Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Biotech firms require large amounts of cash if their drugs succeed in gaining regulatory approval.Therefore,these firms often have substantial cash holdings to fund their possible investment needs.

Accepted Answer

A) True 
 B)False

Question 3

Which one of the following would not be considered a use of cash?

Accepted Answer

A)  Dividends 
B)  Decreased accounts payable 
C)  Depreciation 
D)  Increased accounts receivable 
A)  Dividends 
B)  Decreased accounts payable 
C)  Depreciation 
D)  Increased accounts receivable

Question 4

Most firms have a permanent investment in working capital.

Accepted Answer

A) True 
 B)False

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

A firm starts the week with payables of $172,000,it pays $$80,000 of outstanding bills,and purchases $44,000 of raw materials on one month's credit.What is the change in its cash balance over the week?

Accepted Answer

A)  −$36,000 
B)  +$96,000 
C)  −$80,000 
D)  +$92,000 
A)  −$36,000 
B)  +$96,000 
C)  −$80,000 
D)  +$92,000

Question 7

Managers who "stretch their payables" are attempting to:

Accepted Answer

A)  repay more recent bills before earlier bills. 
B)  improve their current ratio before preparing financial statements. 
C)  offer finished goods at a discount for quicker repayment. 
D)  obtain short-term financing. 
A)  repay more recent bills before earlier bills. 
B)  improve their current ratio before preparing financial statements. 
C)  offer finished goods at a discount for quicker repayment. 
D)  obtain short-term financing.

Question 8

If the firm repurchases its own stock,its cash holdings are unaffected.

Accepted Answer

A) True 
 B)False

Question 9

When financial managers are asked the key reason for choosing short-term rather than long-term debt,they often say that they try to match the maturities of the firm's assets and liabilities.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Which of these events reduces cash holdings?

Accepted Answer

A)  The firm changes its terms of sale and gives customers less time to pay for their purchases. 
B)  The firm sells a parcel of land at a profit. 
C)  The firm pays more promptly for its raw materials. 
D)  The firm sells a parcel of land at a loss. 
A)  The firm changes its terms of sale and gives customers less time to pay for their purchases. 
B)  The firm sells a parcel of land at a profit. 
C)  The firm pays more promptly for its raw materials. 
D)  The firm sells a parcel of land at a loss.

Question 12

A company that sells goods to a customer on credit will see no immediate change in its cash position.

Accepted Answer

A) True 
 B)False

Question 13

A reduction in inventory levels would be a source of cash.

Accepted Answer

A) True 
 B)False

Question 14

Firms with large holdings of current assets generally enjoy greater liquidity.

Accepted Answer

A) True 
 B)False

Question 15

The principle of matched maturities in finance refers to:

Accepted Answer

A)  finding sources of funds with the longest maturity, in order to avoid liquidity crises. 
B)  funding long-term assets with long-term sources and short-term assets with short-term financing. 
C)  using as much short-term financing as possible due to the lower cost of interest. 
D)  buying marketable securities when demand is high and borrowing short-term when demand is low. 
A)  finding sources of funds with the longest maturity, in order to avoid liquidity crises. 
B)  funding long-term assets with long-term sources and short-term assets with short-term financing. 
C)  using as much short-term financing as possible due to the lower cost of interest. 
D)  buying marketable securities when demand is high and borrowing short-term when demand is low.

Question 16

Which one of these is most associated with a disadvantage of 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 17

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 generally have lower interest expense. 
C)  improves the leverage ratio. 
D)  violates the principle of matched maturities. 
A)  reduces the risk of cash shortage. 
B)  will generally have lower interest expense. 
C)  improves the leverage ratio. 
D)  violates the principle of matched maturities.

Question 18

Inventory is generally more liquid than receivables.

Accepted Answer

A) True 
 B)False

Question 19

If a firm reduces its accounts payable period,other things equal,it increases its cash holdings.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following transactions would not be a source of cash:

Accepted Answer

A)  The firm issues $1 million of short-term debt and invests the proceeds in inventory. 
B)  A customer pays an outstanding bill. 
C)  The firm sells $10 million of marketable securities. 
D)  The firm receives $10 million from an insurance company to compensate for flood damage earlier that month. 
A)  The firm issues $1 million of short-term debt and invests the proceeds in inventory. 
B)  A customer pays an outstanding bill. 
C)  The firm sells $10 million of marketable securities. 
D)  The firm receives $10 million from an insurance company to compensate for flood damage earlier that month.

Exam 19: Short-Term Financial Planning

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

Biotech firms require large amounts of cash if their drugs succeed in gaining regulatory approval.Therefore,these firms often have substantial cash holdings to fund their possible investment needs.

Which one of the following would not be considered a use of cash?

Most firms have a permanent investment in working capital.

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

A firm starts the week with payables of $172,000,it pays $$80,000 of outstanding bills,and purchases $44,000 of raw materials on one month's credit.What is the change in its cash balance over the week?

Managers who "stretch their payables" are attempting to:

If the firm repurchases its own stock,its cash holdings are unaffected.

When financial managers are asked the key reason for choosing short-term rather than long-term debt,they often say that they try to match the maturities of the firm's assets and liabilities.

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

Which of these events reduces cash holdings?

A company that sells goods to a customer on credit will see no immediate change in its cash position.

A reduction in inventory levels would be a source of cash.

Firms with large holdings of current assets generally enjoy greater liquidity.

The principle of matched maturities in finance refers to:

Which one of these is most associated with a disadvantage of the relaxed strategy of long- versus short-term financing?

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

Inventory is generally more liquid than receivables.

If a firm reduces its accounts payable period,other things equal,it increases its cash holdings.

Which of the following transactions would not be a source of cash:

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

Working Capital Management

Mergers,Acquisitions,and Corporate Control

International Financial Management

Options

Risk Management

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