Question 1

Although commercial paper is unsecured, the companies that issue this short-term security are:

Accepted Answer

A) Typically known to repay all defaults 
B) Large firms of top credit quality 
C) Small firms of top credit quality 
D) Firms that have government-sponsored guarantees for the debt 
A) Typically known to repay all defaults 
B) Large firms of top credit quality 
C) Small firms of top credit quality 
D) Firms that have government-sponsored guarantees for the debt

Question 2

How do firms develop a short-term financing plan that meets their need for cash?

Accepted Answer

The key difference between the various s

Question 3

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 4

Calculate the Cash Conversion and Operating cycle, given the following information:

Accepted Answer

A) 107 days and 132 days 
B) 109 days and 134 days 
C) 111 days and 136 days 
D) 113 days and 138 days 
A) 107 days and 132 days 
B) 109 days and 134 days 
C) 111 days and 136 days 
D) 113 days and 138 days

Question 5

A firm's inventory and accounts payable periods are 80 and 42 days respectively.How long can the firm's receivables period be in order to have no longer than a 65 day cash conversion cycle?

Accepted Answer

A) 27 days 
B) 38 days 
C) 57 days 
D) 103 days cash conversion cycle = inventory period + receivable period - accounts payable period
65 $\ge$ 80 days + receivables period - 42 days 
A) 27 days 
B) 38 days 
C) 57 days 
D) 103 days cash conversion cycle = inventory period + receivable period - accounts payable period
65 $\ge$ 80 days + receivables period - 42 days

Question 6

When managers are continually short-term lenders they are said to follow a:

Accepted Answer

A) Middle-of-the-road financing strategy 
B) Restrictive financing strategy 
C) Relaxed financing strategy 
D) Permanent working-capital strategy 
A) Middle-of-the-road financing strategy 
B) Restrictive financing strategy 
C) Relaxed financing strategy 
D) Permanent working-capital strategy

Question 7

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% Effective Annual Rate with Compensating Balances = 
A) 12.03% 
B) 13.00% 
C) 14.05% 
D) 15.56% Effective Annual Rate with Compensating Balances =

Question 8

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 9

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

Accepted Answer

The cash conversion cycle is measured by

Question 10

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 11

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 12

What happens to a firm whose uses of cash exceed its sources of cash during an accounting period?

Accepted Answer

A) It borrows on a short-term basis 
B) It declares a net loss on the income statement 
C) It experiences an increase in cash balance 
D) It experiences a decrease in cash balance 
A) It borrows on a short-term basis 
B) It declares a net loss on the income statement 
C) It experiences an increase in cash balance 
D) It experiences a decrease in cash balance

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

What is the cash conversion cycle for a firm with a receivables period of 40 days, a payables period of 30 days, and an inventory period of 60 days?

Accepted Answer

A) 10 days 
B) 50 days 
C) 70 days 
D) 130 days 
A) 10 days 
B) 50 days 
C) 70 days 
D) 130 days

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

A firm's permanent working capital refers to the:

Accepted Answer

A) Difference between current assets and current liabilities 
B) Minimum difference between current assets and current liabilities 
C) Portion of net working capital that is financed from long-term sources 
D) Amounts that must be held to meet debt covenants 
A) Difference between current assets and current liabilities 
B) Minimum difference between current assets and current liabilities 
C) Portion of net working capital that is financed from long-term sources 
D) Amounts that must be held to meet debt covenants

Question 17

When product demand is high, firms following a "middle of the road policy" for long- versus short-term financing will:

Accepted Answer

A) Borrow short-term 
B) Borrow long-term 
C) Hold marketable securities 
D) Sell marketable securities 
A) Borrow short-term 
B) Borrow long-term 
C) Hold marketable securities 
D) Sell marketable securities

Question 18

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

Question 19

When a firm finances long-term assets with short-term sources of funding, it:

Accepted Answer

A) Reduces the risk of cash shortage 
B) Will have lower interest expense 
C) Improves the leverage ratio 
D) Is ignoring the principle of matched maturities 
A) Reduces the risk of cash shortage 
B) Will have lower interest expense 
C) Improves the leverage ratio 
D) Is ignoring the principle of matched maturities

Question 20

The factoring firm bears responsibility for default on accounts receivable purchased from a firm.

Accepted Answer

A) True 
 B)False

Exam 20: Working Capital Management

Although commercial paper is unsecured, the companies that issue this short-term security are:

How do firms develop a short-term financing plan that meets their need for 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:

Calculate the Cash Conversion and Operating cycle, given the following information:

A firm's inventory and accounts payable periods are 80 and 42 days respectively.How long can the firm's receivables period be in order to have no longer than a 65 day cash conversion cycle?

When managers are continually short-term lenders they are said to follow a:

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?

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.

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

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

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?

What happens to a firm whose uses of cash exceed its sources of cash during an accounting period?

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

What is the cash conversion cycle for a firm with a receivables period of 40 days, a payables period of 30 days, and an inventory period of 60 days?

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

A firm's permanent working capital refers to the:

When product demand is high, firms following a "middle of the road policy" for long- versus short-term financing will:

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

When a firm finances long-term assets with short-term sources of funding, it:

The factoring firm bears responsibility for default on accounts receivable purchased from a firm.

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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