Question 1

If management expects interest rates to rise and credit to tighten in the near future,it should consider:

Accepted Answer

A) increasing its use of commercial paper and loans secured by current assets. 
B) decreasing the use of spontaneous financing. 
C) decreasing the level of permanent financing. 
D) increasing the level of permanent financing. 
A) increasing its use of commercial paper and loans secured by current assets. 
B) decreasing the use of spontaneous financing. 
C) decreasing the level of permanent financing. 
D) increasing the level of permanent financing.

Question 2

Trade credit is an example of which of the following sources of financing?

Accepted Answer

A) Spontaneous 
B) Temporary 
C) Permanent 
D) Both A and B 
A) Spontaneous 
B) Temporary 
C) Permanent 
D) Both A and B

Question 3

The cost of trade credit varies with the:

Accepted Answer

A) size of the cash discount. 
B) length of time between the end of the discount period and the final due date. 
C) length of time between the end of the discount period and when the firm purchased from the supplier. 
D) both A and C. 
A) size of the cash discount. 
B) length of time between the end of the discount period and the final due date. 
C) length of time between the end of the discount period and when the firm purchased from the supplier. 
D) both A and C.

Question 4

Atlas Tire Irons,Inc.is considering borrowing $5,000 for a 3 month period.The firm will repay the $5,000 principal amount plus $150 in interest.What is the annual percentage rate (APR)rate of interest (use a 360-day year)?

Accepted Answer

A) 3% 
B) 12% 
C) 15% 
D) 18% 
A) 3% 
B) 12% 
C) 15% 
D) 18%

Question 5

The U.R.Bloom Corporation established a line of credit with a local bank.The maximum amount that can be borrowed under the terms of the agreement is $125,000 at a rate of 5%.A compensating balance averaging 10% of the loan is required.If the firm needs $100,000 for six months,what is the dollar cost of the loan and the annual percentage rate (APR)?

Accepted Answer

Borrowed funds = ($100,000/0.9

Question 6

Which of the following is NOT a spontaneous source of financing?

Accepted Answer

A) Accrued salaries payable 
B) Loans secured by accounts receivable 
C) Accrued taxes payable 
D) Accounts payable 
A) Accrued salaries payable 
B) Loans secured by accounts receivable 
C) Accrued taxes payable 
D) Accounts payable

Question 7

Once a cash discount period has passed:

Accepted Answer

A) one should pay immediately. 
B) there is no financial incentive to pay before the final due date. 
C) one should pay after the final due date. 
D) cannot be determined from the information. 
A) one should pay immediately. 
B) there is no financial incentive to pay before the final due date. 
C) one should pay after the final due date. 
D) cannot be determined from the information.

Question 8

Secured loans are those that are secured by the lender's faith in the ability of the borrower to repay the funds when due.

Accepted Answer

A) True 
 B)False

Question 9

Commercial paper is a short-term,unsecured promissory note.

Accepted Answer

A) True 
 B)False

Question 10

The Smith Corporation has purchased $500,000 worth of inventory.The vendor offers terms of 1/15 net 45.Unfortunately,Smith does not have enough cash available to take advantage of the discount.It can borrow $500,000 from Wesson National Bank for 30 days at an annual percentage rate of 6%.Should Smith forego the discount or pay within the discount period with money borrowed from the bank?

Accepted Answer

In either case,Smith will effe

Question 11

Commercial paper is a source of credit available to large firms with healthy balance sheets.

Accepted Answer

A) True 
 B)False

Question 12

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 cash conversion 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 13

A& B Global's annual credit sales are $18 million;the accounts receivable balance is $1.5 million;the cost of goods sold is $12.6 million;the inventory balance is $350,000,and the balance in accounts payable is $700,000.
a.Compute A&B's operating cycle.
b.Compute A&B's cash conversion cycle.

Accepted Answer

Average collection period = $1,500,00/($

Question 14

L.Stevens Inc.uses long-term to cover its peak level of current assets.When it does not need the money to finance inventories and accounts receivable,it invests the excess funds in short-term certificates of deposit.What are the advantages and disadvantages of this policy?

Accepted Answer

By financing all of its temporary needs

Question 15

Trade credit appears on a company's balance sheet as accounts payable.

Accepted Answer

A) True 
 B)False

Question 16

The Stoney River Textiles Company will borrow $50 million for 180 days from Merrimac Bank.The bank will charge Stoney River 4.5 % on a discounted basis.What is the annual percentage rate (APR)to Stoney River (round to the nearest .1 percent)?

Accepted Answer

A) 2.25% 
B) 2.36% 
C) 4.71% 
D) 4.5% 
A) 2.25% 
B) 2.36% 
C) 4.71% 
D) 4.5%

Question 17

If Quick Corp.foregoes the discount and pays for its purchases according to the terms of its trade credit,what is Quick's effective cost of using this source of credit?

Accepted Answer

A) 26.67% 
B) 31.48% 
C) 36.73% 
D) 51.32% 
A) 26.67% 
B) 31.48% 
C) 36.73% 
D) 51.32%

Question 18

What is the annual percentage cost of the loan?

Accepted Answer

A) 15.67% 
B) 14.00% 
C) 13.33% 
D) .83% 
A) 15.67% 
B) 14.00% 
C) 13.33% 
D) .83%

Question 19

The use of short-term debt provides flexibility in financing since the firm is only paying interest when it is actually using the borrowed funds.

Accepted Answer

A) True 
 B)False

Question 20

Increasing the accounts payable deferral period also increases the cash conversion cycle.

Accepted Answer

A) True 
 B)False

If management expects interest rates to rise and credit to tighten in the near future,it should consider:

Trade credit is an example of which of the following sources of financing?

The cost of trade credit varies with the:

Atlas Tire Irons,Inc.is considering borrowing $5,000 for a 3 month period.The firm will repay the $5,000 principal amount plus $150 in interest.What is the annual percentage rate (APR)rate of interest (use a 360-day year)?

Which of the following is NOT a spontaneous source of financing?

Once a cash discount period has passed:

Secured loans are those that are secured by the lender's faith in the ability of the borrower to repay the funds when due.

Commercial paper is a short-term,unsecured promissory note.

Commercial paper is a source of credit available to large firms with healthy balance sheets.

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 cash conversion cycle?

A& B Global's annual credit sales are $18 million;the accounts receivable balance is $1.5 million;the cost of goods sold is $12.6 million;the inventory balance is $350,000,and the balance in accounts payable is $700,000. a.Compute A&B's operating cycle. b.Compute A&B's cash conversion cycle.

L.Stevens Inc.uses long-term to cover its peak level of current assets.When it does not need the money to finance inventories and accounts receivable,it invests the excess funds in short-term certificates of deposit.What are the advantages and disadvantages of this policy?

Trade credit appears on a company's balance sheet as accounts payable.

The Stoney River Textiles Company will borrow $50 million for 180 days from Merrimac Bank.The bank will charge Stoney River 4.5 % on a discounted basis.What is the annual percentage rate (APR)to Stoney River (round to the nearest .1 percent)?

If Quick Corp.foregoes the discount and pays for its purchases according to the terms of its trade credit,what is Quick's effective cost of using this source of credit?

What is the annual percentage cost of the loan?

The use of short-term debt provides flexibility in financing since the firm is only paying interest when it is actually using the borrowed funds.

Increasing the accounts payable deferral period also increases the cash conversion cycle.

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

If management expects interest rates to rise and credit to tighten in the near future,it should consider:

Trade credit is an example of which of the following sources of financing?

The cost of trade credit varies with the:

Atlas Tire Irons,Inc.is considering borrowing $5,000 for a 3 month period.The firm will repay the $5,000 principal amount plus $150 in interest.What is the annual percentage rate (APR)rate of interest (use a 360-day year)?

Which of the following is NOT a spontaneous source of financing?

Once a cash discount period has passed:

Secured loans are those that are secured by the lender's faith in the ability of the borrower to repay the funds when due.

Commercial paper is a short-term,unsecured promissory note.

Commercial paper is a source of credit available to large firms with healthy balance sheets.

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 cash conversion cycle?

A& B Global's annual credit sales are $18 million;the accounts receivable balance is $1.5 million;the cost of goods sold is $12.6 million;the inventory balance is $350,000,and the balance in accounts payable is $700,000. a.Compute A&B's operating cycle. b.Compute A&B's cash conversion cycle.

L.Stevens Inc.uses long-term to cover its peak level of current assets.When it does not need the money to finance inventories and accounts receivable,it invests the excess funds in short-term certificates of deposit.What are the advantages and disadvantages of this policy?

Trade credit appears on a company's balance sheet as accounts payable.

The Stoney River Textiles Company will borrow $50 million for 180 days from Merrimac Bank.The bank will charge Stoney River 4.5 % on a discounted basis.What is the annual percentage rate (APR)to Stoney River (round to the nearest .1 percent)?

If Quick Corp.foregoes the discount and pays for its purchases according to the terms of its trade credit,what is Quick's effective cost of using this source of credit?

What is the annual percentage cost of the loan?

The use of short-term debt provides flexibility in financing since the firm is only paying interest when it is actually using the borrowed funds.

Increasing the accounts payable deferral period also increases the cash conversion cycle.

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