Question 1

How does long-term financing policy affect short-term financing requirements?

Accepted Answer

The nature of the firm's short-term fina

Question 2

A company that sells $5 million of marketable securities for cash will see a $5 million increase in cash.

Accepted Answer

A) True 
 B)False

Question 3

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) 27.43% 
A)  19.40% 
B)  24.00% 
C)  26.53% 
D) 27.43%

Question 4

What is the accounts payable period given 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 5

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) payoff all debts. 
A)  borrow short term. 
B)  borrow long term. 
C)  hold marketable securities. 
D) payoff all debts.

Question 6

Which one 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)  At the height of demand, it will invest heavily in marketable securities. 
C)  It will borrow on both a long-term and a short-term basis. 
D) It's long-term financing will approximately equal its total capital requirements. 
A)  It will borrow heavily on a short-term basis. 
B)  At the height of demand, it will invest heavily in marketable securities. 
C)  It will borrow on both a long-term and a short-term basis. 
D) It's long-term financing will approximately equal its total capital requirements.

Question 7

Create the statement of sources and uses of cash from the following entries:

Accepted Answer

The answer of Create the statement of sources and uses...

Question 8

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 9

A company that pays out a $2 million cash dividend will see a $2 million decrease in working capital.

Accepted Answer

A) True 
 B)False

Question 10

Assume beginning accounts receivables were $5,000, ending receivables were $4,000, and $20,000 was collected. What was the amount of sales for the period?

Accepted Answer

A)  $19,000 
B)  $20,000 
C)  $21,000 
D) $24,000 
A)  $19,000 
B)  $20,000 
C)  $21,000 
D) $24,000

Question 11

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

Accepted Answer

A)  are likely to maximize profits. 
B)  also decrease unnecessary trading costs. 
C)  may increase costs due to shortages. 
D) engage in the matching of maturities. 
A)  are likely to maximize profits. 
B)  also decrease unnecessary trading costs. 
C)  may increase costs due to shortages. 
D) engage in the matching of maturities.

Question 12

Which one of the following is a use of cash?

Accepted Answer

A)  Net income 
B)  Repayment of a bank loan 
C)  Reduction in accounts receivable 
D) Depreciation 
A)  Net income 
B)  Repayment of a bank loan 
C)  Reduction in accounts receivable 
D) Depreciation

Question 13

A firm sells its accounts receivables to a factor at a 1.5% discount. The average collection period is 1 month. What is the implicit effective annual interest rate on the factoring arrangement? Suppose the average collection period is 1.5 months. How does this affect the implicit effective annual interest rate?

Accepted Answer

EAR = [1 + 0.015/(1 - 0.015)]¹²

Question 14

A company that sells $5 million of marketable securities for cash will see no change in its net working capital.

Accepted Answer

A) True 
 B)False

Question 15

Which one 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 16

Which one of the following is least likely to be correct for a firm that repeatedly stretches its payables?

Accepted Answer

A)  The firm may receive more favorable status from suppliers. 
B)  The firm may reduce its explicit short-term interest expense. 
C)  The cost of forgone discounts may exceed the cost of bank credit. 
D) The firm may be labeled as a credit risk. 
A)  The firm may receive more favorable status from suppliers. 
B)  The firm may reduce its explicit short-term interest expense. 
C)  The cost of forgone discounts may exceed the cost of bank credit. 
D) The firm may be labeled as a credit risk.

Question 17

Which one of the following statements best describes the total capital requirement for most profitable firms?

Accepted Answer

A)  The general trend in the total capital requirement is downward sloping. 
B)  The total capital requirement tends to be constant over long periods of time. 
C)  There are seasonal fluctuations around the total capital requirement trend. 
D) The total capital requirement must be funded with short-term debt. 
A)  The general trend in the total capital requirement is downward sloping. 
B)  The total capital requirement tends to be constant over long periods of time. 
C)  There are seasonal fluctuations around the total capital requirement trend. 
D) The total capital requirement must be funded with short-term debt.

Question 18

A firm's inventory and accounts payable periods are 80 and 42 days, respectively. How long must the firm's receivables period be in order to limit the cash conversion cycle to 65 days?

Accepted Answer

A)  27 days 
B)  38 days 
C)  57 days 
D) 103 days 
A)  27 days 
B)  38 days 
C)  57 days 
D) 103 days

Question 19

A firm's permanent working capital refers to the:

Accepted Answer

A)  difference between fixed assets and current assets. 
B)  maximum 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 fixed assets and current assets. 
B)  maximum 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 20

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.

Exam 19: Short-Term Financial Planning

How does long-term financing policy affect short-term financing requirements?

A company that sells $5 million of marketable securities for cash will see a $5 million increase in cash.

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?

What is the accounts payable period given annual sales = $1,200,000, annual cost of goods sold = $700,000, average accounts payable = $105,000?

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

Which one 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?

Create the statement of sources and uses of cash from the following entries:

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

A company that pays out a $2 million cash dividend will see a $2 million decrease in working capital.

Assume beginning accounts receivables were $5,000, ending receivables were $4,000, and $20,000 was collected. What was the amount of sales for the period?

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

Which one of the following is a use of cash?

A company that sells $5 million of marketable securities for cash will see no change in its net working capital.

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

Which one of the following is least likely to be correct for a firm that repeatedly stretches its payables?

Which one of the following statements best describes the total capital requirement for most profitable firms?

A firm's inventory and accounts payable periods are 80 and 42 days, respectively. How long must the firm's receivables period be in order to limit the cash conversion cycle to 65 days?

A firm's permanent working capital refers to the:

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

Goals and Governance of the Corporation

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

How Corporations Raise Venture Capital and Issue Securities

Debt Policy

Payout Policy

Long-Term Financial Planning

Working Capital Management

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

Filters