Study Material for Financial Management

This study material provides comprehensive coverage of financial management concepts. It includes solved assignments, essays, and dissertations to help students improve their understanding of financial management.

Question 1
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A skateboard factory uses 95kg of ball bearings every day in its operations,
which is drawn from a central silo. For tracking purposes, the silo has
markings on its sides to show the amount of ball bearings contained inside. If
it takes five days for an order of fresh ball bearings to arrive from the
supplier, at what mark on the silo should the factory place an order, at the
absolute latest?
Select one:
a. 19kg
b. 95kg
c. 237.5kg
d. 475kg
e. 100kg
Question 2
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A firm has credit terms of “5/7 net 60 days” for its customers. What does this
mean?
Select one:
a. An average of five out every seven customers settles their accounts within
60 days.
b. A customer receives a discount if they pay within the five to seven-day
period; otherwise they must settle within 60 days.
c. A customer receives a 5% discount if they pay within seven days;
otherwise they must settle within 60 days.
d. A customer is required to settle five sevenths of their account within 60
days.
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Questions 3 to 6 relate to the following scenario: African Batteries CC is
in the business of selling car batteries. Their records reflect that their stock
sits on their shelves for an average of 15 days from the time it’s stocked until
it gets sold. As they deal with a large number of fleet operators, they provide
lines of credit to qualifying customers, and these accounts receivable take an

average of 53 days to be settled. When they order stock from their head
office supplier, they have 30 days from arrival of the stock in which to pay for
it, which they abide by religiously.
Question 3
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What is the length of their operating cycle?
Select one:
a. 38 days
b. 30 days
c. 53 days
d. 15 days
e. 68 days
Question 4
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What is their CCC?
Select one:
a. 53 days
b. 15 days
c. 38 days
d. 45 days
e. 30 days
Question 5
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What is their average payment period?
Select one:
a. 38 days
b. 68 days
c. 30 days
d. 15 days

e. 45 days
Question 6
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If the credit terms that they offer their qualifying customers are 60 days, how
would African Batteries CC’s collections and accounts receivable
management be regarded?
Select one:
a. Efficient
b. Not applicable
c. Inefficient
Question 7
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If a firm had a negative CCC (as compared to a positive one), what would this
represent?
Select one:
a. A firm that is probably cash positive and can take advantage of short-term
investments
b. A firm that relies on short-term financing and can take advantage of short-
term investments
c. A firm that is probably cash positive, but with cash shortfalls that need
covering
d. A firm that probably relies on short-term financing to cover its cash
shortfalls
Question 8
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If you were a clothing designer, reams of fabric on rollers would be regarded
as:
Select one:
a. Inventory
b. Finished goods
c. Work in process

d. Raw material
Question 9
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If, when drawing up a cash budget, there are periods where the ending cash
balance is less than zero, this means that:
Select one:
a. The firm will need to arrange short-term financing facilities.
b. The firm is insolvent, and should be liquidated.
c. The firm has excess cash, and should look at short-term investments.
d. The firm is running at a sustainable profit.
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Questions 10 and 11 refer to the following scenario: Sports Cover-Ups
CC is in the business of selling supporters shirts for cricket, rugby and soccer,
and they feel that their inventory management and costs are not as efficient
as they could be. As they cover three sporting codes, their sales are relatively
stable, and they sell 4,000 units a month. They sell each shirt for R300, which
is a 50% markup on the purchase price per unit. Their supplier charges them
a fixed fee of R80 every time they place an order for more stock, and their
carrying costs average out at 12% of inventory value.
Question 10
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What is their purchase price per unit?
Select one:
a. R200
b. R100
c. R300
d. R150
e. R250
Question 11
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What is the most economic quantity for the business to order at a time
(rounded to the nearest unit)?
Select one:
a. 189 units
b. 653 units
c. 163 units
d. 566 units
Question 12
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What is the biggest risk attached to selling goods or services on credit?
Select one:
a. The opportunity cost of the working capital tied up by doing so
b. The product being incorrect, and having to deal with returns
c. The inefficient use of time needed to screen potential credit customers
d. Not being paid by the customer, and suffering a loss as a result
Question 13
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What is the correct order to follow when deciding whether to award credit to
a customer?
Select one:
a. Information evaluation; information verification; information selection
b. Credit selection; credit analysis; credit collection
c. Credit card; credit history; credit bureaus
d. Information collection; information verification; information evaluation
Question 14
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Which combination of practices would be seen as the most effective strategy
for managing cash flow?
Select one:

a. Paying bills as late as possible and collecting money from customers as
late as possible
b. Paying bills as soon as possible and collecting money from customers as
late as possible
c. Paying bills as late as possible and collecting money from customers as
soon as possible
d. Paying bills as soon as possible and collecting money from customers as
soon as possible
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Questions 15 and 16 refer to the following scenario: Great Grains Ltd
sells grain feed to farmers. Their total sales figure for the past year was R1.8
million. They sell 65% of their produce on credit. Their total bad debts figure
for the year was R128,700.
Question 15
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What is Great Grain’s bad debt ratio?
Select one:
a. 4.65%
b. 7.15%
c. 35%
d. 11%
e. 20.43%
Question 16
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If the average bad debt ratio for the grain feed sales industry is 8%, what
does this mean for Great Grains Ltd?
Select one:
a. Their bad debts are worse than average – they should relax their credit
standards.
b. Their bad debts are better than average – they should tighten their credit
standards.

c. Their bad debts are better than average – they should relax their credit
standards.
d. Their bad debts are worse than average – they should tighten their credit
standards.
Question 17
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As depreciation charges are an expense, they must be included in the cash
budget.
Select one:
True
False
Question 18
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Extending credit to customers always results in increased profitability.
Select one:
True
False