Question 1

Describe the differences between secured and unsecured short-term credit.

Accepted Answer

Secured loans are backed by the pledge o

Question 2

A disadvantage involved in investing in marketable securities is that:

Accepted Answer

A) this reduces the risk of illiquidity. 
B) this investment increases net working capital. 
C) this investment offers a flexible means of financing. 
D) these assets offer low rates of return,commensurate with their risk. 
A) this reduces the risk of illiquidity. 
B) this investment increases net working capital. 
C) this investment offers a flexible means of financing. 
D) these assets offer low rates of return,commensurate with their risk.

Question 3

Which of the following is most consistent with the self-liquidating debt principle in working capital management?

Accepted Answer

A) Fixed assets should be financed with short-term notes payable. 
B) Inventory should be financed with preferred stock. 
C) Accounts receivable should be financed with short-term lines of credit. 
D) Borrow on a floating rate basis to finance investments in permanent assets. 
A) Fixed assets should be financed with short-term notes payable. 
B) Inventory should be financed with preferred stock. 
C) Accounts receivable should be financed with short-term lines of credit. 
D) Borrow on a floating rate basis to finance investments in permanent assets.

Question 4

Electronic funds transfer (EFT)could eventually eliminate the use of most checks and minimize float.

Accepted Answer

A) True 
 B)False

Question 5

Clark Corporation has an average collection period of 7 days,an inventory conversion period of 30 days,and a payables deferrable period of 60 days.What is Clark's operating cycle?

Accepted Answer

A) 97 days 
B) 37 days 
C) 23 days 
D) -23 days 
A) 97 days 
B) 37 days 
C) 23 days 
D) -23 days

Question 6

Becker.com has an inventory turnover ratio of 52,an accounts receivable balance of $365,000,average daily credit sales of $36,500,accounts payable of $182,500 and cost of goods sold of $7,993,500.What is Becker's operating cycle to the nearest day?

Accepted Answer

A) 17 days 
B) 61 days 
C) 27 days 
D) -27 days 
A) 17 days 
B) 61 days 
C) 27 days 
D) -27 days

Question 7

Lightbulbs.com sells industrial and institutional lighting supplies through its website.It sells directly to businesses and organizations such as universities and hospitals on terms of net 90.To finance its rather large investments in receivables and inventory,the firm has an average need for $2,000,000 in short-term loans.It is choosing between 3 alternative arrangements:
Converse Bank offers a 4.75% APR with interest and principal paid at the end of the year.
Guaranty Bank offers a rate of 4.5% with interest discounted at the time of the loan.
County Bank offers 4.25% with a 10% compensating balance.
Which bank offers the APR when all terms of the loan are considered? You may assume that required amounts are borrowed for the full year.

Accepted Answer

Converse Bank's rate is simply 4.75%.
Gu

Question 8

An increase in ________ would increase net working capital.

Accepted Answer

A) plant and equipment 
B) accounts payable 
C) accounts receivable 
D) both B and C 
A) plant and equipment 
B) accounts payable 
C) accounts receivable 
D) both B and C

Question 9

Solstice Corporation has current assets of $10 million and current liabilities of $8 million.Solstice's current ratio is ________ and its net working capital is ________.

Accepted Answer

A) 1.25,$10 million 
B) 1.25,$2 million 
C) 2,$1.25 million 
D) .8, ($2 million) 
A) 1.25,$10 million 
B) 1.25,$2 million 
C) 2,$1.25 million 
D) .8, ($2 million)

Question 10

Becker.com has an inventory turnover ratio of 52,an accounts receivable balance of $365,000,average daily credit sales of $36,500,accounts payable of $182,500 and cost of goods sold of $7,993,500.What is Becker's cash conversion cycle to the nearest day?

Accepted Answer

A) 17 days 
B) 61 days 
C) 27 days 
D) -27 days 
A) 17 days 
B) 61 days 
C) 27 days 
D) -27 days

Question 11

Prince Co.'s inventory turnover ratio is 30.4.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 12

A banker's acceptance is a draft drawn on a specific bank by an exporter in order to obtain payment for goods that he has shipped to a customer who maintains an account with that specific bank.

Accepted Answer

A) True 
 B)False

Question 13

Commercial paper:

Accepted Answer

A) rates are generally higher than rates on bank loans and comparable sources of short-term financing. 
B) generally has a minimum compensating balance requirement. 
C) offers the firm with very large credit needs a single source for all its short-term financing. 
D) has all of the properties stated above. 
A) rates are generally higher than rates on bank loans and comparable sources of short-term financing. 
B) generally has a minimum compensating balance requirement. 
C) offers the firm with very large credit needs a single source for all its short-term financing. 
D) has all of the properties stated above.

Question 14

What is the conventional method for financing permanent levels of accounts receivable and inventory?

Accepted Answer

A) Bonds and equity 
B) Short-term loans 
C) Accounts payable and accrued expenses 
D) Equity only 
A) Bonds and equity 
B) Short-term loans 
C) Accounts payable and accrued expenses 
D) Equity only

Question 15

The Omega Corp.plans to borrow $10,000 for a 2 months.At maturity,Omega will repay the $10,000 principal plus $100 interest.What is the annual percentage rate (APR)rate of interest on this loan?

Accepted Answer

A) 6% 
B) 1% 
C) 4% 
D) 6.4% 
A) 6% 
B) 1% 
C) 4% 
D) 6.4%

Question 16

The primary advantage that factoring 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 17

Managing a firm's liquidity is basically the same as managing a firm's net working capital.

Accepted Answer

A) True 
 B)False

Question 18

A toy manufacturer following the self-liquidating debt.principle will generally finance seasonal inventory build-up prior to the Christmas season with:

Accepted Answer

A) common stock. 
B) selling equipment. 
C) trade credit. 
D) preferred stock. 
A) common stock. 
B) selling equipment. 
C) trade credit. 
D) preferred stock.

Question 19

Within the context of working capital management,the risk-return trade-off involves an increased risk of illiquidity versus increased profitability.

Accepted Answer

A) True 
 B)False

Question 20

Summary data from the quarterly balance sheets of ACH Air Conditioners are shown below.
   
.
a.If ACH follows the self liquidating debt principle,how much long-term debt will be used to finance current assets? Explain your answer briefly.
b.What would be the highest and lowest levels of temporary debt?

Accepted Answer

a.It would appear from the quarterly bal

Describe the differences between secured and unsecured short-term credit.

A disadvantage involved in investing in marketable securities is that:

Which of the following is most consistent with the self-liquidating debt principle in working capital management?

Electronic funds transfer (EFT)could eventually eliminate the use of most checks and minimize float.

Clark Corporation has an average collection period of 7 days,an inventory conversion period of 30 days,and a payables deferrable period of 60 days.What is Clark's operating cycle?

Becker.com has an inventory turnover ratio of 52,an accounts receivable balance of $365,000,average daily credit sales of $36,500,accounts payable of $182,500 and cost of goods sold of $7,993,500.What is Becker's operating cycle to the nearest day?

An increase in ________ would increase net working capital.

Solstice Corporation has current assets of $10 million and current liabilities of $8 million.Solstice's current ratio is and its net working capital is .

Becker.com has an inventory turnover ratio of 52,an accounts receivable balance of $365,000,average daily credit sales of $36,500,accounts payable of $182,500 and cost of goods sold of $7,993,500.What is Becker's cash conversion cycle to the nearest day?

Prince Co.'s inventory turnover ratio is 30.4.It's inventory conversion period is:

A banker's acceptance is a draft drawn on a specific bank by an exporter in order to obtain payment for goods that he has shipped to a customer who maintains an account with that specific bank.

Commercial paper:

What is the conventional method for financing permanent levels of accounts receivable and inventory?

The Omega Corp.plans to borrow $10,000 for a 2 months.At maturity,Omega will repay the $10,000 principal plus $100 interest.What is the annual percentage rate (APR)rate of interest on this loan?

The primary advantage that factoring accounts receivable provides is:

Managing a firm's liquidity is basically the same as managing a firm's net working capital.

A toy manufacturer following the self-liquidating debt.principle will generally finance seasonal inventory build-up prior to the Christmas season with:

Within the context of working capital management,the risk-return trade-off involves an increased risk of illiquidity versus increased profitability.

Summary data from the quarterly balance sheets of ACH Air Conditioners are shown below. . a.If ACH follows the self liquidating debt principle,how much long-term debt will be used to finance current assets? Explain your answer briefly. b.What would be the highest and lowest levels of temporary debt?

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

Describe the differences between secured and unsecured short-term credit.

A disadvantage involved in investing in marketable securities is that:

Which of the following is most consistent with the self-liquidating debt principle in working capital management?

Electronic funds transfer (EFT)could eventually eliminate the use of most checks and minimize float.

Clark Corporation has an average collection period of 7 days,an inventory conversion period of 30 days,and a payables deferrable period of 60 days.What is Clark's operating cycle?

Becker.com has an inventory turnover ratio of 52,an accounts receivable balance of $365,000,average daily credit sales of $36,500,accounts payable of $182,500 and cost of goods sold of $7,993,500.What is Becker's operating cycle to the nearest day?

An increase in ________ would increase net working capital.

Solstice Corporation has current assets of $10 million and current liabilities of $8 million.Solstice's current ratio is ________ and its net working capital is ________.

Becker.com has an inventory turnover ratio of 52,an accounts receivable balance of $365,000,average daily credit sales of $36,500,accounts payable of $182,500 and cost of goods sold of $7,993,500.What is Becker's cash conversion cycle to the nearest day?

Prince Co.'s inventory turnover ratio is 30.4.It's inventory conversion period is:

A banker's acceptance is a draft drawn on a specific bank by an exporter in order to obtain payment for goods that he has shipped to a customer who maintains an account with that specific bank.

Commercial paper:

What is the conventional method for financing permanent levels of accounts receivable and inventory?

The Omega Corp.plans to borrow $10,000 for a 2 months.At maturity,Omega will repay the $10,000 principal plus $100 interest.What is the annual percentage rate (APR)rate of interest on this loan?

The primary advantage that factoring accounts receivable provides is:

Managing a firm's liquidity is basically the same as managing a firm's net working capital.

A toy manufacturer following the self-liquidating debt.principle will generally finance seasonal inventory build-up prior to the Christmas season with:

Within the context of working capital management,the risk-return trade-off involves an increased risk of illiquidity versus increased profitability.

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

Solstice Corporation has current assets of $10 million and current liabilities of $8 million.Solstice's current ratio is and its net working capital is .