Question 1

Which of the following statements is NOT CORRECT?

Accepted Answer

A)  A company may hold a relatively large amount of cash and marketable securities if it is uncertain about its volume of sales, profits, and cash flows during the coming year. 
B)  Credit policy has an impact on working capital because it influences both sales and the time before receivables are collected. 
C)  The cash budget is useful to help estimate future financing needs, especially the need for short-term working capital loans. 
D)  If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10 net 30 to net 60. 
E)  Managing working capital is important because it influences financing decisions and the firm's profitability. 
A)  A company may hold a relatively large amount of cash and marketable securities if it is uncertain about its volume of sales, profits, and cash flows during the coming year. 
B)  Credit policy has an impact on working capital because it influences both sales and the time before receivables are collected. 
C)  The cash budget is useful to help estimate future financing needs, especially the need for short-term working capital loans. 
D)  If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10 net 30 to net 60. 
E)  Managing working capital is important because it influences financing decisions and the firm's profitability.

Question 2

Singal Inc. is preparing its cash budget. It expects to have sales of
$30,000 in January, $35,000 in February, and $35,000 in March. If 20% of sales are for cash, 40% are credit sales paid in the month after the sale, and another 40% are credit sales paid 2 months after the sale, what are the expected cash receipts for March?

Accepted Answer

A)  $24,057 
B)  $26,730 
C)  $29,700 
D)  $33,000 
E)  $36,300 
A)  $24,057 
B)  $26,730 
C)  $29,700 
D)  $33,000 
E)  $36,300

Question 3

Accruals are "spontaneous," but unfortunately, due to law and economic forces, firms have little control over the level of these accounts.

Accepted Answer

A) True 
 B)False

Question 4

Setting up a lockbox arrangement is one way for a firm to speed up the collection of payments from its customers.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is CORRECT?

Accepted Answer

A)  Accruals are an expensive but commonly used way to finance working capital. 
B)  A conservative financing policy is one where the firm finances part of its fixed assets with short-term capital and all of its net working capital with short-term funds. 
C)  If a company receives trade credit under terms of 2/10 net 30, this implies that the company has 10 days of free trade credit. 
D)  One cannot tell if a firm has a conservative, aggressive, or moderate current asset financing policy without an examination of its cash budget. 
E)  If a firm has a relatively aggressive current asset financing policy vis-à-vis other firms in its industry, then its current ratio will probably be relatively high. 
A)  Accruals are an expensive but commonly used way to finance working capital. 
B)  A conservative financing policy is one where the firm finances part of its fixed assets with short-term capital and all of its net working capital with short-term funds. 
C)  If a company receives trade credit under terms of 2/10 net 30, this implies that the company has 10 days of free trade credit. 
D)  One cannot tell if a firm has a conservative, aggressive, or moderate current asset financing policy without an examination of its cash budget. 
E)  If a firm has a relatively aggressive current asset financing policy vis-à-vis other firms in its industry, then its current ratio will probably be relatively high.

Question 6

Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its non-free trade credit? (Assume a 365-day year.)

Accepted Answer

A)  20.11% 
B)  21.17% 
C)  22.28% 
D)  23.45% 
E)  24.63% 
A)  20.11% 
B)  21.17% 
C)  22.28% 
D)  23.45% 
E)  24.63%

Question 7

Zarruk Construction's DSO is 50 days (on a 365-day basis), accounts receivable are $100 million, and its balance sheet shows inventory of
$125 million. What is the inventory turnover ratio?

Accepted Answer

A)  4.73 
B)  5.26 
C)  5.84 
D)  6.42 
E)  7.07 
A)  4.73 
B)  5.26 
C)  5.84 
D)  6.42 
E)  7.07

Question 8

Weiss Inc. arranged a $9,000,000 revolving credit agreement with a group of banks. The firm paid an annual commitment fee of 0.5% of the unused balance of the loan commitment. On the used portion of the revolver, it paid 1.5% above prime for the funds actually borrowed on a simple interest basis. The prime rate was 3.25% during the year. If the firm borrowed $6,000,000 immediately after the agreement was signed and repaid the loan at the end of one year, what was the total dollar annual cost of the revolver?

Accepted Answer

A)  $285,000 
B)  $300,000 
C)  $315,000 
D)  $330,750 
E)  $347,288 
A)  $285,000 
B)  $300,000 
C)  $315,000 
D)  $330,750 
E)  $347,288

Question 9

Suppose a firm changes its credit policy from 2/10 net 30 to 3/10 net
30. The change is meant to meet competition, so no increase in sales is expected. The average accounts receivable balance will probably decline as a result of this change.

Accepted Answer

A) True 
 B)False

Which of the following statements is NOT CORRECT?

Accruals are "spontaneous," but unfortunately, due to law and economic forces, firms have little control over the level of these accounts.

Setting up a lockbox arrangement is one way for a firm to speed up the collection of payments from its customers.

Which of the following statements is CORRECT?

Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its non-free trade credit? (Assume a 365-day year.)

Zarruk Construction's DSO is 50 days (on a 365-day basis), accounts receivable are $100 million, and its balance sheet shows inventory of $125 million. What is the inventory turnover ratio?

Suppose a firm changes its credit policy from 2/10 net 30 to 3/10 net 30. The change is meant to meet competition, so no increase in sales is expected. The average accounts receivable balance will probably decline as a result of this change.

An Overview of Financial Management and the Financial Environment

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds, Bond Valuation, and Interest Rates

Risks and Rates of Return

Stocks and Their Valuation

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Financial Planning and Forecasting Financial Statements

Corporate Valuation, Value-Based Management, and Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Multinational Financial Management

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Initial Public Offerings, Investment Banking, and Financial Restructuring

Mergers, Lbos, Divestitures, and Holding Companies

Bankruptcy, Reorganization, and Liquidation

Derivatives and Risk Management

Portfolio Theory, Asset Pricing Models, and Behavioral Finance

Real Options

Analysis of Capital Structure Theory

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not-For-Profit Businesses

Filters

Exam 16: Working Capital Management

Which of the following statements is NOT CORRECT?

Accruals are "spontaneous," but unfortunately, due to law and economic forces, firms have little control over the level of these accounts.

Setting up a lockbox arrangement is one way for a firm to speed up the collection of payments from its customers.

Which of the following statements is CORRECT?

Bumpas Enterprises purchases $4,562,500 in goods per year from its sole supplier on terms of 2/15, net 50. If the firm chooses to pay on time but does not take the discount, what is the effective annual percentage cost of its non-free trade credit? (Assume a 365-day year.)

Zarruk Construction's DSO is 50 days (on a 365-day basis), accounts receivable are $100 million, and its balance sheet shows inventory of $125 million. What is the inventory turnover ratio?

Suppose a firm changes its credit policy from 2/10 net 30 to 3/10 net 30. The change is meant to meet competition, so no increase in sales is expected. The average accounts receivable balance will probably decline as a result of this change.

An Overview of Financial Management and the Financial Environment

Financial Statements, Cash Flow, and Taxes

Analysis of Financial Statements

Time Value of Money

Bonds, Bond Valuation, and Interest Rates

Risks and Rates of Return

Stocks and Their Valuation

Financial Options and Applications in Corporate Finance

The Cost of Capital

The Basics of Capital Budgeting

Cash Flow Estimation and Risk Analysis

Financial Planning and Forecasting Financial Statements

Corporate Valuation, Value-Based Management, and Corporate Governance

Distributions to Shareholders: Dividends and Repurchases

Capital Structure Decisions

Multinational Financial Management

Lease Financing

Hybrid Financing: Preferred Stock, Warrants, and Convertibles

Initial Public Offerings, Investment Banking, and Financial Restructuring

Mergers, Lbos, Divestitures, and Holding Companies

Bankruptcy, Reorganization, and Liquidation

Derivatives and Risk Management

Portfolio Theory, Asset Pricing Models, and Behavioral Finance

Real Options

Analysis of Capital Structure Theory

Providing and Obtaining Credit

Advanced Issues in Cash Management and Inventory Control

Pension Plan Management

Financial Management in Not-For-Profit Businesses

Filters