Question 1

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 2

What is the annual cost of goods for a firm, with accounts payable period of 35 days and average accounts payable of $600,000.

Accepted Answer

A) $5,753,425 
B) $6,171,429 
C) $6,257,143 
D) $17,142,857 Accounts payable period = 
A) $5,753,425 
B) $6,171,429 
C) $6,257,143 
D) $17,142,857 Accounts payable period =

Question 3

A firm sells its $1,000,000 receivables to a factor for $960,000.Average collection period is one month.The effective annual rate is:

Accepted Answer

A) 27.43% 
B) 48.00% 
C) 60.10% 
D) 63.21% Factor discount = 
A) 27.43% 
B) 48.00% 
C) 60.10% 
D) 63.21% Factor discount =

Question 4

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 5

Which of the following situations will improve the current ratio if it is initially less than 1.0?

Accepted Answer

A) Using cash to repay accounts payable 
B) Purchasing inventory on credit terms 
C) Selling finished goods inventory on credit 
D) Purchasing marketable securities for cash 
A) Using cash to repay accounts payable 
B) Purchasing inventory on credit terms 
C) Selling finished goods inventory on credit 
D) Purchasing marketable securities for cash

Question 6

Calculate the value of Accounts Receivable, given the following information:

Accepted Answer

A) $10,500 
B) $11,500 
C) $12,500 
D) $13,500 
A) $10,500 
B) $11,500 
C) $12,500 
D) $13,500

Question 7

Calculate the cash balance given the following information:

Accepted Answer

A) $48,000 
B) $45,000 
C) $42,000 
D) $39,000 
A) $48,000 
B) $45,000 
C) $42,000 
D) $39,000

Question 8

Determine the value of Accounts Payable given the following information:

Accepted Answer

A) $4,450 
B) $3,450 
C) $2,450 
D) $1,450 
A) $4,450 
B) $3,450 
C) $2,450 
D) $1,450

Question 9

Select the best loan terms from the banks below.The firm needs to obtain $500,000 in cash:
Bank A: 10% stated rate, 20% compensating balance that earns no interest.
Bank B: 12.5% stated rate, no compensating balance.
Bank C: 11% stated rate, 15% compensating balance that earns 2.5% interest.

Accepted Answer

As can be seen below, all banks are offe

Question 10

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 11

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

Accepted Answer

A) True 
 B)False

Question 12

The longer the firm's accounts payable period, the:

Accepted Answer

A) Longer the firm's cash conversion cycle 
B) Shorter the firm's inventory period 
C) More the delay in the accounts receivable period 
D) Less the firm must invest in working capital 
A) Longer the firm's cash conversion cycle 
B) Shorter the firm's inventory period 
C) More the delay in the accounts receivable period 
D) Less the firm must invest in working capital

Question 13

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 monthly?

Accepted Answer

A) 12.03% 
B) 13.00% 
C) 14.05% 
D) 16.08% Effective Annual Rate with Compensating Balances = 
A) 12.03% 
B) 13.00% 
C) 14.05% 
D) 16.08% Effective Annual Rate with Compensating Balances =

Question 14

Ignoring defaults, what is the approximate effective cost of factoring if receivables are sold at a 2% discount and the average collection period is 1 month?

Accepted Answer

A) 19.40% 
B) 24.00% 
C) 26.53% 
D) 27.40% $(100-98)/$98 = 2.04% per two-month period 
A) 19.40% 
B) 24.00% 
C) 26.53% 
D) 27.40% $(100-98)/$98 = 2.04% per two-month period

Question 15

A firm borrows $200,000 from the bank, but has to maintain a compensating balance of $15,000 with the bank.The annual interest rate for the loan is 13%.What is the effective annual rate if the interest is compounded annually?

Accepted Answer

A) 12.03% 
B) 13.00% 
C) 14.05% 
D) 14.41% EAR with comp.Bal.= 
A) 12.03% 
B) 13.00% 
C) 14.05% 
D) 14.41% EAR with comp.Bal.=

Question 16

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 payable period = 
A) 31.94 days 
B) 54.75 days 
C) 179.58 days 
D) 212.92 days payable period =

Question 17

A firm needs spare cash to deal with capital budget appropriations, dividend payments, and other large outlays.The interest rate on bank loans is simply quoted as:

Accepted Answer

A) Precautionary motive 
B) Transactions motive 
C) Speculative motive 
D) Simple interest 
A) Precautionary motive 
B) Transactions motive 
C) Speculative motive 
D) Simple interest

Question 18

A firm can reduce the cash conversion cycle by selling fewer goods on credit.

Accepted Answer

A) True 
 B)False

Question 19

How high can accounts receivable be allowed to grow before the firm's receivables period exceeds 50 days if annual sales equal $5 million and the cash conversion cycle equals 75 days?

Accepted Answer

A) $342,466 
B) $684,932 
C) $1,027,397 
D) $1,712,329 receivables period = 
A) $342,466 
B) $684,932 
C) $1,027,397 
D) $1,712,329 receivables period =

Question 20

Company that pays $5,000 previously owed to one of its suppliers will see no change in its net working capital.

Accepted Answer

A) True 
 B)False

Exam 20: Working Capital Management

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

What is the annual cost of goods for a firm, with accounts payable period of 35 days and average accounts payable of $600,000.

A firm sells its $1,000,000 receivables to a factor for $960,000.Average collection period is one month.The effective annual rate is:

Calculate the effective rate of 12% compounded quarterly.

Which of the following situations will improve the current ratio if it is initially less than 1.0?

Calculate the value of Accounts Receivable, given the following information:

Calculate the cash balance given the following information:

Determine the value of Accounts Payable given the following information:

Select the best loan terms from the banks below.The firm needs to obtain $500,000 in cash: Bank A: 10% stated rate, 20% compensating balance that earns no interest. Bank B: 12.5% stated rate, no compensating balance. Bank C: 11% stated rate, 15% compensating balance that earns 2.5% interest.

For most corporations, net working capital is:

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

The longer the firm's accounts payable period, the:

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 monthly?

Ignoring defaults, what is the approximate effective cost of factoring if receivables are sold at a 2% discount and the average collection period is 1 month?

A firm borrows $200,000 from the bank, but has to maintain a compensating balance of $15,000 with the bank.The annual interest rate for the loan is 13%.What is the effective annual rate if the interest is compounded 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.

A firm needs spare cash to deal with capital budget appropriations, dividend payments, and other large outlays.The interest rate on bank loans is simply quoted as:

A firm can reduce the cash conversion cycle by selling fewer goods on credit.

How high can accounts receivable be allowed to grow before the firm's receivables period exceeds 50 days if annual sales equal $5 million and the cash conversion cycle equals 75 days?

Company that pays $5,000 previously owed to one of its suppliers will see no change in its net working capital.

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

Payout Policy

Long-Term Financial Planning

Short-Term Financial Planning

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Conclusion

What We Do and Do Not Know About Finance

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