Question 1

Which type of inventory would a bank be most willing to accept as security for a loan?

Accepted Answer

A)  Cabbages growing in a farmer's field 
B)  Produce on the shelves of a grocery store 
C)  An inventory of t-shirts featuring the winners of last month's Superbowl 
D)  Boats owned by a boat dealer 
A)  Cabbages growing in a farmer's field 
B)  Produce on the shelves of a grocery store 
C)  An inventory of t-shirts featuring the winners of last month's Superbowl 
D)  Boats owned by a boat dealer

Question 2

What is the cash 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 3

A primary purpose of restricting the investment of idle cash balances to money market instruments is to:

Accepted Answer

A)  obtain government guarantees on the investment. 
B)  minimize transaction costs. 
C)  minimize interest-rate risk. 
D)  maximize possible capital appreciation. 
A)  obtain government guarantees on the investment. 
B)  minimize transaction costs. 
C)  minimize interest-rate risk. 
D)  maximize possible capital appreciation.

Question 4

How much money can be saved annually by setting up a lock-box system that will process 500 checks per day at a cost of $0.15 per check if each check averages $220,collection float is reduced by 3 days,and the annual interest rate is 8%? (Use a 365-day year.)

Accepted Answer

A)  −$2,125 
B)  −$975 
C)  $2,650 
D)  $26,325 
A)  −$2,125 
B)  −$975 
C)  $2,650 
D)  $26,325

Question 5

Which one of the following credit agreements provides the least protection to the seller?

Accepted Answer

A)  Banker's acceptance 
B)  Time draft 
C)  Open account 
D)  Commercial draft 
A)  Banker's acceptance 
B)  Time draft 
C)  Open account 
D)  Commercial draft

Question 6

What is the annual gain to a firm with daily sales of $30,000 if it can speed up collections by 3 days,assuming an annual opportunity cost of funds of 8%?

Accepted Answer

A)  $2,400 gain 
B)  $7,200 gain 
C)  $30,000 gain 
D)  $90,000 gain 
A)  $2,400 gain 
B)  $7,200 gain 
C)  $30,000 gain 
D)  $90,000 gain

Question 7

What is the cash cycle for a firm with $3 million average inventories,$1.5 million average accounts payable,a receivables period of 40 days,and annual sales of $20 million and an annual cost of goods sold of $18 million?

Accepted Answer

A)  14.59 days. 
B)  46.25 days. 
C)  136.25 days. 
D)  70.42 days. 
A)  14.59 days. 
B)  46.25 days. 
C)  136.25 days. 
D)  70.42 days.

Question 8

The potential benefits of additional credit analysis should always be weighed against the incremental costs.

Accepted Answer

A) True 
 B)False

Question 9

At what point does a customer's unpaid account become delinquent when the terms of sale are 2/10,net 60?

Accepted Answer

A)  11 days after the sale 
B)  31 days after the sale 
C)  61 days after the sale 
D)  71 days after the sale 
A)  11 days after the sale 
B)  31 days after the sale 
C)  61 days after the sale 
D)  71 days after the sale

Question 10

Commercial paper is unsecured.Therefore,the companies that issue this short-term security:

Accepted Answer

A)  are typically large firms with top credit quality. 
B)  frequently default. 
C)  are typically small firms with top credit quality. 
D)  are firms that have government-sponsored guarantees for the debt. 
A)  are typically large firms with top credit quality. 
B)  frequently default. 
C)  are typically small firms with top credit quality. 
D)  are firms that have government-sponsored guarantees for the debt.

Question 11

Which one of the following statements typically describes the break-even probability of collection for repeat sale customers?

Accepted Answer

A)  The break-even probability is higher than for single sale customers. 
B)  The break-even probability is lower than for single sale customers. 
C)  The break-even probability does not change between single sale and repeat sale customers. 
D)  Sales should never be refused for customers offering the potential of repeat sales. 
A)  The break-even probability is higher than for single sale customers. 
B)  The break-even probability is lower than for single sale customers. 
C)  The break-even probability does not change between single sale and repeat sale customers. 
D)  Sales should never be refused for customers offering the potential of repeat sales.

Question 12

When sales are made without the accompaniment of a formal debt contract,the sales are said to be on:

Accepted Answer

A)  conditional sale terms. 
B)  open account. 
C)  trade credit. 
D)  sight draft. 
A)  conditional sale terms. 
B)  open account. 
C)  trade credit. 
D)  sight draft.

Question 13

The Canine Kennel uses 600 cases of dog food annually and orders 40 cases in each shipment.The annual carrying cost per case is $5 and the economic order quantity is 25 cases.Which one of these statements best applies to this situation?

Accepted Answer

A)  The current annual ordering costs exceed $5 per case. 
B)  The firm needs to increase its average inventory level of dog food. 
C)  The current annual ordering costs are less than the carrying costs. 
D)  The firm needs to reduce the number of orders placed per year. 
A)  The current annual ordering costs exceed $5 per case. 
B)  The firm needs to increase its average inventory level of dog food. 
C)  The current annual ordering costs are less than the carrying costs. 
D)  The firm needs to reduce the number of orders placed per year.

Question 14

Which of the following is not a money market instrument?

Accepted Answer

A)  U.S. Treasury bill with 91 days until maturity 
B)  Commercial paper with 180 days until maturity 
C)  5-year Treasury bond 
D)  A repurchase agreement, backed by U.S. government securities, with a 1-week maturity 
A)  U.S. Treasury bill with 91 days until maturity 
B)  Commercial paper with 180 days until maturity 
C)  5-year Treasury bond 
D)  A repurchase agreement, backed by U.S. government securities, with a 1-week maturity

Question 15

Which one of the following would not be a customary source of credit information on customers?

Accepted Answer

A)  Dun and Bradstreet 
B)  Chamber of Commerce 
C)  Credit Bureau 
D)  Customer's bank 
A)  Dun and Bradstreet 
B)  Chamber of Commerce 
C)  Credit Bureau 
D)  Customer's bank

Question 16

Which of the following is not an advantage of wire transfer systems?

Accepted Answer

A)  makes record-keeping easier to automate. 
B)  allows individuals to pay for goods when travelling abroad. 
C)  can ensure that payments arrive exactly on time. 
D)  very low cost to additional transactions. 
A)  makes record-keeping easier to automate. 
B)  allows individuals to pay for goods when travelling abroad. 
C)  can ensure that payments arrive exactly on time. 
D)  very low cost to additional transactions.

Question 17

The five Cs of credit refer to the:

Accepted Answer

A)  credit reports issued by Dun and Bradstreet. 
B)  interpretation of numerical credit scoring systems. 
C)  attributes that help determine creditworthiness. 
D)  financial ratios used to determine a customer's creditworthiness. 
A)  credit reports issued by Dun and Bradstreet. 
B)  interpretation of numerical credit scoring systems. 
C)  attributes that help determine creditworthiness. 
D)  financial ratios used to determine a customer's creditworthiness.

Question 18

Which of the following would be more likely to justify granting credit?

Accepted Answer

A)  A higher profit margin 
B)  A lower probability of payment 
C)  A higher discount rate 
D)  A lower selling price 
A)  A higher profit margin 
B)  A lower probability of payment 
C)  A higher discount rate 
D)  A lower selling price

Question 19

A firm is considering a one-time sale of $100,000 to a customer.The cost of goods sold for this sale is $90,000.If the probability of the customer paying is 0.8,what is the expected profit from this transaction?

Accepted Answer

A)  $0 
B)  −$10,000 
C)  +$8,000 
D)  +$10,000 
A)  $0 
B)  −$10,000 
C)  +$8,000 
D)  +$10,000

Question 20

Term loans:

Accepted Answer

A)  may be parceled out among a syndicate of banks. 
B)  are commonly self-liquidating. 
C)  are traded on the New York Stock Exchange are traded on the New York Stock Exchange. 
D)  are commonly repaid within 270 days. 
A)  may be parceled out among a syndicate of banks. 
B)  are commonly self-liquidating. 
C)  are traded on the New York Stock Exchange are traded on the New York Stock Exchange. 
D)  are commonly repaid within 270 days.

Exam 20: Working Capital Management

Which type of inventory would a bank be most willing to accept as security for a loan?

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

A primary purpose of restricting the investment of idle cash balances to money market instruments is to:

How much money can be saved annually by setting up a lock-box system that will process 500 checks per day at a cost of $0.15 per check if each check averages $220,collection float is reduced by 3 days,and the annual interest rate is 8%? (Use a 365-day year.)

Which one of the following credit agreements provides the least protection to the seller?

What is the annual gain to a firm with daily sales of $30,000 if it can speed up collections by 3 days,assuming an annual opportunity cost of funds of 8%?

What is the cash cycle for a firm with $3 million average inventories,$1.5 million average accounts payable,a receivables period of 40 days,and annual sales of $20 million and an annual cost of goods sold of $18 million?

The potential benefits of additional credit analysis should always be weighed against the incremental costs.

At what point does a customer's unpaid account become delinquent when the terms of sale are 2/10,net 60?

Commercial paper is unsecured.Therefore,the companies that issue this short-term security:

Which one of the following statements typically describes the break-even probability of collection for repeat sale customers?

When sales are made without the accompaniment of a formal debt contract,the sales are said to be on:

The Canine Kennel uses 600 cases of dog food annually and orders 40 cases in each shipment.The annual carrying cost per case is $5 and the economic order quantity is 25 cases.Which one of these statements best applies to this situation?

Which of the following is not a money market instrument?

Which one of the following would not be a customary source of credit information on customers?

Which of the following is not an advantage of wire transfer systems?

The five Cs of credit refer to the:

Which of the following would be more likely to justify granting credit?

A firm is considering a one-time sale of $100,000 to a customer.The cost of goods sold for this sale is $90,000.If the probability of the customer paying is 0.8,what is the expected profit from this transaction?

Term loans:

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

Filters