Question 1

The optimal level of working capital investment is the level that is expected to

Accepted Answer

A) maximize return on total assets 
B) maximize earnings per share 
C) maximize shareholder wealth 
D) minimize interest expenses 
A) maximize return on total assets 
B) maximize earnings per share 
C) maximize shareholder wealth 
D) minimize interest expenses C

Question 2

The assets are those that are affected by the seasonal or cyclical nature of company sales.

Accepted Answer

A) current 
B) permanent current 
C) fluctuating current 
D) none of these 
A) current 
B) permanent current 
C) fluctuating current 
D) none of these C

Question 3

Tefft Industries has an average inventory of $170,000, sells on terms of 2/10, net 30, and its cost of sales is $540,000.What is Tefft's inventory conversion period?

Accepted Answer

A) 85 days 
B) 115 days 
C) 105 days 
D) cannot be determined from the data given 
A) 85 days 
B) 115 days 
C) 105 days 
D) cannot be determined from the data given B

Question 4

Negotiated short-term credit sources are all of the following EXCEPT:

Accepted Answer

A) commerical paper 
B) inventory loans 
C) trade credit 
D) bank credit 
A) commerical paper 
B) inventory loans 
C) trade credit 
D) bank credit

Question 5

A firm's cash conversion cycle is equal to its operating cycle minus its .

Accepted Answer

A) inventory conversion period 
B) receivables conversion period 
C) payables deferral period 
D) none of these 
A) inventory conversion period 
B) receivables conversion period 
C) payables deferral period 
D) none of these

Question 6

Computerized financial planning models may be classified as any of the following except:

Accepted Answer

A) deterministic 
B) optimistic 
C) probabilistic 
D) none of these 
A) deterministic 
B) optimistic 
C) probabilistic 
D) none of these

Question 7

Last year Bizmart had credit sales of $32 million and a net profit margin of 8%.If Bizmart had accounts receivable of $4.5 million, what was the length of the receivables conversion period?

Accepted Answer

A) 51.3 days 
B) 56.3 days 
C) 54.9 days 
D) 47.2 days 
A) 51.3 days 
B) 56.3 days 
C) 54.9 days 
D) 47.2 days

Question 8

A firm's operating cycle is equal to its:

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct 
C) Both statements I and II are correct. 
D) Neither statement I nor II is correct. 
A) Only statement I is correct. 
B) Only statement II is correct 
C) Both statements I and II are correct. 
D) Neither statement I nor II is correct.

Question 9

All other things being equal, a policy of holding a relatively proportion of the firm's total assets in the form of current assets will tend to result in a expected profitability or rate of return on the total assets of the firm.

Accepted Answer

A) large, higher 
B) small, higher 
C) constant, higher 
D) constant, lower 
A) large, higher 
B) small, higher 
C) constant, higher 
D) constant, lower

Question 10

The shows the time interval over which additional non-spontaneous sources of working capital financing must be obtained to carry out the firm's activities.

Accepted Answer

A) inventory conversion period 
B) cash conversion cycle 
C) payables deferral period 
D) receivables conversion period 
A) inventory conversion period 
B) cash conversion cycle 
C) payables deferral period 
D) receivables conversion period

Question 11

The size of a firm's investment in current assets is a function of all of the following factors except

Accepted Answer

A) sales level 
B) inventory policies 
C) credit policies 
D) stockholders equity 
A) sales level 
B) inventory policies 
C) credit policies 
D) stockholders equity

Question 12

With the matching approach to meeting the financing needs of the firm, fixed and permanent current assets are financed with

Accepted Answer

A) long-term debt only 
B) equity funds only 
C) both long-term debt and equity funds 
D) neither long-term debt nor equity funds 
A) long-term debt only 
B) equity funds only 
C) both long-term debt and equity funds 
D) neither long-term debt nor equity funds

Question 13

The length of the operating cycle is equal to the length of the

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements I and II are correct. 
D) Neither statement I nor II is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements I and II are correct. 
D) Neither statement I nor II is correct.

Question 14

In examining the term structure of interest rates, the interest rates of have exceeded short-term rates.

Accepted Answer

A) Commercial paper 
B) Notes payable 
C) Corporate bonds 
D) Marketable securities 
A) Commercial paper 
B) Notes payable 
C) Corporate bonds 
D) Marketable securities

Question 15

Net working capital is:

Accepted Answer

A) the difference between the company's current assets and current liabilities. 
B) the difference between the company's current assets and fixed assets. 
C) the sum of the firm's current assets plus the firm's current liabilities 
D) the firm's fixed assets plus the firm's long-term liabilities. 
A) the difference between the company's current assets and current liabilities. 
B) the difference between the company's current assets and fixed assets. 
C) the sum of the firm's current assets plus the firm's current liabilities 
D) the firm's fixed assets plus the firm's long-term liabilities.

Question 16

What is the inventory conversion period for O'Brian's if it has sales of $320,000, an average inventory of $5,333, and a cash conversion cycle of 20 days? Assume that the cost of sales is 55 percent of sales.

Accepted Answer

A) 6 days 
B) 11 days 
C) 13.5 days 
D) 15 days 
A) 6 days 
B) 11 days 
C) 13.5 days 
D) 15 days

Question 17

The size and nature of a firm's investment in current assets is a function of a number of different factors including all of the following except

Accepted Answer

A) how efficient the firm manages its fixed assets 
B) the length of the operating cycle 
C) the sales level 
D) credit policies 
A) how efficient the firm manages its fixed assets 
B) the length of the operating cycle 
C) the sales level 
D) credit policies

Question 18

Which of the following working capital financing policies subjects the firm to the greatest risk?

Accepted Answer

A) financing fluctuating current assets with long-term debt 
B) financing permanent current assets with long-term debt 
C) financing permanent current assets with short-term debt 
D) financing fluctuating current assets with short-term debt 
A) financing fluctuating current assets with long-term debt 
B) financing permanent current assets with long-term debt 
C) financing permanent current assets with short-term debt 
D) financing fluctuating current assets with short-term debt

Question 19

A firm's net working capital position is a widely used measure of its .

Accepted Answer

A) leverage 
B) profitability 
C) risk 
D) none of these 
A) leverage 
B) profitability 
C) risk 
D) none of these

Question 20

Explain trade credit.

Accepted Answer

Trade credit is an important source of s

Exam 16: Working Capital Management

The optimal level of working capital investment is the level that is expected to

The assets are those that are affected by the seasonal or cyclical nature of company sales.

Tefft Industries has an average inventory of $170,000, sells on terms of 2/10, net 30, and its cost of sales is $540,000.What is Tefft's inventory conversion period?

Negotiated short-term credit sources are all of the following EXCEPT:

A firm's cash conversion cycle is equal to its operating cycle minus its .

Computerized financial planning models may be classified as any of the following except:

Last year Bizmart had credit sales of $32 million and a net profit margin of 8%.If Bizmart had accounts receivable of $4.5 million, what was the length of the receivables conversion period?

A firm's operating cycle is equal to its:

All other things being equal, a policy of holding a relatively proportion of the firm's total assets in the form of current assets will tend to result in a expected profitability or rate of return on the total assets of the firm.

The shows the time interval over which additional non-spontaneous sources of working capital financing must be obtained to carry out the firm's activities.

The size of a firm's investment in current assets is a function of all of the following factors except

With the matching approach to meeting the financing needs of the firm, fixed and permanent current assets are financed with

The length of the operating cycle is equal to the length of the

In examining the term structure of interest rates, the interest rates of have exceeded short-term rates.

Net working capital is:

What is the inventory conversion period for O'Brian's if it has sales of $320,000, an average inventory of $5,333, and a cash conversion cycle of 20 days? Assume that the cost of sales is 55 percent of sales.

The size and nature of a firm's investment in current assets is a function of a number of different factors including all of the following except

Which of the following working capital financing policies subjects the firm to the greatest risk?

A firm's net working capital position is a widely used measure of its .

Explain trade credit.

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

A: The Time Value of Money

Fixed-Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

Risk Management

International Financial Management

Corporate Restructuring

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