Question 1

Which of the following is NOT a motivation for holding cash?

Accepted Answer

A)  to meet its day-to-day needs 
B)  to compensate for the uncertainty associated with cash flows 
C)  to satisfy bank requirements 
D)  to place in short-term investments 
A)  to meet its day-to-day needs 
B)  to compensate for the uncertainty associated with cash flows 
C)  to satisfy bank requirements 
D)  to place in short-term investments

Question 2

A financial manager who wants her investment to have a higher return would choose to invest some of her firm's excess cash in commercial paper over Treasury bonds.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following would increase a firm's cash conversion cycle?

Accepted Answer

A)  Increase inventory days. 
B)  Decrease accounts receivable days. 
C)  Increase accounts payable days. 
D)  Increase cash days. 
A)  Increase inventory days. 
B)  Decrease accounts receivable days. 
C)  Increase accounts payable days. 
D)  Increase cash days.

Question 4

Which of the following statements is FALSE?

Accepted Answer

A)  Under the Modigliani-Miller assumptions of perfect capital markets, the amounts of payables and receivables are irrelevant. 
B)  One factor that contributes to the length of a firm's receivables and payables is the delay between the time a bill is paid and the cash is actually received. 
C)  Collection float is the amount of time it takes before payments to suppliers actually result in a cash outflow for the firm. 
D)  The credit that the firm is extending to its customer is known as trade credit. 
A)  Under the Modigliani-Miller assumptions of perfect capital markets, the amounts of payables and receivables are irrelevant. 
B)  One factor that contributes to the length of a firm's receivables and payables is the delay between the time a bill is paid and the cash is actually received. 
C)  Collection float is the amount of time it takes before payments to suppliers actually result in a cash outflow for the firm. 
D)  The credit that the firm is extending to its customer is known as trade credit.

Question 5

The level of cash a firm holds is irrelevant; it can never be short of cash since a firm is able to raise new money instantly at a fair rate, while it can never have surplus cash since the firm can invest excess cash at a fair rate to earn a net present value (NPV) of zero.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following statements is FALSE?

Accepted Answer

A)  The Check Clearing for the 21st Century Act (Check 21), which became effective on October 28, 2004, eliminated the disbursement float due to the check-clearing process. 
B)  Trade credit is, in essence, a loan from the selling firm to its customer. 
C)  The accounts receivable balance represents the amount that a firm owes its suppliers for goods that it has received but for which it has not yet paid. 
D)  Providing financing at below-market rates is an indirect way to lower prices for only certain customers. 
A)  The Check Clearing for the 21st Century Act (Check 21), which became effective on October 28, 2004, eliminated the disbursement float due to the check-clearing process. 
B)  Trade credit is, in essence, a loan from the selling firm to its customer. 
C)  The accounts receivable balance represents the amount that a firm owes its suppliers for goods that it has received but for which it has not yet paid. 
D)  Providing financing at below-market rates is an indirect way to lower prices for only certain customers.

Question 7

What is the effective cost of credit terms of 2/10, net 30 if the firm stretches the accounts payable to 45 days?

Accepted Answer

A)  49.76% 
B)  36.12% 
C)  23.45% 
D)  44.59% 
A)  49.76% 
B)  36.12% 
C)  23.45% 
D)  44.59%

Question 8

What are the five C's of Credit?

Accepted Answer

Lenders have coined the phrase, "The fiv

Question 9

Which of the following would decrease a firm's cash conversion cycle?

Accepted Answer

A)  Increase the inventory days. 
B)  Increase the accounts receivable days. 
C)  Increase the accounts payable days. 
D)  Increase the cash days. 
A)  Increase the inventory days. 
B)  Increase the accounts receivable days. 
C)  Increase the accounts payable days. 
D)  Increase the cash days.

Question 10

Use the table for the question(s) below.
Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2006.
A simplified balance sheet for the firm appears below:
  
-Luther's Accounts Receivable days is closest to ________.

Accepted Answer

A)  42 days 
B)  39 days 
C)  32 days 
D)  59 days 
A)  42 days 
B)  39 days 
C)  32 days 
D)  59 days

Question 11

What is a firm's operating cycle?

Accepted Answer

A firm's operating cycle is th

Question 12

Which of the following is a firm's operating cycle?

Accepted Answer

A)  the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product 
B)  the average length of time between when a firm pays cash to purchase its initial inventory and when it receives cash from the sale of the product produced from that inventory 
C)  the average length of time between when a firm originally purchases its inventory and when it sells the product produced from that inventory 
D)  the average length of time between when a firm originally purchases its inventory and when it pays cash for that inventory 
A)  the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product 
B)  the average length of time between when a firm pays cash to purchase its initial inventory and when it receives cash from the sale of the product produced from that inventory 
C)  the average length of time between when a firm originally purchases its inventory and when it sells the product produced from that inventory 
D)  the average length of time between when a firm originally purchases its inventory and when it pays cash for that inventory

Question 13

Commercial Supply Corp. bills its accounts on terms of 2/10 net 30. The firm's accounts receivable include $200,000 that has been outstanding for ten or fewer days, $126,000 outstanding for 11 to 30 days, $98,000 outstanding for 31 to 40 days, $12,000 outstanding for 41 to 50 days, $20,000 outstanding for 51 to 60 days, and $7,000 outstanding for more than 60 days. Is the aging schedule for Commercial Supply Corp. bottom heavy?
A) No, since 70% of the outstanding sales are on time and the percentage of long term outstanding payments is low.
B) Yes, since the percentage of payments that are late are greater than the percentage of payments that are on time.
C) No, since since the percentage of payments that are late are greater than the percentage of payments that are on time.
D) Given information is not sufficient to reach any conclusion.

Accepted Answer

D
 @#IMG-DLM&_TB1316_00 Total outstandin

Question 14

If a supplier is offering trade credit of 1/10 net 30, and a buyer chooses not to take the discount, when should they pay, assuming that they wish to stay on good terms with the supplier?

Accepted Answer

A)  any time before day 10 
B)  on day 10 
C)  on day 30 
D)  any time after day 30 
A)  any time before day 10 
B)  on day 10 
C)  on day 30 
D)  any time after day 30

Question 15

Effective inventory management builds up assets through increases in inventory and thus increases a firm's value.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is NOT a reason why a firm may typically choose not to stretch its accounts payable?

Accepted Answer

A)  Delaying payment can increase the effective cost of credit in some circumstances. 
B)  The supplier may demand COD or CBD in the future. 
C)  The supplier may choose to discontinue business with delinquent customers. 
D)  The firm's credit rating may be damaged. 
A)  Delaying payment can increase the effective cost of credit in some circumstances. 
B)  The supplier may demand COD or CBD in the future. 
C)  The supplier may choose to discontinue business with delinquent customers. 
D)  The firm's credit rating may be damaged.

Question 17

Which of the following statements is FALSE?

Accepted Answer

A)  Under the Modigliani-Miller assumptions of perfect capital markets, the amount of inventory is irrelevant. 
B)  Unlike trade credit, inventory represents one of the required factors of production. 
C)  It is the firm's financial manager who must arrange for the financing necessary to support the firm's inventory policy and who is responsible for ensuring the firm's overall profitability. 
D)  Inventory management receives extensive coverage in courses on operations management. 
A)  Under the Modigliani-Miller assumptions of perfect capital markets, the amount of inventory is irrelevant. 
B)  Unlike trade credit, inventory represents one of the required factors of production. 
C)  It is the firm's financial manager who must arrange for the financing necessary to support the firm's inventory policy and who is responsible for ensuring the firm's overall profitability. 
D)  Inventory management receives extensive coverage in courses on operations management.

Question 18

What of the following best describes just-in-time inventory management?

Accepted Answer

A)  Inventory is maintained as a buffer to meet uncertainties in demand, supply, and movements of goods. 
B)  Production inefficiencies arising when production capacity stands idle for lack of materials are minimized by holding a small stock of essentials at all times. 
C)  A firm acquires inventory precisely when needed so that its inventory balance is always at, or close to, zero. 
D)  A firm minimizes the time lags present in the supply chain by maintaining a certain amount of inventory to use in these lag times. 
A)  Inventory is maintained as a buffer to meet uncertainties in demand, supply, and movements of goods. 
B)  Production inefficiencies arising when production capacity stands idle for lack of materials are minimized by holding a small stock of essentials at all times. 
C)  A firm acquires inventory precisely when needed so that its inventory balance is always at, or close to, zero. 
D)  A firm minimizes the time lags present in the supply chain by maintaining a certain amount of inventory to use in these lag times.

Question 19

The amount of cash a firm needs to be able to pay its bills is sometimes referred to as a(n) ________.

Accepted Answer

A)  operating balance 
B)  compensating balance 
C)  transactions balance 
D)  precautionary balance 
A)  operating balance 
B)  compensating balance 
C)  transactions balance 
D)  precautionary balance

Question 20

Which of the following best describes the collection float?

Accepted Answer

A)  how long it takes the firm to receive the check after the customer has mailed it 
B)  how long it takes the firm to process the check and deposit it in the bank 
C)  how long it takes before the bank gives the firm credit for the funds 
D)  how long it takes for a firm to be able to use funds after a customer has paid for its goods 
A)  how long it takes the firm to receive the check after the customer has mailed it 
B)  how long it takes the firm to process the check and deposit it in the bank 
C)  how long it takes before the bank gives the firm credit for the funds 
D)  how long it takes for a firm to be able to use funds after a customer has paid for its goods

Exam 19: Working Capital Management

Which of the following is NOT a motivation for holding cash?

A financial manager who wants her investment to have a higher return would choose to invest some of her firm's excess cash in commercial paper over Treasury bonds.

Which of the following would increase a firm's cash conversion cycle?

Which of the following statements is FALSE?

The level of cash a firm holds is irrelevant; it can never be short of cash since a firm is able to raise new money instantly at a fair rate, while it can never have surplus cash since the firm can invest excess cash at a fair rate to earn a net present value (NPV) of zero.

Which of the following statements is FALSE?

What is the effective cost of credit terms of 2/10, net 30 if the firm stretches the accounts payable to 45 days?

What are the five C's of Credit?

Which of the following would decrease a firm's cash conversion cycle?

Use the table for the question(s) below. Luther Industries had sales of $980 million and a cost of goods sold of $560 million in 2006. A simplified balance sheet for the firm appears below: -Luther's Accounts Receivable days is closest to ________.

What is a firm's operating cycle?

Which of the following is a firm's operating cycle?

If a supplier is offering trade credit of 1/10 net 30, and a buyer chooses not to take the discount, when should they pay, assuming that they wish to stay on good terms with the supplier?

Effective inventory management builds up assets through increases in inventory and thus increases a firm's value.

Which of the following is NOT a reason why a firm may typically choose not to stretch its accounts payable?

Which of the following statements is FALSE?

What of the following best describes just-in-time inventory management?

The amount of cash a firm needs to be able to pay its bills is sometimes referred to as a(n) ________.

Which of the following best describes the collection float?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

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