Question 1

Accrued wages and accrued taxes are considered to be

Accepted Answer

A)  permanent sources of financing because companies must always pay wages and taxes. 
B)  spontaneous sources of unsecured short-term financing. 
C)  secured sources of short-term financing. 
D)  current assets. 
A)  permanent sources of financing because companies must always pay wages and taxes. 
B)  spontaneous sources of unsecured short-term financing. 
C)  secured sources of short-term financing. 
D)  current assets. B

Question 2

Terminal warehouse agreements

Accepted Answer

A)  are particularly useful where large bulky items are used as collateral. 
B)  give the lender a lien against all inventories while only removing representative items. 
C)  remove control of the inventory from the borrower. 
D)  are less costly than field warehouse agreements. 
A)  are particularly useful where large bulky items are used as collateral. 
B)  give the lender a lien against all inventories while only removing representative items. 
C)  remove control of the inventory from the borrower. 
D)  are less costly than field warehouse agreements. C

Question 3

Sources of spontaneous financing include trade credit,salaries payable,and accrued taxes.

Accepted Answer

A) True 
 B)False  True

Question 4

Long-term debt is generally less costly than short-term debt,but also results in more illiquidity-hence,the risk-return trade-off.

Accepted Answer

A) True 
 B)False

Question 5

The risk-return trade-off in managing a firm's working capital involves which of the following?

Accepted Answer

A)  a trade-off between liquidity and activity 
B)  a trade-off between debt and equity 
C)  a trade-off between the firm's liquidity and its profitability 
D)  none of the above 
A)  a trade-off between liquidity and activity 
B)  a trade-off between debt and equity 
C)  a trade-off between the firm's liquidity and its profitability 
D)  none of the above

Question 6

Working capital includes all of the following EXCEPT

Accepted Answer

A)  cash. 
B)  accounts receivable. 
C)  accounts payable. 
D)  inventories. 
A)  cash. 
B)  accounts receivable. 
C)  accounts payable. 
D)  inventories.

Question 7

Simpson Conglomerates borrows $12,000 for a short-term purpose.The loan will be repaid after 120 days,with Simpson paying a total of $12,400.What is the approximate cost of credit using the APY,or annual percentage yield,calculation?

Accepted Answer

A)  4.33% 
B)  10.34% 
C)  12.25% 
D)  12.46% 
A)  4.33% 
B)  10.34% 
C)  12.25% 
D)  12.46%

Question 8

Which of the following is a disadvantage of the use of current liabilities to finance assets?

Accepted Answer

A)  greater risk of illiquidity 
B)  less flexibility 
C)  higher interest costs 
D)  the hedging principle 
A)  greater risk of illiquidity 
B)  less flexibility 
C)  higher interest costs 
D)  the hedging principle

Question 9

Brown Inc.needs to borrow $250,000 for the next 6 months.The company has a line of credit with a bank that allows the company to borrow funds with an 8% interest rate subject to a 20% of loan compensating balance.Currently,Brown Inc.has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs.How much will Brown Inc.need to borrow?

Accepted Answer

A)  $270,000 
B)  $300,000 
C)  $312,500 
D)  $347,222 
A)  $270,000 
B)  $300,000 
C)  $312,500 
D)  $347,222

Question 10

Under terms of a field warehouse financing agreement,the collateral inventories are physically separated from the borrower's other inventories but remain under the borrower's control.

Accepted Answer

A) True 
 B)False

Question 11

As a company accounts payable manager,which of the following credit terms are most likely to entice you to take the cash discount?

Accepted Answer

A)  1/10 net 45 
B)  2/10 net 60 
C)  1/10 net 30 
D)  2/10 net 90 
A)  1/10 net 45 
B)  2/10 net 60 
C)  1/10 net 30 
D)  2/10 net 90

Question 12

The inventory loan agreement in which the lender can increase his or her security interest by having specific items of inventory identified in the loan agreement is called

Accepted Answer

A)  a floating lien agreement. 
B)  a chattel mortgage agreement. 
C)  a field warehouse agreement. 
D)  inventory identification agreement. 
A)  a floating lien agreement. 
B)  a chattel mortgage agreement. 
C)  a field warehouse agreement. 
D)  inventory identification agreement.

Question 13

Selection of a source of short-term financing should include all of the following EXCEPT

Accepted Answer

A)  the effective cost of credit. 
B)  the availability of financing in the amount and for the time needed. 
C)  the floatation costs for debentures. 
D)  the effect of the use of credit from a particular source on the cost and availability of other sources of credit. 
A)  the effective cost of credit. 
B)  the availability of financing in the amount and for the time needed. 
C)  the floatation costs for debentures. 
D)  the effect of the use of credit from a particular source on the cost and availability of other sources of credit.

Question 14

Which of the following statements concerning liquidity and debt is true?

Accepted Answer

A)  The greater the use of short-term debt, the lower the risk of illiquidity. 
B)  Long-term debt is generally less costly than short-term debt. 
C)  A firm can reduce its risk for illiquidity by shifting from short-term debt to long-term debt. 
D)  The risk of illiquidity does not depend on the mix of short-term versus long-term debt. 
A)  The greater the use of short-term debt, the lower the risk of illiquidity. 
B)  Long-term debt is generally less costly than short-term debt. 
C)  A firm can reduce its risk for illiquidity by shifting from short-term debt to long-term debt. 
D)  The risk of illiquidity does not depend on the mix of short-term versus long-term debt.

Question 15

Which of the following would normally occur if a firm increases its investment in current assets?

Accepted Answer

A)  The firm's liquidity would be improved. 
B)  The firm's net working capital would decline. 
C)  The firm's liquidity would be worsened. 
D)  The firm's profit margin would improve. 
A)  The firm's liquidity would be improved. 
B)  The firm's net working capital would decline. 
C)  The firm's liquidity would be worsened. 
D)  The firm's profit margin would improve.

Question 16

Management of a firm's liquidity involves management of the firm's investment in current assets as well as its mix of long-term capital.

Accepted Answer

A) True 
 B)False

Question 17

The primary source of spontaneous financing is accrued taxes.

Accepted Answer

A) True 
 B)False

Question 18

Parsons Company has a cash flow problem.The company owes its suppliers $300,000 on credit terms of 2/10 net 40,but Parsons doesn't have the cash to pay during the discount period.Parsons,however,can borrow the $300,000 at annual rate of 24%.Should Parsons borrow the money to pay its accounts payable?

Accepted Answer

A)  No, additional borrowing will cost more for interest ($60,000 per year) than the discount is worth. 
B)  Yes, the effective cost of forgoing the discount is greater than 24%. 
C)  No, the effective cost of forgoing the discount is equal to 24%, and there are transactions costs associated with borrowing. 
D)  It doesn't matter because the present value of the cost of borrowing is exactly equal to the amount of the discount for paying within 10 days. 
A)  No, additional borrowing will cost more for interest ($60,000 per year) than the discount is worth. 
B)  Yes, the effective cost of forgoing the discount is greater than 24%. 
C)  No, the effective cost of forgoing the discount is equal to 24%, and there are transactions costs associated with borrowing. 
D)  It doesn't matter because the present value of the cost of borrowing is exactly equal to the amount of the discount for paying within 10 days.

Question 19

What is the hedging principle or principle of self-liquidating debt?

Accepted Answer

The hedging principle,or principle of se

Question 20

A firm increases the risks of insolvency by keeping relatively large amounts of money tied up in marketable securities.

Accepted Answer

A) True 
 B)False

Accrued wages and accrued taxes are considered to be

Terminal warehouse agreements

Sources of spontaneous financing include trade credit,salaries payable,and accrued taxes.

Long-term debt is generally less costly than short-term debt,but also results in more illiquidity-hence,the risk-return trade-off.

The risk-return trade-off in managing a firm's working capital involves which of the following?

Working capital includes all of the following EXCEPT

Simpson Conglomerates borrows $12,000 for a short-term purpose.The loan will be repaid after 120 days,with Simpson paying a total of $12,400.What is the approximate cost of credit using the APY,or annual percentage yield,calculation?

Which of the following is a disadvantage of the use of current liabilities to finance assets?

Under terms of a field warehouse financing agreement,the collateral inventories are physically separated from the borrower's other inventories but remain under the borrower's control.

As a company accounts payable manager,which of the following credit terms are most likely to entice you to take the cash discount?

The inventory loan agreement in which the lender can increase his or her security interest by having specific items of inventory identified in the loan agreement is called

Selection of a source of short-term financing should include all of the following EXCEPT

Which of the following statements concerning liquidity and debt is true?

Which of the following would normally occur if a firm increases its investment in current assets?

Management of a firm's liquidity involves management of the firm's investment in current assets as well as its mix of long-term capital.

The primary source of spontaneous financing is accrued taxes.

What is the hedging principle or principle of self-liquidating debt?

A firm increases the risks of insolvency by keeping relatively large amounts of money tied up in marketable securities.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

International Business Finance

Cash,receivables,and Inventory Management

Filters

Exam 15: Working-Capital Management

Accrued wages and accrued taxes are considered to be

Terminal warehouse agreements

Sources of spontaneous financing include trade credit,salaries payable,and accrued taxes.

Long-term debt is generally less costly than short-term debt,but also results in more illiquidity-hence,the risk-return trade-off.

The risk-return trade-off in managing a firm's working capital involves which of the following?

Working capital includes all of the following EXCEPT

Simpson Conglomerates borrows $12,000 for a short-term purpose.The loan will be repaid after 120 days,with Simpson paying a total of $12,400.What is the approximate cost of credit using the APY,or annual percentage yield,calculation?

Which of the following is a disadvantage of the use of current liabilities to finance assets?

Under terms of a field warehouse financing agreement,the collateral inventories are physically separated from the borrower's other inventories but remain under the borrower's control.

As a company accounts payable manager,which of the following credit terms are most likely to entice you to take the cash discount?

The inventory loan agreement in which the lender can increase his or her security interest by having specific items of inventory identified in the loan agreement is called

Selection of a source of short-term financing should include all of the following EXCEPT

Which of the following statements concerning liquidity and debt is true?

Which of the following would normally occur if a firm increases its investment in current assets?

Management of a firm's liquidity involves management of the firm's investment in current assets as well as its mix of long-term capital.

The primary source of spontaneous financing is accrued taxes.

What is the hedging principle or principle of self-liquidating debt?

A firm increases the risks of insolvency by keeping relatively large amounts of money tied up in marketable securities.

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

International Business Finance

Cash,receivables,and Inventory Management

Filters