Question

1. Which one of the following industries tends to have the longest cash cycle?

Select one:

a. restaurants

b. fabric retailer

c. apparel retailers

d. gas station

e. medical devices

2. Which one of the following is a use of cash?

Select one:

a. Selling a fixed asset such as a piece of machinery

b. Selling inventory at cost

c. Paying a supplier for inventory you purchased last month

d. Borrowing money from a local bank

e. Collecting payment from a customer

3. Which one of the following statements is correct concerning the accounts payable period?

Select one:

a. An increase in the accounts payable period will increase the operating cycle, all else equal.

b. The accounts payable period is equal to the cost of goods sold divided by the average accounts payable.

c. Extending the accounts payable period effectively decreases the cash needs of a firm.

d. Managers generally prefer a shorter accounts payable period than a longer one.

e. Increasing the accounts payable turnover rate increases the accounts payable period.

Answer 1

1.

Which one of the following industries tends to have the longest cash cycle?

CORRECT ANSWER : e. medical devices

BECAUSE ALL OTHER ARE RETAILERS WHERE AS MEDICAL DEVICES ARE MANUFACTURING BUSINESS. GENERALLY MANUFCATURING BUSINESS HAS LONGEST CASH CYCLE

2. Which one of the following is a use of cash?

CORRECT ANSWER : c. Paying a supplier for inventory you purchased last month

a. Selling a fixed asset such as a piece of machinery , is a cash receipt so not the answer

b. Selling inventory at cost, again a cash receipt so not the answer

c. Paying a supplier for inventory you purchased last month, we paid, so cash decreases, so it use of cash ,this is the correct answer

d. Borrowing money from a local bank : we received money, so cash receipt

e. Collecting payment from a customer, money recived, so cahs receipt

3.

Which one of the following statements is correct concerning the accounts payable period?

CORRECT ANSWER : c. Extending the accounts payable period effectively decreases the cash needs of a firm.

a. An increase in the accounts payable period will increase the operating cycle, all else equal. : IF PAYABLE PERIOD INCREASES, THEN CASH CYCLE WILL DECREASE. SO NOT CORRECT

b. The accounts payable period is equal to the cost of goods sold divided by the average accounts payable.: THE GIVEN FORMULA IS OF PAYABLE TRUNOVER AND NOT PERIOD. SO NOT CORRECT

c. Extending the accounts payable period effectively decreases the cash needs of a firm. : IF WE EXTEND PAYABLE PERIOD, WE CAN USE THE MONEY TO RUN BUSINESS MORE EFFECTIVELY WHICH WILL REDUCE CASH CYCLE. SO CORRECT ANSWER

d. Managers generally prefer a shorter accounts payable period than a longer one. : NO ONE PREFERS TO PAY EARLY, SO WRONG ANSWER

e. Increasing the accounts payable turnover rate increases the accounts payable period. INCREASE IN TURNOVER LEADS TO REDUCTION IN DAYS, SO THIS IS ALSO NOT CORRECT

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