Question 1

The principle of "matched maturities" in finance refers to:

Accepted Answer

A) finding sources of funds with the longest maturity, in order to avoid liquidity crises 
B) funding long-term assets with long-term sources, and short-term assets with short terms borrowings. 
C) using as much short-term financing as possible due to the lower cost of interest 
D) buying marketable securities when demand is high and borrowing short term when demand is low 
A) finding sources of funds with the longest maturity, in order to avoid liquidity crises 
B) funding long-term assets with long-term sources, and short-term assets with short terms borrowings. 
C) using as much short-term financing as possible due to the lower cost of interest 
D) buying marketable securities when demand is high and borrowing short term when demand is low

Question 2

Although commercial paper is unsecured, the companies that issue this short-term security are:

Accepted Answer

A) typically known to repay all defaults 
B) large firms of top credit quality 
C) small firms of top credit quality 
D) firms that have government-sponsored guarantees for the debt 
A) typically known to repay all defaults 
B) large firms of top credit quality 
C) small firms of top credit quality 
D) firms that have government-sponsored guarantees for the debt

Question 3

A firm needs spare cash because during economic downturns, sales may fall below expectations while outflows could prove higher than was budgeted.Firms sell their accounts receivable at a discount for the purpose of:

Accepted Answer

A) finance motive 
B) transactions motive 
C) speculative motive 
D) obtaining short-term financing 
A) finance motive 
B) transactions motive 
C) speculative motive 
D) obtaining short-term financing

Question 4

Noorie Corporation is planning its production and ending inventory for the next quarter.The CFO has provided you with the following information:
 $$\begin{array}{l}
\begin{array} { | l | c | } 
\hline \text { Data: }\
\hline \text { January Beginning Irventory } & 4,000 \
\hline \text { January Sales } & 60,000 \
\hline \text { Sales Growth per Year } & 8 \% \
\hline \text { Ending Inventory as } \% \text { of next Month Sales } & 15 \% \
\hline
\end{array}
\end{array}$$ Using this information, calculate ending inventory and production for January to March.

Accepted Answer

The answer of Noorie Corporation is planning its production and...

Question 5

An increase in current liabilities is a source of cash for the firm.

Accepted Answer

A) True 
 B)False

Question 6

Show the effect of the following transactions on cash, net working capital, and the current ratio.Assume that the current ratio exceeds 1.0 to begin.
The firm borrows $1,000 short-term and pays $500 in accounts payable.
The firm factors $1,000 in receivables at a 5% discount.
The firm issues $1,000 in long-term bonds, using the proceeds to pay $800 in payables and purchase $200 in marketable securities.

Accepted Answer

a.Cash increases $500.
Net working capit

Question 7

Which of the following is least likely to be correct for a firm that repeatedly stretches its payables?

Accepted Answer

A) the firm may receive more favourable status from suppliers due to its volume of purchases 
B) the firm may reduce its explicit short-term interest expense 
C) the cost of forgone discounts may exceed the cost of bank credit 
D) the firm may be labeled as a credit risk 
A) the firm may receive more favourable status from suppliers due to its volume of purchases 
B) the firm may reduce its explicit short-term interest expense 
C) the cost of forgone discounts may exceed the cost of bank credit 
D) the firm may be labeled as a credit risk

Question 8

As for the preparation of cash budgets, capital expenditures are:

Accepted Answer

A) not included because these items are depreciated 
B) included as sources of operating cash 
C) included as uses of cash and make the budget lumpy 
D) traditionally offset as a use of cash by interest income 
A) not included because these items are depreciated 
B) included as sources of operating cash 
C) included as uses of cash and make the budget lumpy 
D) traditionally offset as a use of cash by interest income

Question 9

Carrying costs are the cost of holding inventory.

Accepted Answer

A) True 
 B)False

Question 10

How would you develop a model to analyze the benefits and costs of stretching payables? Assume that cash discounts will be forgone and that short-term bank funds are usually available.

Accepted Answer

First, one could calculate the implicit

Question 11

Create the statement of sources and uses of cash from the following entries:
 $$\begin{array} { | l | l | } 
\hline \text { Net Incorne } & \$ 1,000 \
\hline \text { Dividends } & 600 \
\hline \text { Increased inventory } & 80 \
\hline \text { Increased receivables } & 100 \
\hline \text { Depreciation } & 60 \
\hline \text { Increased payables } & 45 \
\hline \text { Increased long-terin debt } & 200 \
\hline \text { Increased fixed assets } & 475 \
\hline
\end{array}$$

Accepted Answer

The answer of Create the statement of sources and uses...

Question 12

When managers are continually short-term lenders they are said to follow a:

Accepted Answer

A) middle-of-the-road financing strategy 
B) restrictive financing strategy 
C) relaxed financing strategy 
D) permanent working-capital strategy 
A) middle-of-the-road financing strategy 
B) restrictive financing strategy 
C) relaxed financing strategy 
D) permanent working-capital strategy

Question 13

Create the statement of sources and uses of cash from the following entries:
 $$\begin{array} { | l | l | } 
\hline \text { Net Income } & \$ 1,000 \
\hline \text { Dividends } & 600 \
\hline \text { Increased invenitory } & 80 \
\hline \text { Increased receivables } & 100 \
\hline \text { Depreciation } & 60 \
\hline \text { Increased payables } & 475 \
\hline \text { Increased long-terin debt } & 200 \
\hline \text { Increased fixed assets } & 45 \
\hline
\end{array}$$

Accepted Answer

The answer of Create the statement of sources and uses...

Question 14

A firm's inventory period can be estimated by the ratio of average inventory to daily output.

Accepted Answer

A) True 
 B)False

Question 15

For most corporations, net working capital is:

Accepted Answer

A) negative during the inventory period of the cash conversion cycle 
B) equal to the amount of current assets 
C) positive to provide liquidity during the cash conversion cycle 
D) only present during slack periods of the year 
A) negative during the inventory period of the cash conversion cycle 
B) equal to the amount of current assets 
C) positive to provide liquidity during the cash conversion cycle 
D) only present during slack periods of the year

Question 16

A line of credit would be considered:

Accepted Answer

A) an agreement to borrow up to a specific total amount on demand from a bank. 
B) a short-term unsecured loan with minimum interest expense. 
C) a secured loan to be amortized over three to five years. 
D) a long-term, permanent source of funding. 
A) an agreement to borrow up to a specific total amount on demand from a bank. 
B) a short-term unsecured loan with minimum interest expense. 
C) a secured loan to be amortized over three to five years. 
D) a long-term, permanent source of funding.

Question 17

If a firm decided to speed up its collection from its customers by reducing the receivables period and kept the inventory period and payable period the same, then:

Accepted Answer

A) Cash conversion cycle will increase 
B) Cash conversion cycle will decrease 
C) The firm's investment in working capital will be minimized 
D) Investment in working capital will be maximized 
A) Cash conversion cycle will increase 
B) Cash conversion cycle will decrease 
C) The firm's investment in working capital will be minimized 
D) Investment in working capital will be maximized

Question 18

Calculate the effective rate of 12% compounded quarterly.

Accepted Answer

A) 11.55% 
B) 12.55% 
C) 13.55% 
D) 14.55% 
A) 11.55% 
B) 12.55% 
C) 13.55% 
D) 14.55%

Question 19

A firm that follows a "relaxed strategy" towards the total capital requirement will be a:

Accepted Answer

A) Short-term borrower 
B) Short-term lender 
C) Long-term lender 
D) Long-term borrower 
A) Short-term borrower 
B) Short-term lender 
C) Long-term lender 
D) Long-term borrower

Question 20

An increase in short-term interest rates will increase the carrying costs of the firm.

Accepted Answer

A) True 
 B)False

Exam 20: Short-Term Financial Planning

The principle of "matched maturities" in finance refers to:

Although commercial paper is unsecured, the companies that issue this short-term security are:

A firm needs spare cash because during economic downturns, sales may fall below expectations while outflows could prove higher than was budgeted.Firms sell their accounts receivable at a discount for the purpose of:

An increase in current liabilities is a source of cash for the firm.

Which of the following is least likely to be correct for a firm that repeatedly stretches its payables?

As for the preparation of cash budgets, capital expenditures are:

Carrying costs are the cost of holding inventory.

How would you develop a model to analyze the benefits and costs of stretching payables? Assume that cash discounts will be forgone and that short-term bank funds are usually available.

Create the statement of sources and uses of cash from the following entries: Net Incorne \ 1,000 Dividends 600 Increased inventory 80 Increased receivables 100 Depreciation 60 Increased payables 45 Increased long-terin debt 200 Increased fixed assets 475

When managers are continually short-term lenders they are said to follow a:

Create the statement of sources and uses of cash from the following entries: Net Income \ 1,000 Dividends 600 Increased invenitory 80 Increased receivables 100 Depreciation 60 Increased payables 475 Increased long-terin debt 200 Increased fixed assets 45

A firm's inventory period can be estimated by the ratio of average inventory to daily output.

For most corporations, net working capital is:

A line of credit would be considered:

If a firm decided to speed up its collection from its customers by reducing the receivables period and kept the inventory period and payable period the same, then:

Calculate the effective rate of 12% compounded quarterly.

A firm that follows a "relaxed strategy" towards the total capital requirement will be a:

An increase in short-term interest rates will increase the carrying costs of the firm.

Goals and Governance of the Firm

Financial Markets and Institutions

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

Leasing

Payout Policy

Long-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters