Part 1: True or False Items

Instructions: Read each question carefully and write TRUE if the statement is correct, otherwise write FALSE. Write your answer on the answer sheet provided. (1 point each)

1. Float is the difference between book cash and bank cash.
2. Both accounts receivable and inventory level depend heavily upon sales.
3. The longer a trade receivable is past due, the lower the probability of uncollectible.
4. Receivable turnover refers to the time taken from the time cash is paid to purchase raw materials till the time it is received from customers.
5. Disbursement float can be decreased by writing a check on a geographically distant bank.
6. Uncertainty in demand for inventory as well as in lead time creates the need for a safety stock.
7. The decision to extend credit involves consideration of the profit to be gained from the sale against the cost of granting the credit.
8. The best credit standard policy is one that minimizes bad debt losses.
9. Dividends paid represent the residual amount from earnings after the company's investment needs are fulfilled.
10. Dividend irrelevance implies that shareholders do not prefer current dividends and there is no direct relationship between dividend policy and the value of the firm.