Question 1

Which of the following would not be included in a cash budget?

Accepted Answer

A) Income tax payments 
B) Cash receipts 
C) Dividend payments 
D) Depreciation 
A) Income tax payments 
B) Cash receipts 
C) Dividend payments 
D) Depreciation

Question 2

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 3

An increase in current liabilities is a source of cash for the firm.

Accepted Answer

A) True 
 B)False

Question 4

How would you develop a model to analyze the benefits and costs of stretching payables? Assume that cash discounts will be forgone and that short-term bank funds are usually available.

Accepted Answer

First, one could calculate the implicit

Question 5

The safety margin kept by the bank on loan against liquid assets is called:

Accepted Answer

A) A haircut 
B) A line of credit 
C) Factoring 
D) Filed warehousing 
A) A haircut 
B) A line of credit 
C) Factoring 
D) Filed warehousing

Question 6

Keeping a large surplus of cash and investing it in Treasury bills will bring positive NPV to a firm.

Accepted Answer

A) True 
 B)False

Question 7

Working capital, correctly defined, includes both current assets and current liabilities.

Accepted Answer

A) True 
 B)False

Question 8

Blanchard Corporation is estimating its cash collections for the first quarter of next year (January, February and March).The company has provided you with monthly sales along with historical cash collections data.Calculate the total cash received for January, February and March given the following data:

Accepted Answer

The answer of Blanchard Corporation is estimating its cash collections...

Question 9

A firm has $50 million and $60 million credit sales during the first two quarters of the year.Eighty% 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 10

How does the firm's sources and uses of cash relate to its need for short-term borrowing?

Accepted Answer

The starting point for short-term financ

Question 11

A firm is considering the following changes: increasing inventory variety which will increase average inventory by $10,000, and offering more liberal sales terms which will result in average receivables increasing to $65,000.These actions are expected to increase sales to $800,000 per year, and cost of goods will remain at 75%.Because of the increased purchases, average payables will increase to $35,000.What effect will these changes have on the cash conversion cycle?

Accepted Answer

The following calculations show that the

Question 12

What is the payable period for a firm with average accounts payable of $4 million and annual cost of goods sold of $44 million?

Accepted Answer

A) 20.0 days 
B) 30.0 days 
C) 35.6 days 
D) 33.2 days payables period = 
A) 20.0 days 
B) 30.0 days 
C) 35.6 days 
D) 33.2 days payables period =

Question 13

Ignoring defaults, what is the approximate effective cost of factoring if receivables are sold at a 4% discount and the average collection period is 2 months?

Accepted Answer

A) 19.40% 
B) 24.00% 
C) 26.53% 
D) 27.75% $4/$96 = 4.17% per two-month period 
A) 19.40% 
B) 24.00% 
C) 26.53% 
D) 27.75% $4/$96 = 4.17% per two-month period

Question 14

The goal of managing working capital, such as inventory, should be to minimize the:

Accepted Answer

A) Costs of carrying inventory 
B) Opportunity cost of capital 
C) Aggregate of carrying and shortage costs 
D) Amount of spoilage or pilferage 
A) Costs of carrying inventory 
B) Opportunity cost of capital 
C) Aggregate of carrying and shortage costs 
D) Amount of spoilage or pilferage

Question 15

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

Accepted Answer

The concept of matched maturities sugges

Question 16

What is the length of the cash conversion cycle for a firm with $55,000 in average inventory, $60,000 in average receivables, $30,000 in average payables, annual sales of $700,000, and a cost of goods sold of 75%?

Accepted Answer

Cash conversion cycl

Question 17

The following information is for the month of January.   Find the ending accounts receivable for January.

Accepted Answer

A) $25 million 
B) $55 million 
C) $75 million 
D) $265 million Ending accounts receivable = beginning accounts receivable + sales - collections
= 40 + 160 - 145 
A) $25 million 
B) $55 million 
C) $75 million 
D) $265 million Ending accounts receivable = beginning accounts receivable + sales - collections
= 40 + 160 - 145

Question 18

A firm paid out a dividend of $700,000 and repaid $1,000,000 notes payable.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 19

The lower the average level of inventory, the more profitable the firm.

Accepted Answer

A) True 
 B)False

Question 20

Bank lines of credit must be judiciously requested because the lines often:

Accepted Answer

A) Accrue interest regardless of whether funds are borrowed 
B) Require payment of a commitment fee to establish 
C) Appear as a liability on the firm's balance sheet 
D) Have a negative impact on the firm's credit history 
A) Accrue interest regardless of whether funds are borrowed 
B) Require payment of a commitment fee to establish 
C) Appear as a liability on the firm's balance sheet 
D) Have a negative impact on the firm's credit history

Exam 20: Working Capital Management

Which of the following would not be included in a cash budget?

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

An increase in current liabilities is a source of cash for the firm.

How would you develop a model to analyze the benefits and costs of stretching payables? Assume that cash discounts will be forgone and that short-term bank funds are usually available.

The safety margin kept by the bank on loan against liquid assets is called:

Keeping a large surplus of cash and investing it in Treasury bills will bring positive NPV to a firm.

Working capital, correctly defined, includes both current assets and current liabilities.

A firm has $50 million and $60 million credit sales during the first two quarters of the year.Eighty% 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?

How does the firm's sources and uses of cash relate to its need for short-term borrowing?

What is the payable period for a firm with average accounts payable of $4 million and annual cost of goods sold of $44 million?

Ignoring defaults, what is the approximate effective cost of factoring if receivables are sold at a 4% discount and the average collection period is 2 months?

The goal of managing working capital, such as inventory, should be to minimize the:

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

What is the length of the cash conversion cycle for a firm with $55,000 in average inventory, $60,000 in average receivables, $30,000 in average payables, annual sales of $700,000, and a cost of goods sold of 75%?

The following information is for the month of January. Find the ending accounts receivable for January.

A firm paid out a dividend of $700,000 and repaid $1,000,000 notes payable.The net effect of these transactions on the firm's net working capital is:

The lower the average level of inventory, the more profitable the firm.

Bank lines of credit must be judiciously requested because the lines often:

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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