C. Obtaining financing services and controlling cash flow are some of the major functions of
cash management.
D. Funds sourcing and custodianship must be done at the lowest possible cost, where excess
funds must be invested for a return that is best in the market.