Question 1

It is not possible to have a negative cash conversion cycle.

Accepted Answer

A) True 
 B)False  False

Question 2

Abbot Corporation has an average collection period of 49 days,an inventory conversion period of 83 days,and a payables deferrable period of 36 days.What is Abbott's cash conversion cycle?

Accepted Answer

A) 96 days 
B) 70 days 
C) 85 days 
D) 132 days 
A) 96 days 
B) 70 days 
C) 85 days 
D) 132 days A

Question 3

A firm will borrow $1 million for six months on a discount basis.The annual interest rate on the loan is 12%.What is the annual percentage cost of the loan?

Accepted Answer

A) 11.00% 
B) 12.77% 
C) 13.00% 
D) 14.23% 
A) 11.00% 
B) 12.77% 
C) 13.00% 
D) 14.23% B

Question 4

Working capital refers to investment in current assets,while net working capital is the difference between current assets and current liabilities.

Accepted Answer

A) True 
 B)False

Question 5

Total assets must equal the sum of which sources of financing?

Accepted Answer

A) Spontaneous 
B) Temporary 
C) Permanent 
D) Spontaneous,temporary and permanent 
A) Spontaneous 
B) Temporary 
C) Permanent 
D) Spontaneous,temporary and permanent

Question 6

Spontaneous sources of financing include:

Accepted Answer

A) marketable securities. 
B) accruals. 
C) bonds. 
D) commercial paper. 
A) marketable securities. 
B) accruals. 
C) bonds. 
D) commercial paper.

Question 7

Which of the following is considered to be a spontaneous source of financing?

Accepted Answer

A) Operating leases 
B) Accounts receivable 
C) Inventory 
D) Accounts payable 
A) Operating leases 
B) Accounts receivable 
C) Inventory 
D) Accounts payable

Question 8

Smith Enterprises has a line of credit with Fidelity National Bank that allows Smith to borrow up to $350,000 at an interest rate of 5%.However,Smith must keep a compensating balance of 10% of any amount borrowed on deposit at Fidelity.Smith does not normally keep a cash balance account with Fidelity.What is the effective annual cost of credit (round to nearest .01 percent)?

Accepted Answer

A) 5.93% 
B) 5.84% 
C) 5.64% 
D) 5.56% 
A) 5.93% 
B) 5.84% 
C) 5.64% 
D) 5.56%

Question 9

Which of the following is a spontaneous source of financing?

Accepted Answer

A) Accrued wages 
B) Preferred stock 
C) Trade credit 
D) Both A and C 
A) Accrued wages 
B) Preferred stock 
C) Trade credit 
D) Both A and C

Question 10

The minimum level of inventory the firm plans to hold for the foreseeable future is a temporary asset investment.

Accepted Answer

A) True 
 B)False

Question 11

Calculate the effective cost of the following trade credit terms if the discount is foregone and payment is made on the net due date.
a.2/15 net 30
b.2/15 net 45
c.2/15 net 60

Accepted Answer

a.($0.02/$0.98)× [1/(15/360)] = .4898
b.

Question 12

With respect to working capital policy,firms most often employ:

Accepted Answer

A) a cautious approach which finances short-term assets with long-term financing. 
B) the principle of self-liquidating debt. 
C) an aggressive approach which finances long-term assets with short-term financing. 
D) the principle of liquidity optimization. 
A) a cautious approach which finances short-term assets with long-term financing. 
B) the principle of self-liquidating debt. 
C) an aggressive approach which finances long-term assets with short-term financing. 
D) the principle of liquidity optimization.

Question 13

Which of the following is most likely to be a temporary source of financing?

Accepted Answer

A) Commercial paper 
B) Preferred stock 
C) Long-term debt 
D) All of the above 
A) Commercial paper 
B) Preferred stock 
C) Long-term debt 
D) All of the above

Question 14

Which of the following terms would tend to minimize a firm's investment in accounts receivable?

Accepted Answer

A) net 15 
B) net 30 
C) 1/15 net 45 
D) 2/10 net 30 
A) net 15 
B) net 30 
C) 1/15 net 45 
D) 2/10 net 30

Question 15

King Co.'s inventory turnover ratio is 12.It's inventory conversion period is:

Accepted Answer

A) 12 days. 
B) 30.4 days. 
C) 2.5 days. 
D) There is not enough information. 
A) 12 days. 
B) 30.4 days. 
C) 2.5 days. 
D) There is not enough information.

Question 16

One of the attractive features of commercial paper is an active secondary market.

Accepted Answer

A) True 
 B)False

Question 17

Accounts payable is considered a:

Accepted Answer

A) spontaneous liability. 
B) temporary financing source. 
C) permanent financing source. 
D) both A and B. 
A) spontaneous liability. 
B) temporary financing source. 
C) permanent financing source. 
D) both A and B.

Question 18

Which of the following is most likely to occur if a firm under-invests in net working capital?

Accepted Answer

A) The firm might not have sufficient cash to pay its bill in a timely manner. 
B) The firm might not have adequate inventory to meet the needs of its customers. 
C) The firm could be losing sales because its terms of sale are too strict. 
D) All of the above. 
A) The firm might not have sufficient cash to pay its bill in a timely manner. 
B) The firm might not have adequate inventory to meet the needs of its customers. 
C) The firm could be losing sales because its terms of sale are too strict. 
D) All of the above.

Question 19

Pledging accounts receivable as a source of short-term credit:

Accepted Answer

A) is a type of loan secured by accounts receivable. 
B) is a form of spontaneous credit. 
C) involves the outright sale of accounts receivable to a financial institution. 
D) is an inexpensive but risky source of short-term financing. 
A) is a type of loan secured by accounts receivable. 
B) is a form of spontaneous credit. 
C) involves the outright sale of accounts receivable to a financial institution. 
D) is an inexpensive but risky source of short-term financing.

Question 20

Which of the following is an advantage of using commercial paper for short-term credit?

Accepted Answer

A) The ability of some firms to obtain large amounts of credit 
B) A readily available source of credit for most firms 
C) It is a type of free credit 
D) It can be issued for very small amounts 
A) The ability of some firms to obtain large amounts of credit 
B) A readily available source of credit for most firms 
C) It is a type of free credit 
D) It can be issued for very small amounts

It is not possible to have a negative cash conversion cycle.

Abbot Corporation has an average collection period of 49 days,an inventory conversion period of 83 days,and a payables deferrable period of 36 days.What is Abbott's cash conversion cycle?

A firm will borrow $1 million for six months on a discount basis.The annual interest rate on the loan is 12%.What is the annual percentage cost of the loan?

Working capital refers to investment in current assets,while net working capital is the difference between current assets and current liabilities.

Total assets must equal the sum of which sources of financing?

Spontaneous sources of financing include:

Which of the following is considered to be a spontaneous source of financing?

Which of the following is a spontaneous source of financing?

The minimum level of inventory the firm plans to hold for the foreseeable future is a temporary asset investment.

Calculate the effective cost of the following trade credit terms if the discount is foregone and payment is made on the net due date. a.2/15 net 30 b.2/15 net 45 c.2/15 net 60

With respect to working capital policy,firms most often employ:

Which of the following is most likely to be a temporary source of financing?

Which of the following terms would tend to minimize a firm's investment in accounts receivable?

King Co.'s inventory turnover ratio is 12.It's inventory conversion period is:

One of the attractive features of commercial paper is an active secondary market.

Accounts payable is considered a:

Which of the following is most likely to occur if a firm under-invests in net working capital?

Pledging accounts receivable as a source of short-term credit:

Which of the following is an advantage of using commercial paper for short-term credit?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

International Business Finance

Corporate Risk Management

Filters

Exam 18: Working Capital Management

It is not possible to have a negative cash conversion cycle.

Abbot Corporation has an average collection period of 49 days,an inventory conversion period of 83 days,and a payables deferrable period of 36 days.What is Abbott's cash conversion cycle?

A firm will borrow $1 million for six months on a discount basis.The annual interest rate on the loan is 12%.What is the annual percentage cost of the loan?

Working capital refers to investment in current assets,while net working capital is the difference between current assets and current liabilities.

Total assets must equal the sum of which sources of financing?

Spontaneous sources of financing include:

Which of the following is considered to be a spontaneous source of financing?

Which of the following is a spontaneous source of financing?

The minimum level of inventory the firm plans to hold for the foreseeable future is a temporary asset investment.

Calculate the effective cost of the following trade credit terms if the discount is foregone and payment is made on the net due date. a.2/15 net 30 b.2/15 net 45 c.2/15 net 60

With respect to working capital policy,firms most often employ:

Which of the following is most likely to be a temporary source of financing?

Which of the following terms would tend to minimize a firm's investment in accounts receivable?

King Co.'s inventory turnover ratio is 12.It's inventory conversion period is:

One of the attractive features of commercial paper is an active secondary market.

Accounts payable is considered a:

Which of the following is most likely to occur if a firm under-invests in net working capital?

Pledging accounts receivable as a source of short-term credit:

Which of the following is an advantage of using commercial paper for short-term credit?

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

International Business Finance

Corporate Risk Management

Filters