Question 1

Which of the following money market investments is a short-term debt obligation of the U.S.government?

Accepted Answer

A) Treasury Bill 
B) Repurchase Agreement 
C) Commercial Paper 
D) Certificates of Deposit (C
D)  
E) Banker's Acceptance 
A) Treasury Bill 
B) Repurchase Agreement 
C) Commercial Paper 
D) Certificates of Deposit (C
D)  
E) Banker's Acceptance A

Question 2

Which of the following statements is FALSE?

Accepted Answer

A) After a firm decides on its credit standards,it must next establish its credit terms. 
B) The decision of how much credit risk to assume plays a large role in determining how much money a firm ties up in its payables. 
C) Knowledge of the payments pattern is also useful for forecasting the firm's working capital requirements. 
D) An aging schedule categorizes accounts by the number of days they have been on the firm's books. 
A) After a firm decides on its credit standards,it must next establish its credit terms. 
B) The decision of how much credit risk to assume plays a large role in determining how much money a firm ties up in its payables. 
C) Knowledge of the payments pattern is also useful for forecasting the firm's working capital requirements. 
D) An aging schedule categorizes accounts by the number of days they have been on the firm's books. B

Question 3

Goldsboro Industries has an average accounts payable balance of $680,000.Its annual cost of goods sold is $4,500,000,and it receives terms of 1/10,net 40 from its suppliers.Goldsboro chooses to forgo this discount.Is Goldsboro managing its accounts payables well?

Accepted Answer

The firm is not managing its accounts payables well.Goldsboro's days payable outstanding is   = 55.16 days.They are over the term of 40 days offered by their suppliers.Goldsboro is stretching the terms of the credit agreement and risks having problems with their suppliers as a result.

Question 4

Which of the following statements is FALSE?

Accepted Answer

A) The main components of net working capital are cash,inventory,receivables,and payables. 
B) The firm's cash cycle is the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product. 
C) Working capital includes the cash that is needed to run the firm on a day-to-day basis.It does not include excess cash,which is cash that is not required to run the business and can be invested at a market rate. 
D) If the firm pays cash for its inventory,the firm's operating cycle is identical to the firm's cash cycle. 
A) The main components of net working capital are cash,inventory,receivables,and payables. 
B) The firm's cash cycle is the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product. 
C) Working capital includes the cash that is needed to run the firm on a day-to-day basis.It does not include excess cash,which is cash that is not required to run the business and can be invested at a market rate. 
D) If the firm pays cash for its inventory,the firm's operating cycle is identical to the firm's cash cycle.

Question 5

Consider the following information for the question(s)below.
Hammond Motors had sales of $35 million in 2019 with a cost of goods sold of $20 million.A simplified balance sheet for Hammond appears below (amounts in $ million):  
-Hammond's cash conversion cycle in 2019 is closest to:

Accepted Answer

A) 22 days. 
B) 44 days. 
C) 58 days. 
D) 66 days. 
A) 22 days. 
B) 44 days. 
C) 58 days. 
D) 66 days.

Question 6

The amount of cash a firm needs to be able to pay its bills is sometimes referred to as a(n):

Accepted Answer

A) operating balance. 
B) compensating balance. 
C) transactions balance. 
D) precautionary balance. 
A) operating balance. 
B) compensating balance. 
C) transactions balance. 
D) precautionary balance.

Question 7

Use the table for the question(s)below.
Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2019.A simplified balance sheet for the firm appears below:
Luther Industries
Balance Sheet
As of December 31,2019
(millions of dollars)  
-Luther's cash conversion cycle is closest to:

Accepted Answer

A) 51 days. 
B) 66 days. 
C) 71 days. 
D) 129 days. 
A) 51 days. 
B) 66 days. 
C) 71 days. 
D) 129 days.

Question 8

Use the following information for the question(s)below.
Wyatt Oil has the following accounts on its books:   Wyatt extends credit on terms of 1/15,net 30.
-The percentage of Wyatt's receivables that are current is closest to:

Accepted Answer

A) 32.1%. 
B) 38.3%. 
C) 42.2%. 
D) 61.7%. 
A) 32.1%. 
B) 38.3%. 
C) 42.2%. 
D) 61.7%.

Question 9

The amount of cash a firm holds to counter the uncertainty surrounding its future cash needs is known as a(n):

Accepted Answer

A) speculative balance. 
B) compensating balance. 
C) operating balance. 
D) precautionary balance. 
A) speculative balance. 
B) compensating balance. 
C) operating balance. 
D) precautionary balance.

Question 10

Which of the following money market investments is a short-term,unsecured debt obligation issued by a large corporation,with a minimum denomination of $25,000?

Accepted Answer

A) Banker's Acceptance 
B) Commercial Paper 
C) Repurchase Agreement 
D) Certificates of Deposit (C
D)  
E) Treasury Bill 
A) Banker's Acceptance 
B) Commercial Paper 
C) Repurchase Agreement 
D) Certificates of Deposit (C
D)  
E) Treasury Bill

Question 11

Which of the following statements is FALSE?

Accepted Answer

A) Under the Modigliani-Miller assumptions of perfect capital markets,the amount of inventory is irrelevant. 
B) Unlike trade credit,inventory represents one of the required factors of production. 
C) It is the firm's financial manager who must arrange for the financing necessary to support the firm's inventory policy and who is responsible for ensuring the firm's overall profitability. 
D) Inventory management receives extensive coverage in courses on operations management. 
A) Under the Modigliani-Miller assumptions of perfect capital markets,the amount of inventory is irrelevant. 
B) Unlike trade credit,inventory represents one of the required factors of production. 
C) It is the firm's financial manager who must arrange for the financing necessary to support the firm's inventory policy and who is responsible for ensuring the firm's overall profitability. 
D) Inventory management receives extensive coverage in courses on operations management.

Question 12

Wyatt Oil purchases goods from its suppliers on terms 3/20 net 40.The effective annual cost to Wyatt,if they do not take the discount,and instead pay on day 40 is closest to:

Accepted Answer

A) 18%. 
B) 45%. 
C) 75%. 
D) 82%. 
A) 18%. 
B) 45%. 
C) 75%. 
D) 82%.

Question 13

Luther Industries bills its accounts on terms of 2/10,net 30.The firm's accounts receivable include $250,000 that has been outstanding for 10 or fewer days,$375,000 outstanding for 11 to 30 days,$70,000 outstanding for 31 to 40 days,$35,000 outstanding for 41 to 50 days,$20,000 outstanding for 51 to 60 days,and $8000 outstanding for more than 60 days.Prepare an aging schedule for Luther Industries.

Accepted Answer

The answer of Luther Industries bills its accounts on terms...

Question 14

Use the following information for the question(s)below.
Wyatt Oil has the following accounts on its books:   Wyatt extends credit on terms of 1/15,net 30.
-The percentage of Wyatt's receivables that are still eligible to take the discount is closest to:

Accepted Answer

A) 20.1%. 
B) 32.1%. 
C) 38.3%. 
D) 42.2%. 
A) 20.1%. 
B) 32.1%. 
C) 38.3%. 
D) 42.2%.

Question 15

Which of the following statements is FALSE?

Accepted Answer

A) The Check Clearing for the 21st Century Act (Check 21),which became effective on October 28,2004,eliminated the disbursement float due to the check-clearing process. 
B) Trade credit is,in essence,a loan from the selling firm to its customer. 
C) The accounts receivable balance represents the amount that a firm owes its suppliers for goods that it has received but for which it has not yet paid. 
D) Providing financing at below-market rates is an indirect way to lower prices for only certain customers. 
A) The Check Clearing for the 21st Century Act (Check 21),which became effective on October 28,2004,eliminated the disbursement float due to the check-clearing process. 
B) Trade credit is,in essence,a loan from the selling firm to its customer. 
C) The accounts receivable balance represents the amount that a firm owes its suppliers for goods that it has received but for which it has not yet paid. 
D) Providing financing at below-market rates is an indirect way to lower prices for only certain customers.

Question 16

Use the table for the question(s)below.
Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2019.A simplified balance sheet for the firm appears below:
Luther Industries
Balance Sheet
As of December 31,2019
(millions of dollars)  
-Luther's inventory days is closest to:

Accepted Answer

A) 32 days. 
B) 59 days. 
C) 39 days. 
D) 42 days. 
A) 32 days. 
B) 59 days. 
C) 39 days. 
D) 42 days.

Question 17

Which of the following statements is FALSE?

Accepted Answer

A) A firm's cash cycle is the length of time between when the firm pays cash to purchase its initial inventory and when it receives cash from the sale of the output produced from that inventory. 
B) The longer a firm's cash cycle,the more working capital it has,and the more cash it needs to carry to conduct its daily operations. 
C) Most firms buy their inventory on credit,which increases the amount of time between the cash investment and the receipt of cash from that investment. 
D) Any reduction in working capital requirements generates a positive free cash flow that the firm can distribute immediately to shareholders. 
A) A firm's cash cycle is the length of time between when the firm pays cash to purchase its initial inventory and when it receives cash from the sale of the output produced from that inventory. 
B) The longer a firm's cash cycle,the more working capital it has,and the more cash it needs to carry to conduct its daily operations. 
C) Most firms buy their inventory on credit,which increases the amount of time between the cash investment and the receipt of cash from that investment. 
D) Any reduction in working capital requirements generates a positive free cash flow that the firm can distribute immediately to shareholders.

Question 18

Use the table for the question(s)below.
Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2019.A simplified balance sheet for the firm appears below:
Luther Industries
Balance Sheet
As of December 31,2019
(millions of dollars)  
-Luther's accounts receivable days is closest to:

Accepted Answer

A) 42 days. 
B) 39 days. 
C) 32 days. 
D) 59 days. 
A) 42 days. 
B) 39 days. 
C) 32 days. 
D) 59 days.

Question 19

Use the following information to answer the question(s)below:
Rearden Metal (RM)had $120 million in sales in 2019.Its cost of goods sold was $85 million,and its average inventory balance was $15 million.
-The industry average days of inventory is 75 days.The amount that Rearden would have to increase/decrease its inventory in order to match the industry average is closest to:

Accepted Answer

A) decrease inventory by $2.2 million. 
B) increase inventory by $2.2 million. 
C) increase inventory by $2.5 million. 
D) increase inventory by $4.2 million. 
A) decrease inventory by $2.2 million. 
B) increase inventory by $2.2 million. 
C) increase inventory by $2.5 million. 
D) increase inventory by $4.2 million.

Question 20

Use the following information for the question(s)below.
Wyatt Oil has the following accounts on its books:   Wyatt extends credit on terms of 1/15,net 30.
-The percentage of Wyatt's receivables that are past due is closest to:

Accepted Answer

A) 20.1%. 
B) 32.1%. 
C) 38.3%. 
D) 42.2%. 
A) 20.1%. 
B) 32.1%. 
C) 38.3%. 
D) 42.2%.

Exam 26: Working Capital Management

Which of the following money market investments is a short-term debt obligation of the U.S.government?

Which of the following statements is FALSE?

Goldsboro Industries has an average accounts payable balance of $680,000.Its annual cost of goods sold is $4,500,000,and it receives terms of 1/10,net 40 from its suppliers.Goldsboro chooses to forgo this discount.Is Goldsboro managing its accounts payables well?

Which of the following statements is FALSE?

Consider the following information for the question(s)below. Hammond Motors had sales of $35 million in 2019 with a cost of goods sold of $20 million.A simplified balance sheet for Hammond appears below (amounts in $ million): -Hammond's cash conversion cycle in 2019 is closest to:

The amount of cash a firm needs to be able to pay its bills is sometimes referred to as a(n):

Use the following information for the question(s)below. Wyatt Oil has the following accounts on its books: Wyatt extends credit on terms of 1/15,net 30. -The percentage of Wyatt's receivables that are current is closest to:

The amount of cash a firm holds to counter the uncertainty surrounding its future cash needs is known as a(n):

Which of the following money market investments is a short-term,unsecured debt obligation issued by a large corporation,with a minimum denomination of $25,000?

Which of the following statements is FALSE?

Wyatt Oil purchases goods from its suppliers on terms 3/20 net 40.The effective annual cost to Wyatt,if they do not take the discount,and instead pay on day 40 is closest to:

Use the following information for the question(s)below. Wyatt Oil has the following accounts on its books: Wyatt extends credit on terms of 1/15,net 30. -The percentage of Wyatt's receivables that are still eligible to take the discount is closest to:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Use the following information for the question(s)below. Wyatt Oil has the following accounts on its books: Wyatt extends credit on terms of 1/15,net 30. -The percentage of Wyatt's receivables that are past due is closest to:

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Financial Options

Option Valuation

Real Options

Raising Equity Capital

Debt Financing

Leasing

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

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