Question 1

Issuing additional long-term debt of $5 million and buying new long-term assets worth $5 million will result in a net cash flow of:

Accepted Answer

A)  $5 million 
B)  $10 million 
C)  Zero 
D)  $15 million 
A)  $5 million 
B)  $10 million 
C)  Zero 
D)  $15 million

Question 2

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 3

Changing the method of depreciation from straight line to MACRS is a source of cash for the firm.

Accepted Answer

A) True 
 B)False

Question 4

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 5

A firm borrows $100,000 from the bank,but has to maintain a compensating balance of $20,000 with the bank.The annual interest rate for the loan is 12%.What is the effective annual rate if the interest is compounded semi-annually?

Accepted Answer

A)  12.03% 
B)  13.00% 
C)  14.05% 
D)  15.56% 
A)  12.03% 
B)  13.00% 
C)  14.05% 
D)  15.56%

Question 6

Your accountant suspects a mistake in the computation of the payables period,which has been reported at 54.75 days.Calculate the correct payables period,given the following: annual sales = $1,200,000,annual cost of goods sold = $700,000,average accounts payable = $105,000.

Accepted Answer

A)  31.94 days 
B)  54.75 days 
C)  179.58 days 
D)  212.92 days 
A)  31.94 days 
B)  54.75 days 
C)  179.58 days 
D)  212.92 days

Question 7

What is the inventory period for a firm with an annual cost of goods sold of $8 million,$1.5 million in average inventory,and a cash conversion cycle of 75 days?

Accepted Answer

A)  6.56 days 
B)  18.75 days 
C)  53.33 days 
D)  68.44 days 
A)  6.56 days 
B)  18.75 days 
C)  53.33 days 
D)  68.44 days

Question 8

Why do firms need to invest in net working capital?

Accepted Answer

Short-term financial planning is concern

Question 9

Which of the following statements is correct concerning marketable securities on a firm's balance sheet?

Accepted Answer

A)  all are U.S. government obligations 
B)  all earn interest income 
C)  all are without price risk 
D)  not all are guaranteed against loss 
A)  all are U.S. government obligations 
B)  all earn interest income 
C)  all are without price risk 
D)  not all are guaranteed against loss

Question 10

Calculate the simple interest on a bank loan of $200,000 for a month,with a quoted rate of 6% simple interest.At the end of the month how much would you need to repay?

Accepted Answer

Amount of loan x annual intere

Question 11

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 12

What will be the change in net working capital if you observe the following changes in current assets and current liabilities? (I.)Current assets increase by $170,000.
(II))Current liabilities decrease by $60,000.

Accepted Answer

A)  Increase by $110,000 
B)  Increase by $230,000 
C)  Decrease by $110,000 
D)  Decrease by $230,000 
A)  Increase by $110,000 
B)  Increase by $230,000 
C)  Decrease by $110,000 
D)  Decrease by $230,000

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Calculate the accounts receivable period for a firm with annual credit sales of $10 million and average accounts receivable of $2 million.

Accepted Answer

A)  18.25 days 
B)  20.00 days 
C)  51.00 days 
D)  73.00 days 
A)  18.25 days 
B)  20.00 days 
C)  51.00 days 
D)  73.00 days

Question 15

Which of the following is more likely for a firm practicing the "relaxed" strategy of long- versus short-term borrowing at the height of sales demand?

Accepted Answer

A)  it will borrow heavily on a short-term basis 
B)  it will invest heavily in marketable securities 
C)  it will borrow heavily on a long-term basis 
D)  long-term financing will approximate capital requirements 
A)  it will borrow heavily on a short-term basis 
B)  it will invest heavily in marketable securities 
C)  it will borrow heavily on a long-term basis 
D)  long-term financing will approximate capital requirements

Question 16

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 17

What strategy regarding long- versus short-term financing is not being followed if managers resort to short-term investing during downturns in the business cycle?

Accepted Answer

A)  a relaxed strategy 
B)  a middle-of-the-road strategy 
C)  a restrictive strategy 
D)  both b and c above 
A)  a relaxed strategy 
B)  a middle-of-the-road strategy 
C)  a restrictive strategy 
D)  both b and c above

Question 18

Which of the following would not be included among the costs of carrying inventory?

Accepted Answer

A)  obsolescence 
B)  opportunity cost of capital 
C)  raw material cost 
D)  risk of pilferage 
A)  obsolescence 
B)  opportunity cost of capital 
C)  raw material cost 
D)  risk of pilferage

Question 19

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 20

Which of the following is correct for a firm that reduces its accounts receivable balance from the previous quarter?

Accepted Answer

A)  collections exceeded beginning receivables balance 
B)  sales exceeded collections 
C)  beginning receivables balance exceeded sales 
D)  collections exceeded sales 
A)  collections exceeded beginning receivables balance 
B)  sales exceeded collections 
C)  beginning receivables balance exceeded sales 
D)  collections exceeded sales

Exam 20: Short-Term Financial Planning

Issuing additional long-term debt of $5 million and buying new long-term assets worth $5 million will result in a net cash flow of:

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

Changing the method of depreciation from straight line to MACRS is a source of cash for the firm.

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

A firm borrows $100,000 from the bank,but has to maintain a compensating balance of $20,000 with the bank.The annual interest rate for the loan is 12%.What is the effective annual rate if the interest is compounded semi-annually?

Your accountant suspects a mistake in the computation of the payables period,which has been reported at 54.75 days.Calculate the correct payables period,given the following: annual sales = $1,200,000,annual cost of goods sold = $700,000,average accounts payable = $105,000.

What is the inventory period for a firm with an annual cost of goods sold of $8 million,$1.5 million in average inventory,and a cash conversion cycle of 75 days?

Why do firms need to invest in net working capital?

Which of the following statements is correct concerning marketable securities on a firm's balance sheet?

Calculate the simple interest on a bank loan of $200,000 for a month,with a quoted rate of 6% simple interest.At the end of the month how much would you need to repay?

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

What will be the change in net working capital if you observe the following changes in current assets and current liabilities? (I.)Current assets increase by $170,000. (II))Current liabilities decrease by $60,000.

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

Calculate the accounts receivable period for a firm with annual credit sales of $10 million and average accounts receivable of $2 million.

Which of the following is more likely for a firm practicing the "relaxed" strategy of long- versus short-term borrowing at the height of sales demand?

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

What strategy regarding long- versus short-term financing is not being followed if managers resort to short-term investing during downturns in the business cycle?

Which of the following would not be included among the costs of carrying inventory?

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:

Which of the following is correct for a firm that reduces its accounts receivable balance from the previous quarter?

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 and Payout 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