Question 1

List some of the different money market instruments available for short-term investments.

Accepted Answer

There are several money market instrumen

Question 2

A customer has ordered goods generating a present value of $800. The present value of production costs is $600. Under what conditions should you extend credit if there is no possibility of repeat orders?

Accepted Answer

A) If the probability of payment exceeds 0.67 
B) If the probability of payment exceeds 0.80 
C) If the probability of payment exceeds 0.75 
D) If the probability of payment exceeds 0.90 
A) If the probability of payment exceeds 0.67 
B) If the probability of payment exceeds 0.80 
C) If the probability of payment exceeds 0.75 
D) If the probability of payment exceeds 0.90

Question 3

If the short-term commercial paper rate is 6 percent and the corporate tax rate is 35 percent, what yield would a corporation require on an investment in auction-rate preferred stock? Assume the default risk is the same as for commercial paper.

Accepted Answer

A) 6 percent 
B) 39 percent 
C) 9.2 percent 
D) 4.4 percent 
A) 6 percent 
B) 39 percent 
C) 9.2 percent 
D) 4.4 percent

Question 4

Auction-rate preferred stock offers competitive rates of return with traditional money market instruments but

Accepted Answer

A) is not rated by Moody's or Standard & Poor's. 
B) still provides the corporate investor with the tax exclusion on dividend income. 
C) has a fixed rate of dividend income. 
D) offers a highly competitive trading market. 
A) is not rated by Moody's or Standard & Poor's. 
B) still provides the corporate investor with the tax exclusion on dividend income. 
C) has a fixed rate of dividend income. 
D) offers a highly competitive trading market.

Question 5

Firms employ the following types of inventories:

Accepted Answer

A) raw material. 
B) work in process. 
C) finished goods. 
D) All of these options are correct. 
A) raw material. 
B) work in process. 
C) finished goods. 
D) All of these options are correct.

Question 6

Which of the following have the most developed secondary market?

Accepted Answer

A) Treasury bills 
B) Commercial paper 
C) Repurchase agreements 
D) Bankers' acceptances 
A) Treasury bills 
B) Commercial paper 
C) Repurchase agreements 
D) Bankers' acceptances

Question 7

What is the effective annual cost of not taking a discount under terms 3/30, net 60?

Accepted Answer

1 + annualized cost of trade credit = 1

Question 8

In the United States, small-value electronic transfers are made through

Accepted Answer

A) Fedwire. 
B) ACH. 
C) CHIPS. 
D) Fedwire and CHIPS. 
A) Fedwire. 
B) ACH. 
C) CHIPS. 
D) Fedwire and CHIPS.

Question 9

The costs of holding inventory include

Accepted Answer

A) carrying cost. 
B) carrying cost and order cost. 
C) insurance cost. 
D) carrying cost, order cost, and insurance cost. 
A) carrying cost. 
B) carrying cost and order cost. 
C) insurance cost. 
D) carrying cost, order cost, and insurance cost.

Question 10

The default rate of Demurrage Associates' new customers has been running at 10 percent. The average sale for each new customer amounts to $800, generating a present value of profit of $100 and a 40 percent chance of a second order next year. The default rate on second orders is only 2 percent. If the interest rate is 9 percent, what is the expected profit from each new customer? (Examine only the first two periods of potential orders.)

Accepted Answer

A) $88.70 
B) $47.74 
C) $43.25 
D) $50.83 
A) $88.70 
B) $47.74 
C) $43.25 
D) $50.83

Question 11

"Eurodollars" or "international dollars" are

Accepted Answer

A) dollars deposited in banks in Europe. 
B) dollars deposited in the United States by foreigners. 
C) dollars held by foreign governments. 
D) euros or international currency deposited in the United States branches of foreign banks. 
A) dollars deposited in banks in Europe. 
B) dollars deposited in the United States by foreigners. 
C) dollars held by foreign governments. 
D) euros or international currency deposited in the United States branches of foreign banks.

Question 12

A trade acceptance, when immediate payment is not required, is a(n)

Accepted Answer

A) sight draft. 
B) time draft. 
C) bill of lading. 
D) open account. 
A) sight draft. 
B) time draft. 
C) bill of lading. 
D) open account.

Question 13

Briefly describe the basic electronic funds transfer systems.

Accepted Answer

In the United States, there are two syst

Question 14

In the United States, export business is insured by

Accepted Answer

A) the Export-Import Bank in association with Foreign Credit Insurance Association (FCI
A) . 
B) Citibank. 
C) the SBA. 
D) the United States Department of the Treasury. 
A) the Export-Import Bank in association with Foreign Credit Insurance Association (FCI
A) . 
B) Citibank. 
C) the SBA. 
D) the United States Department of the Treasury.

Question 15

A customer has ordered goods generating a present value of $2,000. The present value of production costs is $1,800. Under what conditions should you extend credit if there is no possibility of repeat orders?

Accepted Answer

A) If the probability of payment exceeds 0.67 
B) If the probability of payment exceeds 0.75 
C) If the probability of payment exceeds 0.80 
D) If the probability of payment exceeds 0.90 
A) If the probability of payment exceeds 0.67 
B) If the probability of payment exceeds 0.75 
C) If the probability of payment exceeds 0.80 
D) If the probability of payment exceeds 0.90

Question 16

Briefly describe the additional complexities involved in international cash management.

Accepted Answer

Large multinational corporations operati

Question 17

Briefly explain how firms can protect against bad debt.

Accepted Answer

Firms can get protection against bad deb

Question 18

A customer has ordered goods generating a present value of $1,200. The present value of production costs is $800. Under what conditions should you extend credit if there is no possibility of repeat orders?

Accepted Answer

A) If the probability of payment exceeds 0.67 
B) If the probability of payment exceeds 0.75 
C) If the probability of payment exceeds 0.80 
D) If the probability of payment exceeds 0.90 
A) If the probability of payment exceeds 0.67 
B) If the probability of payment exceeds 0.75 
C) If the probability of payment exceeds 0.80 
D) If the probability of payment exceeds 0.90

Question 19

If a commercial draft is an order to pay immediately, it is called a time draft.

Accepted Answer

A) True 
 B)False

Question 20

The following are advantages of electronic payment systems except:

Accepted Answer

A) record keeping is easy. 
B) the marginal cost of transaction is low. 
C) float is drastically reduced. 
D) the initial investment is high. 
A) record keeping is easy. 
B) the marginal cost of transaction is low. 
C) float is drastically reduced. 
D) the initial investment is high.

Exam 30: Working Capital Management

List some of the different money market instruments available for short-term investments.

A customer has ordered goods generating a present value of $800. The present value of production costs is $600. Under what conditions should you extend credit if there is no possibility of repeat orders?

If the short-term commercial paper rate is 6 percent and the corporate tax rate is 35 percent, what yield would a corporation require on an investment in auction-rate preferred stock? Assume the default risk is the same as for commercial paper.

Auction-rate preferred stock offers competitive rates of return with traditional money market instruments but

Firms employ the following types of inventories:

Which of the following have the most developed secondary market?

What is the effective annual cost of not taking a discount under terms 3/30, net 60?

In the United States, small-value electronic transfers are made through

The costs of holding inventory include

"Eurodollars" or "international dollars" are

A trade acceptance, when immediate payment is not required, is a(n)

Briefly describe the basic electronic funds transfer systems.

In the United States, export business is insured by

A customer has ordered goods generating a present value of $2,000. The present value of production costs is $1,800. Under what conditions should you extend credit if there is no possibility of repeat orders?

Briefly describe the additional complexities involved in international cash management.

Briefly explain how firms can protect against bad debt.

A customer has ordered goods generating a present value of $1,200. The present value of production costs is $800. Under what conditions should you extend credit if there is no possibility of repeat orders?

If a commercial draft is an order to pay immediately, it is called a time draft.

The following are advantages of electronic payment systems except:

Introduction to Corporate Finance

How to Calculate Present Values

Valuing Bonds

The Value of Common Stocks

Net Present Value and Other Investment Criteria

Making Investment Decisions With the Net Present Value Rule

Introduction to Risk and Return

Portfolio Theory and the Capital Asset Pricing Model

Risk and the Cost of Capital

Project Analysis

How to Ensure That Projects Truly Have Positive Npvs

Agency Problems and Investment

Efficient Markets and Behavioral Finance

An Overview of Corporate Financing

How Corporations Issue Securities

Payout Policy

Does Debt Policy Matter

How Much Should a Corporation Borrow

Financing and Valuation

Understanding Options

Valuing Options

Real Options

Credit Risk and the Value of Corporate Debt

The Many Different Kinds of Debt

Leasing

Managing Risk

Managing International Risks

Financial Analysis

Financial Planning

Mergers

Corporate Restructuring

Governance and Corporate Control Around the World

Filters