1. Opening inventory was CU 80,000 and closing inventory CU 100,000. Cost of sales for the year was CU 540,000. Using average inventory and 365 days, what is the inventory holding period?

A) 54.1 days
B) 67.6 days
C) 121.7 days
D) 60.8 days

Correct: D difficult Working capital ratios

Average inventory = (80,000 + 100,000) / 2 = CU 90,000. Days = 90,000 / 540,000 x 365 = 60.8. If you answered 54.1 you used opening inventory only. If you answered 67.6 you used closing inventory only. If you answered 121.7 you added the balances instead of averaging them (180,000 / 540,000 x 365).

2. Average inventory is CU 90,000 and cost of sales CU 730,000. Receivables are CU 164,000 and annual credit sales CU 1,460,000. Payables are CU 100,000 and annual credit purchases CU 730,000. Using 365 days, what is the cash operating cycle?

A) 46 days
B) 54 days
C) 36 days
D) 136 days

Correct: C difficult Working capital ratios

Inventory days = 45, receivables days = 41, payables days = 50. Cycle = 45 + 41 - 50 = 36 days. If you answered 136 days you added all three. If you answered 54 days you deducted receivables days instead of payables days (45 - 41 + 50). If you answered 46 days you deducted inventory days (41 + 50 - 45).

3. Customers are offered terms of 2% discount for payment within 10 days, otherwise net 40 days. Using the compound method with 365 days, what is the effective annual cost of the discount?

A) 2.0%
B) 12.2%
C) 24.8%
D) 27.9%

Correct: D difficult Credit management

By paying 30 days early the customer gives up a 2/98 = 2.04% saving, 365/30 = 12.17 times a year. Effective rate = (1 + 0.0204)^12.17 - 1 = 27.9%. If you answered 24.8% you used the simple annualised rate (2/98 x 365/30). If you answered 2.0% you gave the discount rate. If you answered 12.2% you used the number of periods in the year (365 / 30) as a percentage.

4. A business uses invoice discounting on invoices of CU 500,000. The lender advances 80%, charges 10% a year interest on the amount advanced for 60 days and charges a service fee of 1% of invoice value. What is the total cost?

A) CU 5,000
B) CU 6,575
C) CU 11,575
D) CU 40,000

Correct: C difficult Receivables financing

The advance is 80% x 500,000 = CU 400,000. Interest = 400,000 x 10% x 60/365 = CU 6,575. Service fee = 1% x 500,000 = CU 5,000. Total = CU 11,575. If you answered CU 6,575 you included interest only. If you answered CU 5,000 you included the fee only. If you answered CU 40,000 you used a full year's interest on the advance.

5. Which of the following are likely benefits of using a factor for the sales ledger? (1) Reduced administration of credit control (2) Immediate finance against invoices (3) Removal of all credit risk in every arrangement

A) (1) and (2) only
B) (1) and (3) only
C) (2) and (3) only
D) (1), (2) and (3)

Correct: A difficult Receivables financing

A factor takes over credit control and sales ledger administration (1) and usually advances a proportion of invoices (2). Credit risk transfers only under non-recourse factoring, and then usually at a higher fee, so (3) is not true of every arrangement.

6. Which of the following are symptoms of overtrading? (1) Rapid growth in sales (2) Building up of cash balances (3) Rising bank overdraft (4) Slower payment to suppliers

A) (1) and (2) only
B) (1), (3) and (4) only
C) (1), (2) and (3) only
D) (2), (3) and (4) only

Correct: B difficult Working capital management

Overtrading occurs when growth outstrips the working capital available. Typical symptoms are rapid sales growth, a rising overdraft and longer payment periods to suppliers. Cash balances typically fall, not build up.

7. An item has average usage of 200 units a day and maximum usage of 260 units a day. Lead time ranges from 5 to 9 days. What is the re-order level?

A) 1,000 units
B) 2,340 units
C) 1,300 units
D) 1,800 units

Correct: B difficult Inventory control

Re-order level = maximum usage x maximum lead time = 260 x 9 = 2,340 units. If you answered 1,800 you used average usage with the maximum lead time. If you answered 1,300 you used maximum usage with the minimum lead time. If you answered 1,000 you used average usage with the minimum lead time.

8. Which of the following are features of a just-in-time (JIT) system? (1) Frequent small deliveries from suppliers (2) Large buffer inventories to avoid stockouts (3) Close relationships with a small number of reliable suppliers

A) (1) and (2) only
B) (2) and (3) only
C) (1) and (3) only
D) (1), (2) and (3)

Correct: C difficult Inventory control

JIT aims to hold minimal inventory, with materials arriving just as they are needed. This needs frequent small deliveries and reliable suppliers. Large buffer inventories are the opposite of JIT.

9. A large company pays small suppliers after 90 days although the agreed terms are 30 days, in order to improve its cash position. Which statement is most appropriate?

A) It is acceptable, because working capital efficiency is the only duty of management
B) It is acceptable, because suppliers can always borrow to cover late payment
C) It is unethical only if the company is listed
D) The practice may conflict with fair payment practices and can harm small suppliers' viability, so it carries reputational and supply risk

Correct: D difficult Sustainability and ethics

Paying late against agreed terms transfers working capital cost to smaller suppliers and may breach fair payment commitments. It also risks supplier failure and reputational damage. Management's duty is not limited to working capital, and the principle does not depend on listing.

10. A business has surplus cash that it will need in about two months. Which investment is most appropriate?

A) Shares in a listed company, because they offer the highest long-term return
B) A five-year bond, because it offers a higher yield
C) A 60-day bank deposit, because it matches the time horizon and has low risk
D) Investment in property, because it is a real asset

Correct: C difficult Cash management

Surplus cash needed soon should be held in low-risk, liquid instruments that match the period. Equities, long bonds and property carry price risk and may be hard to sell at a fair price at short notice.

11. Annual credit purchases are CU 730,000. The company negotiates an extension of supplier credit from 40 to 55 days, with other items unchanged. By how much will the working capital investment fall?

A) CU 30,000
B) CU 15,000
C) CU 40,000
D) CU 730,000

Correct: A difficult Working capital ratios

Extra credit = 15 days. Reduction in working capital = 730,000 x 15 / 365 = CU 30,000. If you answered CU 15,000 you used the number of days. If you answered CU 40,000 you used the old period. If you answered CU 730,000 you gave annual purchases.

12. A company funds part of its permanent working capital with a bank overdraft. Which policy is this?

A) Conservative, because short-term funding is more flexible
B) Aggressive, because long-term needs are financed with short-term sources, increasing refinancing risk
C) Matching, because working capital is always short-term
D) Conservative, because overdrafts carry lower interest rates than loans

Correct: B difficult Working capital financing

A matching policy funds permanent assets with long-term finance and fluctuating assets with short-term finance. Funding permanent needs with an overdraft is aggressive, because the overdraft may be withdrawn or repriced.

13. Current assets are CU 360,000, made up of inventory CU 150,000, receivables CU 150,000 and cash CU 60,000. Current liabilities are CU 300,000. What is the quick (acid test) ratio?

A) 0.70
B) 0.20
C) 0.50
D) 1.20

Correct: A difficult Working capital ratios

Quick ratio = (current assets - inventory) / current liabilities = (360,000 - 150,000) / 300,000 = 0.70. If you answered 1.20 you gave the current ratio. If you answered 0.50 you included inventory only (150/300). If you answered 0.20 you included cash only (60/300).

14. Annual credit sales are CU 2,400,000 with 30 days' credit. Extending credit to 45 days is expected to raise sales by 10%. Contribution is 25% of sales, finance costs 8% a year and there are no bad debts. Using 365 days and sales value for receivables, what is the net annual benefit of the change?

A) CU 49,742
B) CU 10,258
C) CU 60,000
D) CU 70,258

Correct: A difficult Credit management

Extra contribution = 25% x 240,000 = CU 60,000. Receivables rise from 2,400,000 x 30/365 = CU 197,260 to 2,640,000 x 45/365 = CU 325,479, an increase of CU 128,219. Finance cost = 8% x 128,219 = CU 10,258. Net benefit = 60,000 - 10,258 = CU 49,742. If you answered CU 60,000 you ignored finance costs. If you answered CU 10,258 you gave the finance cost only. If you answered CU 70,258 you added the finance cost.

15. Credit sales for the year were CU 1,460,000 and trade receivables at the year end were CU 280,000. Using 365 days, what is the receivables collection period?

A) 5.2 days
B) 70 days
C) 35 days
D) 140 days

Correct: B difficult Working capital ratios

Receivables days = 280,000 / 1,460,000 x 365 = 70 days. If you answered 5.2 you gave the receivables turnover in times (1,460,000 / 280,000) and not days. If you answered 35 days you halved the figure. If you answered 140 days you doubled it.

16. Inventory CU 200,000; receivables CU 300,000; payables CU 180,000. Annual revenue (all on credit) is CU 2,190,000, cost of sales CU 1,460,000, and purchases equal cost of sales. What is the cash operating cycle (365 days)?

A) 55 days
B) 145 days
C) 100 days
D) 95 days

Correct: A difficult Working capital management

Inventory days = 200/1,460 x 365 = 50. Receivable days = 300/2,190 x 365 = 50. Payable days = 180/1,460 x 365 = 45. Cycle = 50 + 50 - 45 = 55 days. If you answered 145 you added payable days. If you answered 100 you ignored payables. If you answered 95 you added payable days to inventory days and left out receivable days.

17. A supplier offers a 2% discount for payment within 10 days instead of 40 days. What is the effective annual cost of not taking the discount (compound basis, 365 days)?

A) 24.8%
B) 27.9%
C) 24.3%
D) 2.0%

Correct: B difficult Trade credit

The cost over 30 days is 2/98 = 2.04%. Annualised on a compound basis: (1.0204)^(365/30) - 1 = 27.9%. If you answered 24.8% you used simple annualisation (2.04% x 365/30). If you answered 24.3% you also divided by 100 instead of 98. If you answered 2.0% you did not annualise.

18. A factor would reduce receivable days from 60 to 30 on credit sales of CU 2,920,000. It charges 2% of revenue, and admin savings are CU 18,000. The company borrows at 8%. What is the net annual effect (365 days)?

A) Net benefit of CU 21,200
B) Net cost of CU 39,200
C) Net cost of CU 40,400
D) Net cost of CU 21,200

Correct: D difficult Receivables management

Receivables fall by 2,920,000 x 30/365 = CU 240,000, saving interest of CU 19,200. Admin saving CU 18,000. Fee CU 58,400. Net = 19,200 + 18,000 - 58,400 = -CU 21,200. If you answered 'net benefit' you reversed the sign. If you answered CU 39,200 you left out the admin saving. If you answered CU 40,400 you left out the interest saving.

19. Which TWO of the following statements are correct? (1) An overdraft is flexible but may be repayable on demand. (2) A term loan suits long-term funding needs. (3) An overdraft has fixed repayment dates.

A) (1) and (2)
B) (1) and (3)
C) (2) and (3)
D) (2) only

Correct: A difficult Financing working capital

Overdrafts are flexible short-term facilities with no fixed repayment dates (statement 3 is false). Term loans match long-term needs.

20. Inventory days are cut from 60 to 45 on annual cost of sales of CU 1,460,000. Money costs 7%. What is the annual saving in finance cost (365 days)?

A) CU 4,200
B) CU 60,000
C) CU 6,300
D) CU 8,400

Correct: A difficult Inventory management

Inventory falls by 1,460,000 x 15/365 = CU 60,000. Saving at 7% = CU 4,200. If you answered CU 60,000 you gave the cash released. If you answered CU 6,300 you used revenue of CU 2,190,000. If you answered CU 8,400 you used a 30-day reduction.

21. Which TWO of the following would shorten the cash operating cycle? (1) Paying suppliers later. (2) Offering customers a discount for earlier payment. (3) Holding higher inventory to avoid stock-outs.

A) (1) and (3)
B) (2) and (3)
C) (1) only
D) (1) and (2)

Correct: D difficult Working capital management

Longer payable days and shorter receivable days both reduce the cycle. Holding more inventory lengthens it.

22. Inventory CU 400,000; receivables CU 300,000; cash CU 50,000; current liabilities CU 500,000. What is the quick (acid test) ratio?

A) 1.50
B) 0.80
C) 0.60
D) 0.70

Correct: D difficult Working capital ratios

Quick assets = receivables + cash = 350,000. Ratio = 350/500 = 0.70. If you answered 1.50 you gave the current ratio. If you answered 0.80 you included inventory but excluded cash and receivables from the numerator (400/500). If you answered 0.60 you used receivables only.

23. Credit sales are CU 1,000,000, paid after 60 days. A 2% discount for payment in 10 days is offered and 40% of sales take it. Interest is 10%. What is the net effect (365 days)?

A) Net benefit of CU 2,520
B) Net cost of CU 8,000
C) Net benefit of CU 5,480
D) Net cost of CU 2,520

Correct: D difficult Receivables management

Discount cost = 2% x 400,000 = CU 8,000. Receivables fall by 400,000 x 50/365 = CU 54,795, saving CU 5,480 interest. Net = -CU 2,520. If you answered 'net benefit of CU 2,520' you reversed the sign. If you answered CU 8,000 you ignored the interest saving. If you answered 'benefit of CU 5,480' you ignored the discount cost.

24. Revenue excluding VAT is CU 2,400,000 and VAT is 20%. Trade receivables (including VAT) are CU 576,000. What are the receivable days (365 days)?

A) 87.6 days
B) 73 days
C) 60.8 days
D) 105.1 days

Correct: B difficult Working capital ratios

Receivables include VAT, so compare with sales including VAT: 576,000 / 2,880,000 x 365 = 73 days. If you answered 87.6 you compared with revenue excluding VAT. If you answered 60.8 you removed VAT from receivables but compared them with sales including VAT (480/2,880). If you answered 105.1 you added VAT to receivables that already included it.

25. A supplier offers a 1.5% discount for payment 30 days early. The company's overdraft costs 9%. Which statement is correct?

A) Take the discount: the annualised cost of not taking it is about 18.5%, above 9%
B) Do not take the discount: 1.5% is below 9%
C) Take the discount: the annualised cost is about 1.5%
D) Do not take the discount: the overdraft is cheaper than the discount

Correct: A difficult Trade credit

Not taking the discount costs 1.5/98.5 x 365/30 = 18.5% a year. Borrowing at 9% to take it is cheaper. The other options compare the unannualised 1.5% with an annual rate or reverse the decision.