Question 1

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

Question 3

Some companies solve their financing problem by borrowing on the strength of their current assets; others solve it by selling their current assets.

Accepted Answer

A) True 
 B)False

Question 4

The time interval between paying for raw materials and collecting on sales of finished goods is known as the:

Accepted Answer

A)  inventory cycle. 
B)  matching cycle. 
C)  cash conversion cycle. 
D)  accounts receivable cycle. 
A)  inventory cycle. 
B)  matching cycle. 
C)  cash conversion cycle. 
D)  accounts receivable cycle.

Question 5

A company that pays $5,000 previously owed to one of its suppliers will see a $5,000 decrease in cash.

Accepted Answer

A) True 
 B)False

Question 6

What is the cash conversion cycle for a firm with $3 million average inventories,$1.5 million average accounts payable,a receivables period of 40 days,and an annual cost of goods sold of $18 million?

Accepted Answer

A)  14.59 days 
B)  46.25 days 
C)  70.41 days 
D)  136.25 days 
A)  14.59 days 
B)  46.25 days 
C)  70.41 days 
D)  136.25 days

Question 7

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

The discount is 1.5%,but the firm collec

Question 8

A company that borrows $1 million long term and invests the proceeds in inventory will see a $1 million increase in its net working capital.

Accepted Answer

A) True 
 B)False

Question 9

A firm is considering the following changes: increasing inventory variety,which will increase inventory to $60,000,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 10

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 11

Which of the following would act to reduce the carrying costs of inventory?

Accepted Answer

A)  The inventory is capable of spoiling. 
B)  The inventory will rapidly go out of style. 
C)  General interest rates decrease in the economy. 
D)  General interest rates increase in the economy. 
A)  The inventory is capable of spoiling. 
B)  The inventory will rapidly go out of style. 
C)  General interest rates decrease in the economy. 
D)  General interest rates increase in the economy.

Question 12

Which of the following is not a source 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

Managers who "stretch their payables" are attempting to:

Accepted Answer

A)  repay more recent charges prior to early charges. 
B)  improve their current ratio prior to preparation of financial statements. 
C)  offer finished goods at a discount for repayment. 
D)  obtain a longer period of short-term financing. 
A)  repay more recent charges prior to early charges. 
B)  improve their current ratio prior to preparation of financial statements. 
C)  offer finished goods at a discount for repayment. 
D)  obtain a longer period of short-term financing.

Question 14

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 15

What are some of the major sources of short-term financing,and how are interest rates on these loans quoted?

Accepted Answer

A major source of short-term financing i

Question 16

A company that borrows $1 million long term and invests the proceeds in inventory will see its cash position unchanged.

Accepted Answer

A) True 
 B)False

Question 17

Calculate the accounts receivable period for a firm with an annual sales of $10 million and average accounts receivable of $2 million.

Accepted Answer

A)  18.25 days 
B)  20.00 days 
C)  51.00 days 
D)  73.00 days 
A)  18.25 days 
B)  20.00 days 
C)  51.00 days 
D)  73.00 days

Question 18

A bank loan has a quoted annual rate of 6%.However,the borrower must maintain a balance of 25% of the amount of the loan,and the balance does not earn any interest.
a.What is the effective rate of interest if the loan is for 1 year and is paid off in one payment at the end of the year?
b.What is the effective rate of interest if the loan is for 1 month?

Accepted Answer

a.Consider a loan of $100.The interest o

Question 19

What is the best level of long-term financing relative to the total capital requirement?

Accepted Answer

It is hard to say.However,we can make a

Question 20

Firms that continually invest in nontrivial amounts of marketable securities may be guilty of:

Accepted Answer

A)  excessive short-term borrowing. 
B)  not matching their sources and uses of cash. 
C)  incurring excessive shortage costs. 
D)  not maximizing shareholder returns. 
A)  excessive short-term borrowing. 
B)  not matching their sources and uses of cash. 
C)  incurring excessive shortage costs. 
D)  not maximizing shareholder returns.

Exam 19: Short-Term Financial Planning

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

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

Some companies solve their financing problem by borrowing on the strength of their current assets; others solve it by selling their current assets.

The time interval between paying for raw materials and collecting on sales of finished goods is known as the:

A company that pays $5,000 previously owed to one of its suppliers will see a $5,000 decrease in cash.

What is the cash conversion cycle for a firm with $3 million average inventories,$1.5 million average accounts payable,a receivables period of 40 days,and an annual cost of goods sold of $18 million?

A company that borrows $1 million long term and invests the proceeds in inventory will see a $1 million increase in its net working capital.

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

Which of the following would act to reduce the carrying costs of inventory?

Which of the following is not a source of cash?

Managers who "stretch their payables" are attempting to:

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.

What are some of the major sources of short-term financing,and how are interest rates on these loans quoted?

A company that borrows $1 million long term and invests the proceeds in inventory will see its cash position unchanged.

Calculate the accounts receivable period for a firm with an annual sales of $10 million and average accounts receivable of $2 million.

What is the best level of long-term financing relative to the total capital requirement?

Firms that continually invest in nontrivial amounts of marketable securities may be guilty of:

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

Options

Risk Management

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