Question

1. Mark the following statements as True or False      (1/2 X 10 = 5 Marks)

1. In the management of cash and marketable securities, the primary concern is profitability.
2. For most modern corporations, the more cash they have, the better off they are.
3. Minimizing cash balances can improve overall corporate profitability.
4. For most firms, the primary motive for holding cash is the transaction motive.
5. Cash balances are usually determined by the amount of cash flowing through the firm on a yearly basis.
6. A primary goal of cash management is to insure that the inflows and outflows of cash are synchronized.
7. It is possible for companies to operate with negative cash balances on their books.
8. If a firm averages $2,000 in daily credit sales and offers 60-day terms, the average accounts receivable balance will be $120,000.
9. When a potential customer has a mediocre credit history, a firm should never consider allowing them to become a customer.

If a company would like to reduce their average collection period, they can either offer a cash discount or increase their net terms

Answer 1

Question	True/False	Explanation
In the management of cash and marketable securities, the primary concern is profitability.	FALSE	While managing cash,most vital is liquidity and not profitability.
For most modern corporations, the more cash they have, the better off they are.	FALSE	Excess cash is just a waste of resources ,if company seek growth they must invest cash in business operations.
Minimizing cash balances can improve overall corporate profitability.	TRUE	Yes, as the excessive cash can be invested in operations and returns can be generated.
For most firms, the primary motive for holding cash is the transaction motive.	TRUE	Cash is held in non-finance companies to meet day-to-day requirements of business.
Cash balances are usually determined by the amount of cash flowing through the firm on a yearly basis.	FALSE	Cash balances are determined on day to day or real-time basis and not on annual basis only.
A primary goal of cash management is to insure that the inflows and outflows of cash are synchronized.	TRUE	Cash balances are maintained to meet regular cashflow requirements only.Cash should be maintained so that no cashflow hindrances occur.
It is possible for companies to operate with negative cash balances on their books.	FALSE	If the cash balances turned in negative that will be an overdraft which is a borrowing and not cash.
If a firm averages $2,000 in daily credit sales and offers 60-day terms, the average accounts receivable balance will be $120,000.	TRUE	Yes,as debtors will pay after 60 days so 60 days' balance money will always be receivable i.e. $2,000 * 60 days = $120,000
When a potential customer has a mediocre credit history, a firm should never consider allowing them to become a customer.	FALSE	Credit history is to be assessed in case of credit sales and not about cash sales.So,Cash Sales can be allowed meanwhile mediocre credit history can be used to determine amount of credit which can be given.
If a company would like to reduce their average collection period, they can either offer a cash discount or increase their net terms	FALSE	Cash Discount offered will reduce credit period to customers.Meanwhile reduction of net terms be reduced to reduce collection period.

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