Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

What is the annual percentage cost of the loan,to the nearest .01%?

Accepted Answer

A) 5.00% 
B) 4.50% 
C) 5.56% 
D) 2.5% 
A) 5.00% 
B) 4.50% 
C) 5.56% 
D) 2.5%

Question 4

Use the following information to answer the following question(s).
Quick Corp.makes its purchases under terms of 2/10 net 30.
-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 5

A firm will borrow $1 million for six months on a discount basis.The annual interest rate on the loan is 6%.What is the annual percentage cost of the loan?

Accepted Answer

A) 5.64% 
B) 6.38% 
C) 3.19% 
D) 6.00% 
A) 5.64% 
B) 6.38% 
C) 3.19% 
D) 6.00%

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Although CDs are slightly more risky than Treasury bills,the yield is usually slightly less.

Accepted Answer

A) True 
 B)False

Question 8

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 9

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

Accepted Answer

Ratio analysis: by tracking the average

Question 10

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 11

A major risk in using commercial paper for short-term financing is the inflexible repayment schedule.

Accepted Answer

A) True 
 B)False

Question 12

Fibercom Inc.needs $500,000 for one year.If the loan takes the form of a discounted note at a stated rate of 4%,how much will Fibercom actually need to borrow?

Accepted Answer

A) $480,000 
B) $500,000 
C) $520,833 
D) $520,000 
A) $480,000 
B) $500,000 
C) $520,833 
D) $520,000

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

According to the self-liquidating debt principle permanent assets should be financed with ________ liabilities.

Accepted Answer

A) permanent 
B) spontaneous 
C) current 
D) fixed 
A) permanent 
B) spontaneous 
C) current 
D) fixed

Question 15

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 16

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 17

Net working capital provides a very useful summary measure of a firm's short-term financing decisions.

Accepted Answer

A) True 
 B)False

Question 18

A "pop-up" store wants to use vacated space at a shopping mall to sell seasonal merchandise during the months of October,November and December.The rent is $10,000 per month,but the mall's owners are requiring a payment of $100,000 on September 1.If the space is vacated in good condition at the end of December,the owners will return $70,000 to the lessees.How should the $100,000 be financed?

Accepted Answer

A) Space is a permanent asset and should be financed with equity or long-term debt. 
B) Because the lessee may rent the same or similar space in future years,they should use long-term debt or equity. 
C) The space is a temporary asset and should be financed with short-term loans. 
D) The space is a temporary asset and should be financed with trade credit. 
A) Space is a permanent asset and should be financed with equity or long-term debt. 
B) Because the lessee may rent the same or similar space in future years,they should use long-term debt or equity. 
C) The space is a temporary asset and should be financed with short-term loans. 
D) The space is a temporary asset and should be financed with trade credit.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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.

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

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

What is the annual percentage cost of the loan,to the nearest .01%?

Use the following information to answer the following question(s). Quick Corp.makes its purchases under terms of 2/10 net 30. -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?

A firm will borrow $1 million for six months on a discount basis.The annual interest rate on the loan is 6%.What is the annual percentage cost of the loan?

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

Although CDs are slightly more risky than Treasury bills,the yield is usually slightly less.

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.

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

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)?

A major risk in using commercial paper for short-term financing is the inflexible repayment schedule.

Fibercom Inc.needs $500,000 for one year.If the loan takes the form of a discounted note at a stated rate of 4%,how much will Fibercom actually need to borrow?

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

According to the self-liquidating debt principle permanent assets should be financed with ________ liabilities.

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

Net working capital provides a very useful summary measure of a firm's short-term financing decisions.

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

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

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

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

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

What is the annual percentage cost of the loan,to the nearest .01%?

Use the following information to answer the following question(s). Quick Corp.makes its purchases under terms of 2/10 net 30. -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?

A firm will borrow $1 million for six months on a discount basis.The annual interest rate on the loan is 6%.What is the annual percentage cost of the loan?

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

Although CDs are slightly more risky than Treasury bills,the yield is usually slightly less.

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.

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

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)?

A major risk in using commercial paper for short-term financing is the inflexible repayment schedule.

Fibercom Inc.needs $500,000 for one year.If the loan takes the form of a discounted note at a stated rate of 4%,how much will Fibercom actually need to borrow?

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

According to the self-liquidating debt principle permanent assets should be financed with ________ liabilities.

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

Net working capital provides a very useful summary measure of a firm's short-term financing decisions.

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

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

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