Study Material for 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.
Information
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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