Question 1

A firm wants to reduce its cash conversion cycle.Which of the following actions will reduce its cash conversion cycle?

Accepted Answer

A) The firm reduces its DSO. 
B) The firm increases its inventory. 
C) The firm reduces its accounts payable. 
D) All of these are actions that will reduce its cash conversion cycle. 
A) The firm reduces its DSO. 
B) The firm increases its inventory. 
C) The firm reduces its accounts payable. 
D) All of these are actions that will reduce its cash conversion cycle.

Question 2

JohnBoy Industries has a cash balance of $59,000; accounts payable of $139,000; inventory of $115,000; accounts receivable of $220,000; notes payable of $175,000; and accrued wages and taxes of $23,000.How much net working capital does the firm need to fund?

Accepted Answer

A) $140,000 
B) $34,000 
C) -$25,000 
D) $57,000 
A) $140,000 
B) $34,000 
C) -$25,000 
D) $57,000

Question 3

Betty Boop has saved enough money to go back to grad school.She is planning to put the money in a money market account where it will earn 2.5 percent.If she anticipates slowly drawing the money out over the course of her time in grad school at a constant rate of $29,000 per year,but is charged a commission of $7.95 every time she sells shares,how much should she take out of the mutual fund at a time?

Accepted Answer

A) $4,589.52 
B) $4,437.04 
C) $4,294.65 
D) $4,101.83 
A) $4,589.52 
B) $4,437.04 
C) $4,294.65 
D) $4,101.83

Question 4

If a firm starts selling its accounts receivable to a factor,how will the firm's cash cycle change?

Accepted Answer

A) The firm will increase its cash cycle since it will now have to wait longer for payment. 
B) The firm will decrease its cash cycle since accounts receivable is reduced. 
C) Depending on conditions, the cash cycle could either increase or decrease. 
D) There will be no change. 
A) The firm will increase its cash cycle since it will now have to wait longer for payment. 
B) The firm will decrease its cash cycle since accounts receivable is reduced. 
C) Depending on conditions, the cash cycle could either increase or decrease. 
D) There will be no change.

Question 5

Suppose that Sam Industries has annual sales of $2 million,cost of goods sold of $950,000,average inventories of $45,000,and average accounts receivable of $90,000.Assuming that all of Sam's sales are on credit,what will be the firm's operating cycle?

Accepted Answer

A) 0.85 
B) 16.43 
C) 17.29 
D) 33.72 
A) 0.85 
B) 16.43 
C) 17.29 
D) 33.72

Question 6

Happy Feet would like to maintain their cash account at a minimum level of $75,000,but expects the standard deviation in net daily cash flows to be $5,000; the effective annual rate on marketable securities to be 7 percent per year; and the trading cost per sale or purchase of marketable securities to be $150 per transaction.What will be their optimal upper cash limit?

Accepted Answer

A) $80,000.00 
B) $99,755.64 
C) $76,593.42 
D) $149,266.92 
A) $80,000.00 
B) $99,755.64 
C) $76,593.42 
D) $149,266.92

Question 7

Dandee Lions,Inc.has a cash balance of $105,000; accounts payable of $290,000; inventory of $213,000; accounts receivable of $310,000; notes payable of $95,000; and accrued wages and taxes of $65,000.How much net working capital does the firm need to fund?

Accepted Answer

A) $8,000 
B) $83,000 
C) $178,000 
D) $18,000 
A) $8,000 
B) $83,000 
C) $178,000 
D) $18,000

Question 8

What must the rate be less than to be worth it to incur a compensating balance of $20,000 in order to get a 2 percent lower interest rate on a one-year,pure discount loan of $200,000?

Accepted Answer

A) The rate must be less than 78 percent. 
B) The rate must be greater than 78 percent. 
C) The rate must be greater than -78 percent. 
D) The rate must be less than -78 percent. 
A) The rate must be less than 78 percent. 
B) The rate must be greater than 78 percent. 
C) The rate must be greater than -78 percent. 
D) The rate must be less than -78 percent.

Question 9

Would it be worth it to incur a compensating balance of $4,000 in order to get a 1.5-percent-lower interest rate on a 1-year,pure discount loan of $300,000?

Accepted Answer

A) Yes if the interest rate is less than 13.64 percent 
B) No if the interest rate is less than 13.64 percent 
C) Yes if the interest rate is more than 1.5 percent 
D) Not enough information is given to determine 
A) Yes if the interest rate is less than 13.64 percent 
B) No if the interest rate is less than 13.64 percent 
C) Yes if the interest rate is more than 1.5 percent 
D) Not enough information is given to determine

Question 10

In Japan,many consumers pay their bills by electronic deduction from their checking accounts instead of using paper checks.What effect do you think this has on the collection float of Japanese firms versus that of American firms?

Accepted Answer

Since mail float would be elim

Question 11

Safety stock is referred to as the:

Accepted Answer

A) excess amounts of fixed assets kept on hand to meet unexpected shocks in demand. 
B) excess amounts of accruals used to fund short-term demands for cash. 
C) excess amounts of a current asset kept on hand to meet unexpected shocks in demand. 
D) none of these. 
A) excess amounts of fixed assets kept on hand to meet unexpected shocks in demand. 
B) excess amounts of accruals used to fund short-term demands for cash. 
C) excess amounts of a current asset kept on hand to meet unexpected shocks in demand. 
D) none of these.

Question 12

The optimal cash replenishment level will decrease with all of the following changes EXCEPT:

Accepted Answer

A) the transaction cost decreases. 
B) the annual demand for cash decreases. 
C) the interest rate decreases. 
D) All of these will decrease the optimal cash replenishment level. 
A) the transaction cost decreases. 
B) the annual demand for cash decreases. 
C) the interest rate decreases. 
D) All of these will decrease the optimal cash replenishment level.

Question 13

If a firm's inventory ratio increases,what will happen to the firm's cash cycle?

Accepted Answer

A) It will increase. 
B) It will decrease. 
C) It will increase and then slowly decrease back to the initial level. 
D) It will decrease and the slowly increase back to the initial level. 
A) It will increase. 
B) It will decrease. 
C) It will increase and then slowly decrease back to the initial level. 
D) It will decrease and the slowly increase back to the initial level.

Question 14

Happy Feet would like to maintain their cash account at a minimum level of $75,000,but expects the standard deviation in net daily cash flows to be $5,000; the effective annual rate on marketable securities to be 7 percent per year; and the trading cost per sale or purchase of marketable securities to be $150 per transaction.What will be their optimal cash return point?

Accepted Answer

A) $80,000.00 
B) $99,755.64 
C) $76,593.42 
D) $82,548.18 
A) $80,000.00 
B) $99,755.64 
C) $76,593.42 
D) $82,548.18

Question 15

Which of the following is NOT a fundamental factor ignored by the target cash balance models?

Accepted Answer

A) Firms have the option to borrow short-term to meet unexpected demands for cash. 
B) The costs and delays of trading securities have fallen dramatically since the advent of the Internet. 
C) Many large firms habitually use all or the majority of their available cash to purchase overnight securities. 
D) Models take into account that many firms must keep compensating balances in their deposit accounts as part of borrowing agreements with their banks. 
A) Firms have the option to borrow short-term to meet unexpected demands for cash. 
B) The costs and delays of trading securities have fallen dramatically since the advent of the Internet. 
C) Many large firms habitually use all or the majority of their available cash to purchase overnight securities. 
D) Models take into account that many firms must keep compensating balances in their deposit accounts as part of borrowing agreements with their banks.

Question 16

Which of the following current asset financing policies reflects the decision to finance the peaks of current assets with long-term debt and equity that provides the firm with a surplus of cash and marketable securities most of the time,except during peak asset demand?

Accepted Answer

A) Flexible financing policy 
B) Restrictive financing policy 
C) Compromise financing policy 
D) Alternative financing policy 
A) Flexible financing policy 
B) Restrictive financing policy 
C) Compromise financing policy 
D) Alternative financing policy

Question 17

Why would a firm ever use short-term debt to finance permanent current assets?

Accepted Answer

A) This would be illogical and is rarely observed. 
B) This would occur if short-term rates were much lower than long-term rates. 
C) This would only occur if the managers were very conservative. 
D) None of these. 
A) This would be illogical and is rarely observed. 
B) This would occur if short-term rates were much lower than long-term rates. 
C) This would only occur if the managers were very conservative. 
D) None of these.

Question 18

HotFoot Shoes would like to maintain their cash account at a minimum level of $35,000,but expect the standard deviation in net daily cash flows to be $2,000; the effective annual rate on marketable securities to be 5 percent per year; and the trading cost per sale or purchase of marketable securities to be $210 per transaction.What will be their optimal cash return point?

Accepted Answer

A) $41,899.45 
B) $45,901.75 
C) $51,752.46 
D) $56,780.25 
A) $41,899.45 
B) $45,901.75 
C) $51,752.46 
D) $56,780.25

Question 19

Which of these is defined as the excess amounts of a current asset kept on hand to meet unexpected shocks in demand?

Accepted Answer

A) Liquid current assets 
B) Safety stock 
C) Overnight securities 
D) Float 
A) Liquid current assets 
B) Safety stock 
C) Overnight securities 
D) Float

Question 20

If demand for a firm's products suddenly slows down so that inventory increases while sales decrease,how will the firm's needs for net working capital react?

Accepted Answer

A) Net working capital would increase. 
B) Net working capital would decrease. 
C) There would be no change in net working capital. 
D) Net working capital would first decrease, then increase slowly over time. 
A) Net working capital would increase. 
B) Net working capital would decrease. 
C) There would be no change in net working capital. 
D) Net working capital would first decrease, then increase slowly over time.

A firm wants to reduce its cash conversion cycle.Which of the following actions will reduce its cash conversion cycle?

JohnBoy Industries has a cash balance of $59,000; accounts payable of $139,000; inventory of $115,000; accounts receivable of $220,000; notes payable of $175,000; and accrued wages and taxes of $23,000.How much net working capital does the firm need to fund?

If a firm starts selling its accounts receivable to a factor,how will the firm's cash cycle change?

Suppose that Sam Industries has annual sales of $2 million,cost of goods sold of $950,000,average inventories of $45,000,and average accounts receivable of $90,000.Assuming that all of Sam's sales are on credit,what will be the firm's operating cycle?

Dandee Lions,Inc.has a cash balance of $105,000; accounts payable of $290,000; inventory of $213,000; accounts receivable of $310,000; notes payable of $95,000; and accrued wages and taxes of $65,000.How much net working capital does the firm need to fund?

What must the rate be less than to be worth it to incur a compensating balance of $20,000 in order to get a 2 percent lower interest rate on a one-year,pure discount loan of $200,000?

Would it be worth it to incur a compensating balance of $4,000 in order to get a 1.5-percent-lower interest rate on a 1-year,pure discount loan of $300,000?

In Japan,many consumers pay their bills by electronic deduction from their checking accounts instead of using paper checks.What effect do you think this has on the collection float of Japanese firms versus that of American firms?

Safety stock is referred to as the:

The optimal cash replenishment level will decrease with all of the following changes EXCEPT:

If a firm's inventory ratio increases,what will happen to the firm's cash cycle?

Which of the following is NOT a fundamental factor ignored by the target cash balance models?

Which of the following current asset financing policies reflects the decision to finance the peaks of current assets with long-term debt and equity that provides the firm with a surplus of cash and marketable securities most of the time,except during peak asset demand?

Why would a firm ever use short-term debt to finance permanent current assets?

Which of these is defined as the excess amounts of a current asset kept on hand to meet unexpected shocks in demand?

If demand for a firm's products suddenly slows down so that inventory increases while sales decrease,how will the firm's needs for net working capital react?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Bonds

Valuing Stockspart

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters

Exam 14: Working Capital and Policies

A firm wants to reduce its cash conversion cycle.Which of the following actions will reduce its cash conversion cycle?

JohnBoy Industries has a cash balance of $59,000; accounts payable of $139,000; inventory of $115,000; accounts receivable of $220,000; notes payable of $175,000; and accrued wages and taxes of $23,000.How much net working capital does the firm need to fund?

If a firm starts selling its accounts receivable to a factor,how will the firm's cash cycle change?

Suppose that Sam Industries has annual sales of $2 million,cost of goods sold of $950,000,average inventories of $45,000,and average accounts receivable of $90,000.Assuming that all of Sam's sales are on credit,what will be the firm's operating cycle?

Dandee Lions,Inc.has a cash balance of $105,000; accounts payable of $290,000; inventory of $213,000; accounts receivable of $310,000; notes payable of $95,000; and accrued wages and taxes of $65,000.How much net working capital does the firm need to fund?

What must the rate be less than to be worth it to incur a compensating balance of $20,000 in order to get a 2 percent lower interest rate on a one-year,pure discount loan of $200,000?

Would it be worth it to incur a compensating balance of $4,000 in order to get a 1.5-percent-lower interest rate on a 1-year,pure discount loan of $300,000?

In Japan,many consumers pay their bills by electronic deduction from their checking accounts instead of using paper checks.What effect do you think this has on the collection float of Japanese firms versus that of American firms?

Safety stock is referred to as the:

The optimal cash replenishment level will decrease with all of the following changes EXCEPT:

If a firm's inventory ratio increases,what will happen to the firm's cash cycle?

Which of the following is NOT a fundamental factor ignored by the target cash balance models?

Which of the following current asset financing policies reflects the decision to finance the peaks of current assets with long-term debt and equity that provides the firm with a surplus of cash and marketable securities most of the time,except during peak asset demand?

Why would a firm ever use short-term debt to finance permanent current assets?

Which of these is defined as the excess amounts of a current asset kept on hand to meet unexpected shocks in demand?

If demand for a firm's products suddenly slows down so that inventory increases while sales decrease,how will the firm's needs for net working capital react?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money

Time Value of Money

Valuing Bonds

Valuing Stockspart

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Financial Planning and Forecasting

Assessing Long-Term Debt, equity, and Capital Structure

Sharing Firm Wealth: Dividends, share Repurchases and Other Payouts

Issuing Capital and the Investment Banking Process

International Corporate Finance

Mergers and Acquisitions and Financial Distress

Filters