Question 1

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 2

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 3

"Float" is the term given to

Accepted Answer

A) differences between the cash balance and the balance of cash plus marketable securities. 
B) differences between the cash balance in the ledger and the funds available in the firm's checking account. 
C) the period between the date an invoice is received and the date on which it must be paid. 
D) the practice of deliberately delaying payments beyond the due date. 
A) differences between the cash balance and the balance of cash plus marketable securities. 
B) differences between the cash balance in the ledger and the funds available in the firm's checking account. 
C) the period between the date an invoice is received and the date on which it must be paid. 
D) the practice of deliberately delaying payments beyond the due date.

Question 4

In general,the greater a firm's reliance upon short-term debt or current liabilities,the lower the

Accepted Answer

A) liquidity. 
B) flexibility. 
C) certainty of interest costs. 
D) both A and C. 
A) liquidity. 
B) flexibility. 
C) certainty of interest costs. 
D) both A and C.

Question 5

Current assets include

Accepted Answer

A) all assets that have not been fully depreciated. 
B) accounts payable,accounts receivable and short-term notes. 
C) cash,accounts receivable and leased equipment. 
D) cash,accounts receivable and inventory. 
A) all assets that have not been fully depreciated. 
B) accounts payable,accounts receivable and short-term notes. 
C) cash,accounts receivable and leased equipment. 
D) cash,accounts receivable and inventory.

Question 6

Compensating balances increase the APR because the firm must borrow more than it would otherwise need.

Accepted Answer

A) True 
 B)False

Question 7

Lines of credit often require that the borrower maintain a minimum balance in the bank throughout the loan period.

Accepted Answer

A) True 
 B)False

Question 8

The balance sheet for Peterson Manufacturing Company is presented below.
Peterson Mfg.Co.
Balance Sheet
December 31,1995
Cash $32,000 Current liabilities $72,000
Accounts receivable 40,000 Long-term liabilities 48,000
Inventories 48,000 Common equity 120,000
Total current assets $120,000
Net fixed assets 120,000
Total $240,000 Total $240,000
During 2009,the firm earned $28,000 after taxes based on net sales of $480,000.
a.Calculate Peterson's current ratio and net working capital.
b.Assume that Peterson's uses $20,000 of its cash to reduce current liabilities.Recompute the current ratio and net working capital.
c.What effect,if any,does the change proposed in question b have on Peterson's liquidity.

Accepted Answer

a.Current ratio = ($120,000)/($72,000)=

Question 9

Potential risks of using short-term bank loans for permanent assets include

Accepted Answer

A) higher costs. 
B) a loss of flexibility. 
C) inability to renew the loans on favorable terms. 
D) falling interest rates. 
A) higher costs. 
B) a loss of flexibility. 
C) inability to renew the loans on favorable terms. 
D) falling interest rates.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

The principle of maturity matching suggests that

Accepted Answer

A) machinery with a 5 year economic life be financed with debt that will be paid off in five years or less. 
B) seasonal peaks in inventory be financed with traded credit. 
C) the minimum level of current assets required for the firm's year around operations be financed with permanent sources. 
D) all of the above. 
A) machinery with a 5 year economic life be financed with debt that will be paid off in five years or less. 
B) seasonal peaks in inventory be financed with traded credit. 
C) the minimum level of current assets required for the firm's year around operations be financed with permanent sources. 
D) all of the above.

Question 12

Lines of credit involve fixed rates of interest.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following would NOT typically be used for assessing customer quality for purposes of granting trade credit?

Accepted Answer

A) Ratio analysis 
B) Aging of accounts receivable 
C) Credit scoring 
D) Credit rating services 
A) Ratio analysis 
B) Aging of accounts receivable 
C) Credit scoring 
D) Credit rating services

Question 14

Discuss the advantages of using commercial paper.

Accepted Answer

There are four advantages of using comme

Question 15

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 16

Currier & Ive's Lithography has a Cost of Goods Sold of $60.8 million.The company's accounts payable balance is $7.5 million.Its accounts payable deferral period is

Accepted Answer

A) 81 days. 
B) 45 days. 
C) 8.11 days. 
D) 48.7 days. 
A) 81 days. 
B) 45 days. 
C) 8.11 days. 
D) 48.7 days.

Question 17

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 = $2,000,00

Question 18

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

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 item would constitute poor collateral for an inventory loan?

Accepted Answer

A) Lumber 
B) Vegetables 
C) Copper 
D) Chemicals 
A) Lumber 
B) Vegetables 
C) Copper 
D) Chemicals

The cost of trade credit varies with the

The primary advantage that factoring accounts receivable provides is

"Float" is the term given to

In general,the greater a firm's reliance upon short-term debt or current liabilities,the lower the

Current assets include

Compensating balances increase the APR because the firm must borrow more than it would otherwise need.

Lines of credit often require that the borrower maintain a minimum balance in the bank throughout the loan period.

Potential risks of using short-term bank loans for permanent assets include

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

The principle of maturity matching suggests that

Lines of credit involve fixed rates of interest.

Which of the following would NOT typically be used for assessing customer quality for purposes of granting trade credit?

Discuss the advantages of using commercial paper.

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.

Currier & Ive's Lithography has a Cost of Goods Sold of $60.8 million.The company's accounts payable balance is $7.5 million.Its accounts payable deferral period is

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?

Net working capital refers to which of the following?

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

Which item would constitute poor collateral for an inventory loan?

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

The cost of trade credit varies with the

The primary advantage that factoring accounts receivable provides is

"Float" is the term given to

In general,the greater a firm's reliance upon short-term debt or current liabilities,the lower the

Current assets include

Compensating balances increase the APR because the firm must borrow more than it would otherwise need.

Lines of credit often require that the borrower maintain a minimum balance in the bank throughout the loan period.

Potential risks of using short-term bank loans for permanent assets include

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

The principle of maturity matching suggests that

Lines of credit involve fixed rates of interest.

Which of the following would NOT typically be used for assessing customer quality for purposes of granting trade credit?

Discuss the advantages of using commercial paper.

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.

Currier & Ive's Lithography has a Cost of Goods Sold of $60.8 million.The company's accounts payable balance is $7.5 million.Its accounts payable deferral period is

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?

Net working capital refers to which of the following?

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

Which item would constitute poor collateral for an inventory loan?

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