Question 1

With regard to the self-liquidating debt,which of the following assets should be financed with permanent sources of financing?

Accepted Answer

A) Machinery 
B) Expansion of inventory to meet seasonal demands 
C) Machinery and expansion of inventory to meet seasonal demands 
D) Minimum level of accounts receivable required year round,machinery,and minimum level of cash required for year-round operations 
A) Machinery 
B) Expansion of inventory to meet seasonal demands 
C) Machinery and expansion of inventory to meet seasonal demands 
D) Minimum level of accounts receivable required year round,machinery,and minimum level of cash required for year-round operations

Question 2

Net working capital refers to which of the following?

Accepted Answer

A) Current assets 
B) Current assets minus current liabilities 
C) Current assets minus inventory 
D) Current assets divided by current liabilities 
E) Current assets minus inventory divided by current liabilities 
A) Current assets 
B) Current assets minus current liabilities 
C) Current assets minus inventory 
D) Current assets divided by current liabilities 
E) Current assets minus inventory divided by current liabilities

Question 3

J.B.'s Wholesale Club has current assets of $12.25 million and current liabilities of $14 million.Which of the following is possible.

Accepted Answer

A) J.B.makes efficient use of its current assets. 
B) J.B.may be at some risk of being unable to pay its bills. 
C) J.B.appears to be overinvesting in current assets. 
D) Either or both A and B may be true. 
A) J.B.makes efficient use of its current assets. 
B) J.B.may be at some risk of being unable to pay its bills. 
C) J.B.appears to be overinvesting in current assets. 
D) Either or both A and B may be true.

Question 4

Which of the following is an advantage of trade credit?

Accepted Answer

A) Trade credit is conveniently obtained as a normal part of the firm's operations. 
B) No formal agreements are generally involved in extending credit. 
C) The amount of credit extended expands and contracts with the needs of the firm. 
D) All of the above. 
A) Trade credit is conveniently obtained as a normal part of the firm's operations. 
B) No formal agreements are generally involved in extending credit. 
C) The amount of credit extended expands and contracts with the needs of the firm. 
D) All of the above.

Question 5

Prior to establishing trade credit,the firm is required to make extended formal agreements with the company.

Accepted Answer

A) True 
 B)False

Question 6

Trade credit is a source of spontaneous financing.

Accepted Answer

A) True 
 B)False

Question 7

A company which foregoes the discount when credit terms are 4/15 net 70 is essentially borrowing money from his supplier for an additional:

Accepted Answer

A) 40 days. 
B) 55 days. 
C) 70 days. 
D) 85 days. 
A) 40 days. 
B) 55 days. 
C) 70 days. 
D) 85 days.

Question 8

Which of the following statements regarding a line of credit is true?

Accepted Answer

A) The purpose for which the money is being borrowed must be stated by the borrower. 
B) A line of credit agreement usually fixes the interest rate that will be applied to any extensions of credit. 
C) A line of credit agreement is a legal commitment on the part of the bank to provide the stated credit. 
D) Such agreements usually cover the borrower's fiscal year. 
A) The purpose for which the money is being borrowed must be stated by the borrower. 
B) A line of credit agreement usually fixes the interest rate that will be applied to any extensions of credit. 
C) A line of credit agreement is a legal commitment on the part of the bank to provide the stated credit. 
D) Such agreements usually cover the borrower's fiscal year.

Question 9

A quite risky working capital management policy would have a high ratio of:

Accepted Answer

A) short-term debt to bonds and equity. 
B) short-term debt to total debt. 
C) bonds to property,plant,and equipment. 
D) short-term debt to equity. 
A) short-term debt to bonds and equity. 
B) short-term debt to total debt. 
C) bonds to property,plant,and equipment. 
D) short-term debt to equity.

Question 10

Increasing the use of short-term debt versus long-term debt financing will increase profit.

Accepted Answer

A) True 
 B)False

Question 11

Lines of credit involve fixed rates of interest.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following would NOT be considered an unsecured loan?

Accepted Answer

A) Accrued tax payments 
B) Line of credit 
C) Transaction loans 
D) Factored accounts receivable 
A) Accrued tax payments 
B) Line of credit 
C) Transaction loans 
D) Factored accounts receivable

Question 13

If revenues can be forecast to fall within a tight range of outcomes,then the ratio of cash and near-cash to total assets will be greater for the firm than if the prospective cash inflows might be expected to vary over a wide range.

Accepted Answer

A) True 
 B)False

Question 14

The risk of a firm not being able to pay its bills on time is called:

Accepted Answer

A) illiquidity. 
B) insolvency. 
C) capital inadequacy. 
D) float. 
A) illiquidity. 
B) insolvency. 
C) capital inadequacy. 
D) float.

Question 15

Which of the following could offset the higher risk exposure a company would face if it s current ratio and net working capital were relatively low.?

Accepted Answer

A) Its current assets would need to be highly liquid. 
B) Its accounts receivable collection policy could increase the average collection period. 
C) It could offer no discounts for early payment by its customers. 
D) It could buy back some of its shares in the open market in order to reduce its equity. 
A) Its current assets would need to be highly liquid. 
B) Its accounts receivable collection policy could increase the average collection period. 
C) It could offer no discounts for early payment by its customers. 
D) It could buy back some of its shares in the open market in order to reduce its equity.

Question 16

Briefly describe at least three useful tools for maintaining control over accounts receivable.

Accepted Answer

Ratio analysis: by tracking the average

Question 17

A negotiable certificate of deposit (CD)is a marketable receipt for funds deposited in a bank.

Accepted Answer

A) True 
 B)False

Question 18

When faced with a surplus of cash,most firms should stretch their trade accounts.

Accepted Answer

A) True 
 B)False

Question 19

The correct equation for calculating the cost of short-term credit is:

Accepted Answer

A) rate = interest/(principal × time). 
B) rate = (principal × time)/interest. 
C) rate = principal/(time × interest). 
D) rate = principal × interest × time. 
A) rate = interest/(principal × time). 
B) rate = (principal × time)/interest. 
C) rate = principal/(time × interest). 
D) rate = principal × interest × time.

Question 20

Which of the following would be considered an issue that is related to the management of working capital?

Accepted Answer

A) How much inventory should the firm maintain? 
B) How should a firm finance its current assets? 
C) To whom should the firm grant trade credit? 
D) All of the above 
A) How much inventory should the firm maintain? 
B) How should a firm finance its current assets? 
C) To whom should the firm grant trade credit? 
D) All of the above

With regard to the self-liquidating debt,which of the following assets should be financed with permanent sources of financing?

Net working capital refers to which of the following?

J.B.'s Wholesale Club has current assets of $12.25 million and current liabilities of $14 million.Which of the following is possible.

Which of the following is an advantage of trade credit?

Prior to establishing trade credit,the firm is required to make extended formal agreements with the company.

Trade credit is a source of spontaneous financing.

A company which foregoes the discount when credit terms are 4/15 net 70 is essentially borrowing money from his supplier for an additional:

Which of the following statements regarding a line of credit is true?

A quite risky working capital management policy would have a high ratio of:

Increasing the use of short-term debt versus long-term debt financing will increase profit.

Lines of credit involve fixed rates of interest.

Which of the following would NOT be considered an unsecured loan?

If revenues can be forecast to fall within a tight range of outcomes,then the ratio of cash and near-cash to total assets will be greater for the firm than if the prospective cash inflows might be expected to vary over a wide range.

The risk of a firm not being able to pay its bills on time is called:

Which of the following could offset the higher risk exposure a company would face if it s current ratio and net working capital were relatively low.?

Briefly describe at least three useful tools for maintaining control over accounts receivable.

A negotiable certificate of deposit (CD)is a marketable receipt for funds deposited in a bank.

When faced with a surplus of cash,most firms should stretch their trade accounts.

The correct equation for calculating the cost of short-term credit is:

Which of the following would be considered an issue that is related to the management of working capital?

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

With regard to the self-liquidating debt,which of the following assets should be financed with permanent sources of financing?

Net working capital refers to which of the following?

J.B.'s Wholesale Club has current assets of $12.25 million and current liabilities of $14 million.Which of the following is possible.

Which of the following is an advantage of trade credit?

Prior to establishing trade credit,the firm is required to make extended formal agreements with the company.

Trade credit is a source of spontaneous financing.

A company which foregoes the discount when credit terms are 4/15 net 70 is essentially borrowing money from his supplier for an additional:

Which of the following statements regarding a line of credit is true?

A quite risky working capital management policy would have a high ratio of:

Increasing the use of short-term debt versus long-term debt financing will increase profit.

Lines of credit involve fixed rates of interest.

Which of the following would NOT be considered an unsecured loan?

If revenues can be forecast to fall within a tight range of outcomes,then the ratio of cash and near-cash to total assets will be greater for the firm than if the prospective cash inflows might be expected to vary over a wide range.

The risk of a firm not being able to pay its bills on time is called:

Which of the following could offset the higher risk exposure a company would face if it s current ratio and net working capital were relatively low.?

Briefly describe at least three useful tools for maintaining control over accounts receivable.

A negotiable certificate of deposit (CD)is a marketable receipt for funds deposited in a bank.

When faced with a surplus of cash,most firms should stretch their trade accounts.

The correct equation for calculating the cost of short-term credit is:

Which of the following would be considered an issue that is related to the management of working capital?

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