Question 1

Which of the following situations should provide managers with the most comfort if accounts receivable balances are increasing each quarter?

Accepted Answer

A)  the sales level has decreased 
B)  the sales level has increased 
C)  the rate of collections has decreased 
D)  the rate of collections has increased 
A)  the sales level has decreased 
B)  the sales level has increased 
C)  the rate of collections has decreased 
D)  the rate of collections has increased

Question 2

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 3

A firm has borrowed $1 million and assigned its receivables to the lender.Because of defaults,the receivables prove insufficient to cover the debt.In this case,the:

Accepted Answer

A)  lender bears the risk of default 
B)  firm bears the risk of default 
C)  default risk is shared between lender and firm 
D)  insurance carrier will bear the risk 
A)  lender bears the risk of default 
B)  firm bears the risk of default 
C)  default risk is shared between lender and firm 
D)  insurance carrier will bear the risk

Question 4

Field warehousing is a system of protecting the borrower against spoiled or stolen inventory.

Accepted Answer

A) True 
 B)False

Question 5

With a line of credit,a firm can borrow and repay whenever it wants so long as the balance does not exceed the credit limit.

Accepted Answer

A) True 
 B)False

Question 6

The cost of issuing commercial paper is generally lower than that of a line of credit.

Accepted Answer

A) True 
 B)False

Question 7

If a firm's current ratio exceeds 1.0,what happens as a result of paying cash to reduce accounts payable?

Accepted Answer

A)  net working capital increases 
B)  net working capital decreases 
C)  current ratio increases 
D)  current ratio decreases 
A)  net working capital increases 
B)  net working capital decreases 
C)  current ratio increases 
D)  current ratio decreases

Question 8

An increase in long-term assets is a source of cash.

Accepted Answer

A) True 
 B)False

Question 9

Company that pays $5,000 previously owed to one of its suppliers will see a $5,000 decrease in cash.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Discuss the usefulness of the concept of "maturities matching" in finance.

Accepted Answer

The concept of matched maturities sugges

Question 12

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 13

A firm has $50 million and $60 million credit sales during the first two quarters of the year.Eighty percent of the receivables are collected in the same quarter and the balance in the next quarter.What will be the total collection for the firm in the second quarter?

Accepted Answer

A)  $55 million 
B)  $58 million 
C)  $88 million 
D)  $98 million 
A)  $55 million 
B)  $58 million 
C)  $88 million 
D)  $98 million

Question 14

Describe a firm's cash conversion cycle and its uses.

Accepted Answer

The cash conversion cycle is measured by

Question 15

Which of the following is least likely to be correct about the factoring of receivables?

Accepted Answer

A)  the selling firm bears the risk of default 
B)  the higher the perceived quality of the receivables, the lower the discount rate 
C)  the discount is paid by the selling firm in the form of reduced sales price 
D)  factoring may be the cheapest method of avoiding a cash flow problem 
A)  the selling firm bears the risk of default 
B)  the higher the perceived quality of the receivables, the lower the discount rate 
C)  the discount is paid by the selling firm in the form of reduced sales price 
D)  factoring may be the cheapest method of avoiding a cash flow problem

Question 16

What is the cash conversion cycle for a firm with $3 million average inventories,$1.5 million average accounts payable,a receivables period of 45 days,and an annual cost of goods sold of $18 million?

Accepted Answer

A)  14.59 days 
B)  46.25 days 
C)  75.41 days 
D)  136.25 days 
A)  14.59 days 
B)  46.25 days 
C)  75.41 days 
D)  136.25 days

Question 17

If managers could automatically change each term in the equation of the cash conversion cycle,which of the following would be expected to provide the most benefit?

Accepted Answer

A)  decrease numerator of each term by 10% 
B)  decrease denominator of each term by 10% 
C)  increase numerator of each term by 10% 
D)  increase denominator of each term by 10% 
A)  decrease numerator of each term by 10% 
B)  decrease denominator of each term by 10% 
C)  increase numerator of each term by 10% 
D)  increase denominator of each term by 10%

Question 18

Maintaining a compensating balance will:

Accepted Answer

A)  decrease the effective annual rate 
B)  increase the effective annual rate 
C)  not change the effective annual rate 
D)  only change the effective rate if payments occur more frequently than annually 
A)  decrease the effective annual rate 
B)  increase the effective annual rate 
C)  not change the effective annual rate 
D)  only change the effective rate if payments occur more frequently than annually

Question 19

When the length of the financing is directly related to the life of the asset being financed,the firm is said to follow a:

Accepted Answer

A)  policy of maturity matching 
B)  restrictive financing strategy 
C)  matched depreciation strategy 
D)  minimum working capital strategy 
A)  policy of maturity matching 
B)  restrictive financing strategy 
C)  matched depreciation strategy 
D)  minimum working capital strategy

Question 20

Carrying costs are the cost of holding inventory.

Accepted Answer

A) True 
 B)False

Exam 20: Short-Term Financial Planning

Which of the following situations should provide managers with the most comfort if accounts receivable balances are increasing each quarter?

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

A firm has borrowed $1 million and assigned its receivables to the lender.Because of defaults,the receivables prove insufficient to cover the debt.In this case,the:

Field warehousing is a system of protecting the borrower against spoiled or stolen inventory.

With a line of credit,a firm can borrow and repay whenever it wants so long as the balance does not exceed the credit limit.

The cost of issuing commercial paper is generally lower than that of a line of credit.

If a firm's current ratio exceeds 1.0,what happens as a result of paying cash to reduce accounts payable?

An increase in long-term assets is a source of cash.

Company that pays $5,000 previously owed to one of its suppliers will see a $5,000 decrease in cash.

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:

Discuss the usefulness of the concept of "maturities matching" in finance.

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 has $50 million and $60 million credit sales during the first two quarters of the year.Eighty percent of the receivables are collected in the same quarter and the balance in the next quarter.What will be the total collection for the firm in the second quarter?

Describe a firm's cash conversion cycle and its uses.

Which of the following is least likely to be correct about the factoring of receivables?

What is the cash conversion cycle for a firm with $3 million average inventories,$1.5 million average accounts payable,a receivables period of 45 days,and an annual cost of goods sold of $18 million?

If managers could automatically change each term in the equation of the cash conversion cycle,which of the following would be expected to provide the most benefit?

Maintaining a compensating balance will:

When the length of the financing is directly related to the life of the asset being financed,the firm is said to follow a:

Carrying costs are the cost of holding inventory.

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

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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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