Question 1

A 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

Question 2

Why do firms need to invest in net working capital?

Accepted Answer

Short-term financial planning is concern

Question 3

Show the effect of the following transactions on cash,net working capital,and the current ratio.Assume that the current ratio exceeds 1.0 to begin.
a.The firm borrows $1,000 short term and pays $500 in accounts payable.
b.The firm factors $1,000 in receivables at a 5% discount.
c.The firm issues $1,000 in long-term bonds,using the proceeds to pay $800 in payables and purchase $200 in marketable securities.

Accepted Answer

a.Cash increases $500.
Net working capit

Question 4

Which 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 due to its volume of purchases. 
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 due to its volume of purchases. 
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 5

Currently,receivables account for the majority of the current assets of retail firms.Cash and short-term securities are more important for oil companies,and inventory makes up the bulk of the current assets of telecom and software companies.

Accepted Answer

A) True 
 B)False

Question 6

What will be the change in net working capital if you observe the following changes in current assets and current liabilities? I.Current assets increase by $170,000.
II)Current liabilities decrease by $60,000.

Accepted Answer

A)  Increase by $110,000 
B)  Increase by $230,000 
C)  Decrease by $110,000 
D)  Decrease by $230,000 
A)  Increase by $110,000 
B)  Increase by $230,000 
C)  Decrease by $110,000 
D)  Decrease by $230,000

Question 7

A firm's inventory period can be estimated by the ratio of inventory to daily output.

Accepted Answer

A) True 
 B)False

Question 8

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% 
A)  19.40% 
B)  24.00% 
C)  26.53% 
D)  27.40%

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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 11

A company that sees a customer pay a $2,500 bill resulting from a previous sale will see no change in its net working capital.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

An increase in accounts payable is a source of cash.

Accepted Answer

A) True 
 B)False

Question 14

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 15

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 
A)  $25 million 
B)  $55 million 
C)  $75 million 
D)  $265 million

Question 16

Firms are often known to pay commitment fees to banks for the privilege of receiving a line of credit.Does it make sense for a firm to pay for something that,at least at the present time,it does not know whether it will use?

Accepted Answer

It may make perfect sense for managers t

Question 17

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 18

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 19

What motivation is provided for managers not to follow the relaxed strategy of long- versus short-term financing?

Accepted Answer

A)  Transaction costs are required to continually obtain financing. 
B)  Short-term investment income is often unattractive. 
C)  Investment opportunities must frequently be ignored. 
D)  Long-term financing has burdensome tax consequences. 
A)  Transaction costs are required to continually obtain financing. 
B)  Short-term investment income is often unattractive. 
C)  Investment opportunities must frequently be ignored. 
D)  Long-term financing has burdensome tax consequences.

Question 20

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

Exam 19: Short-Term Financial Planning

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

Why do firms need to invest in net working capital?

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

Currently,receivables account for the majority of the current assets of retail firms.Cash and short-term securities are more important for oil companies,and inventory makes up the bulk of the current assets of telecom and software companies.

What will be the change in net working capital if you observe the following changes in current assets and current liabilities? I.Current assets increase by $170,000. II)Current liabilities decrease by $60,000.

A firm's inventory period can be estimated by the ratio of inventory to daily output.

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?

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

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

A company that sees a customer pay a $2,500 bill resulting from a previous sale will see no change in its net working capital.

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

An increase in accounts payable is a source of cash.

A firm's permanent working capital refers to the:

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

Firms are often known to pay commitment fees to banks for the privilege of receiving a line of credit.Does it make sense for a firm to pay for something that,at least at the present time,it does not know whether it will use?

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

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.

What motivation is provided for managers not to follow the relaxed strategy of long- versus short-term financing?

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

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

Risk, Return, and Capital Budgeting

Mergers, Acquisitions, and Corporate Control

International Financial Management

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