Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Disadvantages of using current liabilities as opposed to long-term debt include

Accepted Answer

A) greater risk of illiquidity. 
B) uncertainty of interest costs. 
C) higher cash flow exposure. 
D) both A and B. 
A) greater risk of illiquidity. 
B) uncertainty of interest costs. 
C) higher cash flow exposure. 
D) both A and B.

Question 3

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 4

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) 9 days 
C) 27 days 
D) -27 days 
A) 17 days 
B) 9 days 
C) 27 days 
D) -27 days

Question 5

The First Webster Bank requires borrowers to maintain a balance of 10% of the line of credit in a non-interest paying account as compensation for providing the line of credit.If the borrower would not normally have deposits in such an account

Accepted Answer

A) the amount borrowed will be higher than the amount needed. 
B) the APR will be less than the stated rate. 
C) the amount borrowed will be lower than the amount needed. 
D) neither the amount borrowed nor the APR will be affected by the required balance. 
A) the amount borrowed will be higher than the amount needed. 
B) the APR will be less than the stated rate. 
C) the amount borrowed will be lower than the amount needed. 
D) neither the amount borrowed nor the APR will be affected by the required balance.

Question 6

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 7

Calculate the effective cost of the following trade credit terms if the discount is foregone and payment is made on the net due date.
a.2/15 net 30
b.2/15 net 45
c.2/15 net 60

Accepted Answer

a.($0.02/$0.98)× [1/(15/360)] = .4898
b.

Question 8

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 9

Use the following information to answer the following question(s).
DEF,Inc.requires $540,000 in short-term credit and is currently arranging a loan with its bank.ABC plans to use the funds for six months;the annual rate on the loan is 5%,and the bank will require a 10% compensating balance.
-If ABC must have loan proceeds of $540,000,then it must borrow

Accepted Answer

A) $540,000. 
B) $600,000. 
C) $486,000. 
D) $660,000. 
A) $540,000. 
B) $600,000. 
C) $486,000. 
D) $660,000.

Question 10

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 11

Which of the following terms would tend to minimize a firm's investment in accounts receivable?

Accepted Answer

A) Net 15 
B) Net 30 
C) 1/15 net 45 
D) 2/10 net 30 
A) Net 15 
B) Net 30 
C) 1/15 net 45 
D) 2/10 net 30

Question 12

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 13

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 14

Which of the following money market instruments may not be subject to state and local taxes?

Accepted Answer

A) Bankers' acceptances. 
B) Repurchase agreements 
C) U.S.Treasury bills 
D) Federal agency securities 
A) Bankers' acceptances. 
B) Repurchase agreements 
C) U.S.Treasury bills 
D) Federal agency securities

Question 15

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 16

Cash Conversion Cycle = Operating Cycle - Accounts Payable Deferral Period.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

A company with a current ratio less than one or negative net working capital would not be able to pay its bills on time.

Accepted Answer

A) True 
 B)False

Question 19

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 20

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

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

Disadvantages of using current liabilities as opposed to long-term debt include

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?

The First Webster Bank requires borrowers to maintain a balance of 10% of the line of credit in a non-interest paying account as compensation for providing the line of credit.If the borrower would not normally have deposits in such an account

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

Calculate the effective cost of the following trade credit terms if the discount is foregone and payment is made on the net due date. a.2/15 net 30 b.2/15 net 45 c.2/15 net 60

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.

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)?

Which of the following terms would tend to minimize a firm's investment in accounts receivable?

A disadvantage involved in investing in marketable securities is that

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

Which of the following money market instruments may not be subject to state and local taxes?

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

Cash Conversion Cycle = Operating Cycle - Accounts Payable Deferral Period.

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

A company with a current ratio less than one or negative net working capital would not be able to pay its bills on time.

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

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

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

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

Disadvantages of using current liabilities as opposed to long-term debt include

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?

The First Webster Bank requires borrowers to maintain a balance of 10% of the line of credit in a non-interest paying account as compensation for providing the line of credit.If the borrower would not normally have deposits in such an account

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

Calculate the effective cost of the following trade credit terms if the discount is foregone and payment is made on the net due date. a.2/15 net 30 b.2/15 net 45 c.2/15 net 60

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.

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)?

Which of the following terms would tend to minimize a firm's investment in accounts receivable?

A disadvantage involved in investing in marketable securities is that

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

Which of the following money market instruments may not be subject to state and local taxes?

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

Cash Conversion Cycle = Operating Cycle - Accounts Payable Deferral Period.

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

A company with a current ratio less than one or negative net working capital would not be able to pay its bills on time.

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

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

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