Cash Management: A Comprehensive Guide for Juris Doctor Students

Question 1

A company with excess cash should avoid investing in which of the following?

Accepted Answer

Long-term bonds

Answer

Money market account

Answer

Certificate of deposit

Answer

Commercial paper

Question 2

How do current ratio and quick ratio contribute to evaluating a company's ability to meet its short-term debt obligations?

Accepted Answer

They assess a company's capacity to fulfill its short-term debt obligations.

Answer

They indicate a company's long-term financial strength and stability.

Answer

They are primarily relevant to companies in specific industries.

Question 3

A positive net cash flow position indicates that a company has:

Accepted Answer

A surplus of cash available for investment

Answer

A shortage of cash and requires borrowing

Answer

A balanced cash position with no surplus or deficit

Answer

A negative cash flow forecast

Question 4

A primary goal of working capital management is to:

Accepted Answer

Maximize liquidity while minimizing risk

Answer

Minimize liquidity while maximizing risk

Answer

Maximize profitability while ignoring liquidity

Answer

Minimize profitability while maximizing liquidity

Question 5

The optimal cash conversion cycle is one that is:

Accepted Answer

As short as possible to minimize the time cash is tied up

Answer

As long as possible to maximize float

Answer

Irrelevant to the profitability of the business

Answer

Dependent on the industry and business model

Question 6

Which of the following is NOT an advantage of effective cash management?

Accepted Answer

Increased need for short-term financing

Answer

Enhanced financial stability

Answer

Increased investment opportunities

Answer

Lower borrowing costs

Question 7

Cash concentration techniques involve:

Accepted Answer

Transferring cash from multiple accounts into a central account

Answer

Investing excess cash in long-term assets

Answer

Borrowing funds to cover cash shortages

Answer

Disposing of non-cash assets to generate cash

Question 8

Which of the following is NOT a type of marketable security commonly used for short-term cash investments?

Accepted Answer

Corporate stocks

Answer

Treasury bills

Answer

Commercial paper

Answer

Certificates of deposit

Question 9

A floating lien provides a lender with a security interest in:

Accepted Answer

All of the borrower's assets, both current and future

Answer

Specific assets identified in the loan agreement

Answer

The borrower's inventory only

Answer

The borrower's accounts receivable only

Question 10

Question: Which ratio measures a company's ability to meet its immediate financial obligations?

Accepted Answer

Current ratio

Answer

Debt-to-equity ratio

Answer

Inventory turnover ratio

Answer

Return on equity

Question 11

Question: What is the primary purpose of implementing a lockbox system?

Accepted Answer

Speed up cash collections

Answer

Improve cash flow forecasting

Answer

Reduce bank fees

Answer

Manage excess cash

Question 12

Question: Which aspect is NOT an advantage of centralized cash management?

Accepted Answer

Increased operating expenses

Answer

Improved cash visibility

Answer

Reduced borrowing costs

Answer

Enhanced investment opportunities

Question 13

Question: What is the primary function of sweep accounts?

Accepted Answer

Automatically transfer excess cash into interest-bearing accounts

Answer

Control cash disbursements

Answer

Manage payroll activities

Answer

Forecast future cash needs

Question 14

Question: Which of the following does NOT influence a company's cash conversion cycle duration?

Accepted Answer

Economic conditions

Answer

Days sales outstanding

Answer

Days payable outstanding

Answer

Inventory turnover ratio

Question 15

Question: Which element is NOT included in a company's cash flow statement?

Accepted Answer

Retained earnings

Answer

Operating activities

Answer

Investing activities

Answer

Financing activities

Question 16

What are the potential negative consequences of ineffective cash management for a company's financial stability?

Accepted Answer

Reduced liquidity and increased financial risk

Answer

Increased profits and improved credit rating

Answer

Improved investor confidence and enhanced financial stability

Answer

Increased cash flow and reduced operating costs

Question 17

What is the primary objective of a lockbox system?

Accepted Answer

To accelerate the collection of receivables

Answer

To reduce the risk of fraud

Answer

To improve customer service

Answer

To simplify accounting procedures

Question 18

Which of the following is **not** a primary goal of cash management?

Accepted Answer

Maximizing return on investment

Answer

Maximizing liquidity

Answer

Minimizing risk

Answer

Facilitating efficient operations

Question 19

Which of the following does **not** affect a company's working capital?

Accepted Answer

Long-term debt

Answer

Accounts receivable

Answer

Inventory

Answer

Accounts payable

Question 20

Which of the following is excluded from working capital management?

Accepted Answer

Acquiring long-term assets

Answer

Managing inventory levels

Answer

Collecting accounts receivable

Answer

Paying accounts payable

Question 21

The primary objective of cash management is to:

Accepted Answer

Ensure sufficient liquidity to meet obligations

Answer

Maximize cash on hand

Answer

Minimize potential bankruptcy

Answer

Enhance stock value

Question 22

Effective cash management does not provide the benefit of:

Accepted Answer

Heightened bankruptcy risk

Answer

Reduced borrowing costs

Answer

Enhanced profitability

Answer

Improved liquidity

Question 23

Which of the following is not included in a typical cash flow statement?

Accepted Answer

Profitability analysis

Answer

Operating activities

Answer

Investing activities

Answer

Financing activities

Question 24

The purpose of a lockbox system is to:

Accepted Answer

Accelerate cash collection

Answer

Reduce processing costs

Answer

Improve customer service

Answer

Enhance security

Question 25

The primary goal of working capital management is to:

Accepted Answer

Ensure liquidity

Answer

Maximize profitability

Answer

Minimize risk

Answer

Control costs

Question 26

Which of the following is NOT a benefit of effective cash management?

Accepted Answer

Increased risk of insolvency

Answer

Enhanced financial performance

Answer

Increased profitability

Answer

Improved liquidity

Question 27

What is a key component of cash flow forecasting?

Accepted Answer

Predicting future cash inflows and outflows

Answer

Investing excess cash

Answer

Analyzing historical financial data

Answer

Managing working capital

Question 28

When a company maintains a positive working capital, it indicates that:

Accepted Answer

Current assets exceed current liabilities

Answer

Long-term assets exceed long-term liabilities

Answer

Shareholder equity is greater than total assets

Answer

Current liabilities exceed current assets

Question 29

What is the main objective of working capital management?

Accepted Answer

Ensure sufficient liquidity to meet short-term obligations

Answer

Increase profitability

Answer

Maximize shareholder value

Question 30

What is a benefit of using a lockbox system?

Accepted Answer

Speeds up the collection of receivables

Answer

Reduces the need for short-term borrowing

Answer

Slows down the payment of payables

Question 31

Which of the following is a primary benefit of effective cash management?

Accepted Answer

Reduced borrowing costs

Answer

Lower employee morale

Answer

Reduced sales volume

Answer

Increased inventory levels

Question 32

What is the primary purpose of cash flow forecasting?

Accepted Answer

To predict future cash inflows and outflows

Answer

To create a budget

Answer

To track historical cash flow data

Answer

To identify potential cash shortages

Question 33

Which of the following is a common method for investing excess cash in the short term?

Accepted Answer

Money market accounts

Answer

Private equity funds

Answer

Long-term bonds

Answer

Real estate

Question 34

What is the primary purpose of a lockbox system?

Accepted Answer

To accelerate cash collection

Answer

To improve customer service

Answer

To streamline accounting processes

Answer

To reduce shipping costs

Question 35

Which of the following factors should be considered when determining a company's target cash balance?

Accepted Answer

Operating expenses, debt obligations, and seasonality

Answer

Customer satisfaction, employee morale, and environmental sustainability

Answer

Stock price, dividend policy, and industry trends

Answer

Employee salaries, marketing budget, and research and development costs

Question 36

What is the role of working capital management in cash management?

Accepted Answer

To ensure sufficient liquidity to meet short-term obligations

Answer

To reduce tax liability

Answer

To minimize operating expenses

Answer

To maximize long-term profitability

Question 37

Which of the following is a potential disadvantage of holding excessive cash?

Accepted Answer

Opportunity cost of lost investment returns

Answer

Improved financial flexibility

Answer

Enhanced shareholder confidence

Answer

Reduced risk of financial distress

Question 38

What is the key distinction between positive and negative net working capital?

Accepted Answer

Positive NWC indicates short-term assets exceed liabilities, while negative NWC indicates liabilities exceed short-term assets

Answer

NWC has no bearing on a company's financial health

Answer

Positive NWC is always desirable, while negative NWC should always be avoided

Answer

Positive NWC indicates a company is profitable, while negative NWC indicates a company is insolvent

Question 39

Which of the following is a technique for improving cash flow from operations?

Accepted Answer

Negotiating extended payment terms with suppliers

Answer

Increasing product prices without regard to market demand

Answer

Issuing additional shares of stock to raise capital

Answer

Reducing employee salaries below industry standards

Question 40

What is the primary significance of establishing formal cash management policies and procedures?

Accepted Answer

To ensure consistent, structured, and efficient cash management practices throughout the organization

Answer

To solely mitigate the risk of fraud and errors

Answer

To merely adhere to external legal requirements

Question 41

Which of the following accurately captures the fundamental goal of cash management?

Accepted Answer

To optimize liquidity and returns while effectively managing risk

Answer

To solely maximize profits and reduce expenses

Answer

To minimize debt obligations and elevate equity

Question 42

What is a primary advantage of utilizing bank overdrafts as a short-term financing source?

Accepted Answer

Flexibility and convenience in accessing funds

Answer

Absence of collateral requirements

Answer

Extended repayment periods

Answer

Low interest rates

Question 43

What is a fundamental aspect of successful working capital management?

Accepted Answer

Balancing the need for short-term liquidity with long-term profitability objectives

Answer

Disregarding the potential impact on long-term business growth

Answer

Focusing exclusively on maximizing current assets

Question 44

What is a primary benefit associated with a lockbox system for cash collection?

Accepted Answer

Accelerated cash inflows and reduced float

Answer

Increased number of payment acceptance methods

Answer

Elimination of the need for bank accounts

Answer

Simplified reconciliation process

Question 45

Which key metric is used to evaluate the effectiveness of cash management practices?

Accepted Answer

Cash conversion ratio

Answer

Current ratio

Answer

Debt-to-equity ratio

Answer

Return on assets

Question 46

Which factor does NOT influence the determination of the optimal level of cash holdings for a company?

Accepted Answer

Shareholder dividends

Answer

Transaction costs

Answer

Forecasted interest rates

Answer

Expected inflation rate

Question 47

The primary aim of cash flow forecasting is to:

Accepted Answer

Estimate future cash flows

Answer

Eliminate negative cash balances

Answer

Avoid unnecessary borrowing

Answer

Maximize profits

Question 48

A common method for investing excess cash includes:

Accepted Answer

Money market accounts

Answer

Private equity

Answer

Real estate

Answer

Venture capital funds

Question 49

Working capital management primarily focuses on managing:

Accepted Answer

Short-term assets and liabilities

Answer

Long-term investments

Answer

Dividend payments

Answer

Capital budgeting

Question 50

The primary purpose of a lockbox system is to:

Accepted Answer

Accelerate cash collections

Answer

Minimize bank fees

Answer

Increase customer satisfaction

Answer

Enhance data security

Question 51

A potential disadvantage of factoring accounts receivable is its:

Accepted Answer

High cost

Answer

Increased borrowing capacity

Answer

Enhanced customer relationships

Answer

Improved efficiency

Question 52

The primary objective of a zero-balance account system is to:

Accepted Answer

Concentrate cash balances

Answer

Reduce operating expenses

Answer

Improve financial reporting

Question 53

Which of the following is NOT a common tool used in corporate cash management?

Accepted Answer

Options trading

Answer

Bank reconciliation

Answer

Cash flow forecasting