Question 1

The cash conversion cycle is equal to the days of sales outstanding plus the days of sales in inventory plus the days of payables outstanding.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following sources of short-term financing is likely to have the lowest interest rate?

Accepted Answer

A) accounts receivable loan (pledging of accounts receivable) 
B) line of credit 
C) line of credit with a compensating balance 
D) commercial paper 
A) accounts receivable loan (pledging of accounts receivable) 
B) line of credit 
C) line of credit with a compensating balance 
D) commercial paper

Question 3

One example of the hedging principle is to reduce a company's foreign exchange risk by purchasing futures contracts,which are called hedges.

Accepted Answer

A) True 
 B)False

Question 4

Under terms of a field warehouse financing agreement,the collateral inventories are physically separated from the borrower's other inventories but remain under the borrower's control.

Accepted Answer

A) True 
 B)False

Question 5

Nike Corp.buys on 3/10,net 30 days.What is the nominal cost of interest if Nike does not take advantage of the trade discount offered? Assume a 360-day year.

Accepted Answer

A) 12.0% 
B) 22.3% 
C) 55.7% 
D) 66.3% 
A) 12.0% 
B) 22.3% 
C) 55.7% 
D) 66.3%

Question 6

With regard to the hedging principle,which of the following assets should be financed with current liabilities?

Accepted Answer

A) minimum level of cash required for year round operations 
B) expansion of accounts receivable to meet seasonal demand 
C) machinery 
D) buildings 
A) minimum level of cash required for year round operations 
B) expansion of accounts receivable to meet seasonal demand 
C) machinery 
D) buildings

Question 7

The effective annual cost of not taking advantage of the 1/10,net 60 terms offered by a supplier is

Accepted Answer

A) 1.50%. 
B) 5.37%. 
C) 6.69%. 
D) 7.27%. 
A) 1.50%. 
B) 5.37%. 
C) 6.69%. 
D) 7.27%.

Question 8

A major risk in using commercial paper for short-term financing is the inflexible repayment schedule.

Accepted Answer

A) True 
 B)False

Question 9

Interest costs for short-term debt are generally lower than interest costs for long-term debt because

Accepted Answer

A) the term structure of interest rates generally reflects an upward sloping yield curve. 
B) short-term debt is more flexible,allowing a match of short-term needs with short-term financing. 
C) both A and B. 
D) investors demand higher returns on short-term debt due to liquidity concerns. 
A) the term structure of interest rates generally reflects an upward sloping yield curve. 
B) short-term debt is more flexible,allowing a match of short-term needs with short-term financing. 
C) both A and B. 
D) investors demand higher returns on short-term debt due to liquidity concerns.

Question 10

Management of a firm's liquidity involves management of the firm's investment in current assets as well as its mix of long-term capital.

Accepted Answer

A) True 
 B)False

Question 11

A revolving credit agreement is a legally binding agreement between a borrower and lender.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following actions would improve a firm's liquidity?

Accepted Answer

A) repurchasing stock 
B) selling bonds and increasing cash 
C) buying bonds 
D) increasing the company's dividend payments 
A) repurchasing stock 
B) selling bonds and increasing cash 
C) buying bonds 
D) increasing the company's dividend payments

Question 13

All of the following are potential advantages of commercial paper EXCEPT

Accepted Answer

A) flexible repayment terms. 
B) lower interest rates than comparable sources of short-term financing. 
C) no compensating balance requirements. 
D) ability to borrow very large amounts. 
A) flexible repayment terms. 
B) lower interest rates than comparable sources of short-term financing. 
C) no compensating balance requirements. 
D) ability to borrow very large amounts.

Question 14

The primary advantage that pledging accounts receivable provides is

Accepted Answer

A) the flexibility it gives to the borrower. 
B) that the financial institution bears the risk of collection. 
C) the low cost as compared with other sources of short-term financing. 
D) that the financial institution services the accounts. 
A) the flexibility it gives to the borrower. 
B) that the financial institution bears the risk of collection. 
C) the low cost as compared with other sources of short-term financing. 
D) that the financial institution services the accounts.

Question 15

Brown Inc.needs to borrow $250,000 for the next 6 months.The company has a line of credit with a bank that allows the company to borrow funds with an 8% interest rate subject to a 20% of loan compensating balance.Currently,Brown Inc.has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs.What is the annual percentage rate for this financing assuming discounted interest?

Accepted Answer

A) 14.29% 
B) 12.98% 
C) 11.67% 
D) 10.53% 
A) 14.29% 
B) 12.98% 
C) 11.67% 
D) 10.53%

Question 16

Blastdale Corp.is considering borrowing $15,000 for a 60-day period.The firm will repay the $15,000 principal amount plus $200 in interest.What is the effective annual rate of interest? Use a 360-day year.

Accepted Answer

A) 7.2% 
B) 8.0% 
C) 8.2% 
D) 10.5% 
A) 7.2% 
B) 8.0% 
C) 8.2% 
D) 10.5%

Question 17

Which of the following statements regarding a line of credit is true?

Accepted Answer

A) The purpose for which the money is being borrowed must be stated by the borrower. 
B) A line of credit agreement usually fixes the interest rate that will be applied to any extensions of credit. 
C) A line of credit agreement is a legal commitment on the part of the bank to provide the stated credit. 
D) Such agreements usually cover the borrower's fiscal year. 
A) The purpose for which the money is being borrowed must be stated by the borrower. 
B) A line of credit agreement usually fixes the interest rate that will be applied to any extensions of credit. 
C) A line of credit agreement is a legal commitment on the part of the bank to provide the stated credit. 
D) Such agreements usually cover the borrower's fiscal year.

Question 18

Which of the following is NOT true regarding the use of short-term debt?

Accepted Answer

A) It must be rolled over more often than long-term debt. 
B) There is uncertainty connected with interest costs on short-term debt from year to year. 
C) The firm is subjected to greater liquidity risk when using short-term credit. 
D) Interest rates are usually higher on short-term debt. 
A) It must be rolled over more often than long-term debt. 
B) There is uncertainty connected with interest costs on short-term debt from year to year. 
C) The firm is subjected to greater liquidity risk when using short-term credit. 
D) Interest rates are usually higher on short-term debt.

The cash conversion cycle is equal to the days of sales outstanding plus the days of sales in inventory plus the days of payables outstanding.

Which of the following sources of short-term financing is likely to have the lowest interest rate?

One example of the hedging principle is to reduce a company's foreign exchange risk by purchasing futures contracts,which are called hedges.

Under terms of a field warehouse financing agreement,the collateral inventories are physically separated from the borrower's other inventories but remain under the borrower's control.

Nike Corp.buys on 3/10,net 30 days.What is the nominal cost of interest if Nike does not take advantage of the trade discount offered? Assume a 360-day year.

With regard to the hedging principle,which of the following assets should be financed with current liabilities?

The effective annual cost of not taking advantage of the 1/10,net 60 terms offered by a supplier is

A major risk in using commercial paper for short-term financing is the inflexible repayment schedule.

Interest costs for short-term debt are generally lower than interest costs for long-term debt because

Management of a firm's liquidity involves management of the firm's investment in current assets as well as its mix of long-term capital.

A revolving credit agreement is a legally binding agreement between a borrower and lender.

Which of the following actions would improve a firm's liquidity?

All of the following are potential advantages of commercial paper EXCEPT

The primary advantage that pledging accounts receivable provides is

Blastdale Corp.is considering borrowing $15,000 for a 60-day period.The firm will repay the $15,000 principal amount plus $200 in interest.What is the effective annual rate of interest? Use a 360-day year.

Which of the following statements regarding a line of credit is true?

Which of the following is NOT true regarding the use of short-term debt?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

International Business Finance

Cash,receivables,and Inventory Management

Filters

Exam 15: Working-Capital Management

The cash conversion cycle is equal to the days of sales outstanding plus the days of sales in inventory plus the days of payables outstanding.

Which of the following sources of short-term financing is likely to have the lowest interest rate?

One example of the hedging principle is to reduce a company's foreign exchange risk by purchasing futures contracts,which are called hedges.

Under terms of a field warehouse financing agreement,the collateral inventories are physically separated from the borrower's other inventories but remain under the borrower's control.

Nike Corp.buys on 3/10,net 30 days.What is the nominal cost of interest if Nike does not take advantage of the trade discount offered? Assume a 360-day year.

With regard to the hedging principle,which of the following assets should be financed with current liabilities?

The effective annual cost of not taking advantage of the 1/10,net 60 terms offered by a supplier is

A major risk in using commercial paper for short-term financing is the inflexible repayment schedule.

Interest costs for short-term debt are generally lower than interest costs for long-term debt because

Management of a firm's liquidity involves management of the firm's investment in current assets as well as its mix of long-term capital.

A revolving credit agreement is a legally binding agreement between a borrower and lender.

Which of the following actions would improve a firm's liquidity?

All of the following are potential advantages of commercial paper EXCEPT

The primary advantage that pledging accounts receivable provides is

Blastdale Corp.is considering borrowing $15,000 for a 60-day period.The firm will repay the $15,000 principal amount plus $200 in interest.What is the effective annual rate of interest? Use a 360-day year.

Which of the following statements regarding a line of credit is true?

Which of the following is NOT true regarding the use of short-term debt?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

International Business Finance

Cash,receivables,and Inventory Management

Filters