Question 1

Queen Co.'s balance in accounts receivable is $240,000.Annual credit sales are $2,880,000.Queen's average collection 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 2

T-bills and Treasury bonds are guaranteed by the full faith and credit of the United States and are therefore default-free.

Accepted Answer

A) True 
 B)False

Question 3

A company that foregoes a discount of 1/7 net 30 is essentially borrowing money from the vendor at:

Accepted Answer

A) 1%. 
B) 12.29%. 
C) 16%. 
D) 52.7%. 
A) 1%. 
B) 12.29%. 
C) 16%. 
D) 52.7%.

Question 4

Accounts receivable typically comprise ________ of a firm's assets.

Accepted Answer

A) 25% 
B) 50% 
C) less than 1% 
D) 10% 
A) 25% 
B) 50% 
C) less than 1% 
D) 10%

Question 5

Current assets of NorthPole.com at the end of each quarter were: 1st quarter $1.3 million,2nd quarter $1.7 million,3rd quarter $1.5 million and 4th quarter $2.2 million.The best estimate for North Pole's permanent current assets is:

Accepted Answer

A) $2.2 million. 
B) $1.675 million. 
C) $1.3 million. 
D) $0.9 million. 
A) $2.2 million. 
B) $1.675 million. 
C) $1.3 million. 
D) $0.9 million.

Question 6

A firm can reduce net working capital by substituting long-term financing,such as bonds,with short-term financing,such as a one-year notes payable.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following will reduce the liquidity of a firm? An increase in:

Accepted Answer

A) short-term notes payable. 
B) accounts payable. 
C) current assets. 
D) both A and B. 
A) short-term notes payable. 
B) accounts payable. 
C) current assets. 
D) both A and B.

Question 8

An increase in ________ would increase a firm's liquidity.

Accepted Answer

A) notes payable 
B) inventories 
C) cash 
D) both B and C 
A) notes payable 
B) inventories 
C) cash 
D) both B and C

Question 9

A firm buys on terms of 3/10,net 30.What is the cost of trade credit under these terms?

Accepted Answer

A) 55.7% 
B) 47.4% 
C) 31.5% 
D) 23.2% 
A) 55.7% 
B) 47.4% 
C) 31.5% 
D) 23.2%

Question 10

Management of a firm's liquidity involves management of the firm's investment in current assets.

Accepted Answer

A) True 
 B)False

Question 11

Accrued wages are considered an unsecured,non-spontaneous source of financing.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is NOT considered a permanent source of financing?

Accepted Answer

A) Corporate bonds 
B) Common stock 
C) Preferred stock 
D) Commercial paper 
A) Corporate bonds 
B) Common stock 
C) Preferred stock 
D) Commercial paper

Question 13

Maximus,Inc.is planning to borrow $2 million for 9 months at a discounted interest rate of 4.5%.What is the annual percentage rate on the loan?

Accepted Answer

Interest =$2,000,000

Question 14

A decrease in ________ would increase net working capital.

Accepted Answer

A) accounts payable 
B) accounts receivable 
C) cash 
D) equipment 
A) accounts payable 
B) accounts receivable 
C) cash 
D) equipment

Question 15

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 operating 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

Question 16

The First Webster Bank requires borrowers to maintain a balance of 10% of the line of credit in a non-interest paying account as compensation for providing the line of credit.If the borrower would not normally have deposits in such an account,the APR will be:

Accepted Answer

A) the amount borrowed will be higher than the amount needed. 
B) the APR will be less than the stated rate. 
C) the amount borrowed will be lower than the amount needed. 
D) neither the amount borrowed nor the APR will be affected by the required balance. 
A) the amount borrowed will be higher than the amount needed. 
B) the APR will be less than the stated rate. 
C) the amount borrowed will be lower than the amount needed. 
D) neither the amount borrowed nor the APR will be affected by the required balance.

Question 17

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

Accepted Answer

A) The current ratio will be lower than it should be. 
B) The quick ratio will be lower than it should be. 
C) The return on investment will be lower than it should be. 
D) The times interest earned ratio will be lower than it should be. 
A) The current ratio will be lower than it should be. 
B) The quick ratio will be lower than it should be. 
C) The return on investment will be lower than it should be. 
D) The times interest earned ratio will be lower than it should be.

Question 18

Investing in additional marketable securities and inventories creates higher profitability and lower liquidity.

Accepted Answer

A) True 
 B)False

Question 19

The effective cost to the borrower of an unsecured bank loan is increased if a compensating balance is required.

Accepted Answer

A) True 
 B)False

Question 20

As the inventory turnover ratio decreases,the inventory conversion cycle increases.

Accepted Answer

A) True 
 B)False

Queen Co.'s balance in accounts receivable is $240,000.Annual credit sales are $2,880,000.Queen's average collection period is:

T-bills and Treasury bonds are guaranteed by the full faith and credit of the United States and are therefore default-free.

A company that foregoes a discount of 1/7 net 30 is essentially borrowing money from the vendor at:

Accounts receivable typically comprise ________ of a firm's assets.

Current assets of NorthPole.com at the end of each quarter were: 1st quarter $1.3 million,2nd quarter $1.7 million,3rd quarter $1.5 million and 4th quarter $2.2 million.The best estimate for North Pole's permanent current assets is:

A firm can reduce net working capital by substituting long-term financing,such as bonds,with short-term financing,such as a one-year notes payable.

Which of the following will reduce the liquidity of a firm? An increase in:

An increase in ________ would increase a firm's liquidity.

A firm buys on terms of 3/10,net 30.What is the cost of trade credit under these terms?

Management of a firm's liquidity involves management of the firm's investment in current assets.

Accrued wages are considered an unsecured,non-spontaneous source of financing.

Which of the following is NOT considered a permanent source of financing?

Maximus,Inc.is planning to borrow $2 million for 9 months at a discounted interest rate of 4.5%.What is the annual percentage rate on the loan?

A decrease in ________ would increase net working capital.

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 operating cycle?

The First Webster Bank requires borrowers to maintain a balance of 10% of the line of credit in a non-interest paying account as compensation for providing the line of credit.If the borrower would not normally have deposits in such an account,the APR will be:

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

Investing in additional marketable securities and inventories creates higher profitability and lower liquidity.

The effective cost to the borrower of an unsecured bank loan is increased if a compensating balance is required.

As the inventory turnover ratio decreases,the inventory conversion cycle increases.

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

Queen Co.'s balance in accounts receivable is $240,000.Annual credit sales are $2,880,000.Queen's average collection period is:

T-bills and Treasury bonds are guaranteed by the full faith and credit of the United States and are therefore default-free.

A company that foregoes a discount of 1/7 net 30 is essentially borrowing money from the vendor at:

Accounts receivable typically comprise ________ of a firm's assets.

Current assets of NorthPole.com at the end of each quarter were: 1st quarter $1.3 million,2nd quarter $1.7 million,3rd quarter $1.5 million and 4th quarter $2.2 million.The best estimate for North Pole's permanent current assets is:

A firm can reduce net working capital by substituting long-term financing,such as bonds,with short-term financing,such as a one-year notes payable.

Which of the following will reduce the liquidity of a firm? An increase in:

An increase in ________ would increase a firm's liquidity.

A firm buys on terms of 3/10,net 30.What is the cost of trade credit under these terms?

Management of a firm's liquidity involves management of the firm's investment in current assets.

Accrued wages are considered an unsecured,non-spontaneous source of financing.

Which of the following is NOT considered a permanent source of financing?

Maximus,Inc.is planning to borrow $2 million for 9 months at a discounted interest rate of 4.5%.What is the annual percentage rate on the loan?

A decrease in ________ would increase net working capital.

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 operating cycle?

The First Webster Bank requires borrowers to maintain a balance of 10% of the line of credit in a non-interest paying account as compensation for providing the line of credit.If the borrower would not normally have deposits in such an account,the APR will be:

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

Investing in additional marketable securities and inventories creates higher profitability and lower liquidity.

The effective cost to the borrower of an unsecured bank loan is increased if a compensating balance is required.

As the inventory turnover ratio decreases,the inventory conversion cycle increases.

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