Question 1

A firm sells its $1,000,000 receivables to a factor for $960,000.Average collection period is one month.The effective annual rate is:

Accepted Answer

A) 27.43% 
B) 48.00% 
C) 60.10% 
D) 63.21% 
A) 27.43% 
B) 48.00% 
C) 60.10% 
D) 63.21%

Question 2

CumChan has issued commercial paper with a face value of $250,000 that will mature in 60 days.The present market value of the paper is $242,000.Interest on the paper is, therefore:

Accepted Answer

$250,000-$242,000 = $8,000.Over the 60-d

Question 3

When a loan is secured by receivables, the firm assigns the receivables to the bank.If the firm fails to repay the loan, the bank can collect the receivables from the firm's customers and use the cash to pay off the debt.The risk of default on the receivables is now borne by the bank.

Accepted Answer

A) True 
 B)False

Question 4

A firm needs spare cash to deal with capital budget appropriations, dividend payments, and other large outlays.The interest rate on bank loans is simply quoted as:

Accepted Answer

A) precautionary motive 
B) transactions motive 
C) speculative motive 
D) simple interest 
A) precautionary motive 
B) transactions motive 
C) speculative motive 
D) simple interest

Question 5

A firm paid out a dividend of $700,000 and repaid $1,000,000 notes payable (due for 90 days.) The net effect of these transactions on the firm's net working capital is:

Accepted Answer

A) decrease of $1,700,000 
B) decrease of $1,000,000 
C) decrease of $700,000 
D) decrease of $300,000 
A) decrease of $1,700,000 
B) decrease of $1,000,000 
C) decrease of $700,000 
D) decrease of $300,000

Question 6

The lower the average level of inventory, the more profitable the firm.

Accepted Answer

A) True 
 B)False

Question 7

When a firm finances long-term assets with short-term sources of funding, it:

Accepted Answer

A) reduces the risk of cash shortage 
B) will have lower interest expense 
C) improves the leverage ratio 
D) is ignoring the principle of matched maturities 
A) reduces the risk of cash shortage 
B) will have lower interest expense 
C) improves the leverage ratio 
D) is ignoring the principle of matched maturities

Question 8

Permanent working capital requirements can be financed using commercial paper.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is not typically a characteristic of commercial paper borrowing?

Accepted Answer

A) maturity is short-term 
B) banks are not the lenders 
C) the loans are secured. 
D) borrowers have high credit quality 
A) maturity is short-term 
B) banks are not the lenders 
C) the loans are secured. 
D) borrowers have high credit quality

Question 10

When financial managers take action to minimize the carrying costs of current assets, they:

Accepted Answer

A) are likely to maximize profits 
B) also consider spoilage costs 
C) may increase costs due to shortages 
D) engage in the matching of maturities 
A) are likely to maximize profits 
B) also consider spoilage costs 
C) may increase costs due to shortages 
D) engage in the matching of maturities

Question 11

Once the firm has sold its receivables, the non-recourse factors bear all the responsibility for collecting on the account.

Accepted Answer

A) True 
 B)False

Question 12

Company which borrows $1 million long-term and invests the proceeds in inventory will see a $1 million increase in its net working capital.

Accepted Answer

A) True 
 B)False

Question 13

What happens to a firm whose uses of cash exceed its sources of cash during an accounting period?

Accepted Answer

A) it borrows on a short-term basis 
B) it declares a net loss on the income statement 
C) it experiences an increase in cash balance 
D) it experiences a decrease in cash balance 
A) it borrows on a short-term basis 
B) it declares a net loss on the income statement 
C) it experiences an increase in cash balance 
D) it experiences a decrease in cash balance

Question 14

During the year the following changes were observed. (I.) Inventory period increased by 12 days
(II)) Receivables period decreased by 6 days
(III.) Accounts payable period increased by 4 days
Find the net change in cash conversion cycle.

Accepted Answer

A) -10 days 
B) +2 days 
C) +10 days 
D) +14 days 
A) -10 days 
B) +2 days 
C) +10 days 
D) +14 days

Question 15

Some bank loans require the firm to maintain some amount of money on a balance at the bank which is known as:

Accepted Answer

A) compensating balance 
B) transactions motive 
C) precautionary motive 
D) simple interest balance 
A) compensating balance 
B) transactions motive 
C) precautionary motive 
D) simple interest balance

Question 16

Ignoring defaults, what is the approximate effective cost of factoring if receivables are sold at a 2% discount and the average collection period is 1 month?

Accepted Answer

A) 19.40% 
B) 24.00% 
C) 26.53% 
D) 27.43% 
A) 19.40% 
B) 24.00% 
C) 26.53% 
D) 27.43%

Question 17

An increase in accounts payable is a source of cash.

Accepted Answer

A) True 
 B)False

Question 18

How do firms develop a short-term financing plan that meets their need for cash?

Accepted Answer

The key difference between the various s

Question 19

If the Statement of Sources and Uses of Cash shows a decrease in cash balance, which of the following changes might have eliminated that decrease?

Accepted Answer

A) increase in cash dividends paid 
B) increase in accounts payable 
C) increase in accounts receivable 
D) increase in inventories 
A) increase in cash dividends paid 
B) increase in accounts payable 
C) increase in accounts receivable 
D) increase in inventories

Question 20

What was the sales volume in the current quarter if beginning accounts receivable, at $5,000, was $1,000 higher than ending, and $20,000 was collected?

Accepted Answer

A) $19,000 
B) $20,000 
C) $21,000 
D) $24,000 
A) $19,000 
B) $20,000 
C) $21,000 
D) $24,000

Exam 20: Short-Term Financial Planning

A firm sells its $1,000,000 receivables to a factor for $960,000.Average collection period is one month.The effective annual rate is:

CumChan has issued commercial paper with a face value of $250,000 that will mature in 60 days.The present market value of the paper is $242,000.Interest on the paper is, therefore:

When a loan is secured by receivables, the firm assigns the receivables to the bank.If the firm fails to repay the loan, the bank can collect the receivables from the firm's customers and use the cash to pay off the debt.The risk of default on the receivables is now borne by the bank.

A firm needs spare cash to deal with capital budget appropriations, dividend payments, and other large outlays.The interest rate on bank loans is simply quoted as:

A firm paid out a dividend of $700,000 and repaid $1,000,000 notes payable (due for 90 days.) The net effect of these transactions on the firm's net working capital is:

The lower the average level of inventory, the more profitable the firm.

When a firm finances long-term assets with short-term sources of funding, it:

Permanent working capital requirements can be financed using commercial paper.

Which of the following is not typically a characteristic of commercial paper borrowing?

When financial managers take action to minimize the carrying costs of current assets, they:

Once the firm has sold its receivables, the non-recourse factors bear all the responsibility for collecting on the account.

Company which borrows $1 million long-term and invests the proceeds in inventory will see a $1 million increase in its net working capital.

What happens to a firm whose uses of cash exceed its sources of cash during an accounting period?

During the year the following changes were observed. (I.) Inventory period increased by 12 days (II)) Receivables period decreased by 6 days (III.) Accounts payable period increased by 4 days Find the net change in cash conversion cycle.

Some bank loans require the firm to maintain some amount of money on a balance at the bank which is known as:

Ignoring defaults, what is the approximate effective cost of factoring if receivables are sold at a 2% discount and the average collection period is 1 month?

An increase in accounts payable is a source of cash.

How do firms develop a short-term financing plan that meets their need for cash?

If the Statement of Sources and Uses of Cash shows a decrease in cash balance, which of the following changes might have eliminated that decrease?

What was the sales volume in the current quarter if beginning accounts receivable, at $5,000, was $1,000 higher than ending, and $20,000 was collected?

Goals and Governance of the Firm

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Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

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Long-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

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