Question 1

Commercial paper offers the borrower the same flexibility that exists when bank credit is used to meet financing needs.

Accepted Answer

A) True 
 B)False

Question 2

Discuss the advantages of using commercial paper.

Accepted Answer

There are four advantages of using comme

Question 3

The annual percentage rate (APR) on short-term loans from Bank A is 5.75% per year. Bank B claims that their interest rate is only 5.44% per year. However, Bank B charges interest on a discount basis. Which bank is charging the lowest APR on a one-year loan?

Accepted Answer

APR from Bank A = 5.75%
APR fr

Question 4

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

Question 5

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 6

Which of the following would result in a negative cash conversion cycle?

Accepted Answer

A)  A negative cash conversion cycle is not possible. 
B)  Average collection period 7 days, inventory conversion period 30 days, payables deferral period 30 days. 
C)  Average collection period 60 days, inventory conversion period 30 days, payables deferral period 7 days. 
D)  Average collection period 7 days, inventory conversion period 30 days, payables deferral period 60 days. 
A)  A negative cash conversion cycle is not possible. 
B)  Average collection period 7 days, inventory conversion period 30 days, payables deferral period 30 days. 
C)  Average collection period 60 days, inventory conversion period 30 days, payables deferral period 7 days. 
D)  Average collection period 7 days, inventory conversion period 30 days, payables deferral period 60 days.

Question 7

Spontaneous sources of financing include

Accepted Answer

A)  marketable securities. 
B)  accruals. 
C)  bonds. 
D)  commercial paper. 
A)  marketable securities. 
B)  accruals. 
C)  bonds. 
D)  commercial paper.

Question 8

Which of the following will reduce the liquidity of a firm? An increase in

Accepted Answer

A)  short-term notes payable. 
B)  accounts payable. 
C)  current assets. 
D)  both A and B. 
A)  short-term notes payable. 
B)  accounts payable. 
C)  current assets. 
D)  both A and B.

Question 9

All else equal, which of the following is the most likely to occur if actual sales are much less than forecasted sales?

Accepted Answer

A)  The company will be in a better position to pay down most of its debt. 
B)  The firm's actual investment in inventory will be unchanged from the amount forecasted. 
C)  Accounts receivable will rise significantly above the forecast. 
D)  The company might face a cash flow crunch. 
A)  The company will be in a better position to pay down most of its debt. 
B)  The firm's actual investment in inventory will be unchanged from the amount forecasted. 
C)  Accounts receivable will rise significantly above the forecast. 
D)  The company might face a cash flow crunch.

Question 10

What is the conventional method for financing permanent levels of accounts receivable and inventory?

Accepted Answer

A)  Bonds and equity 
B)  Short-term loans 
C)  Accounts payable and accrued expenses 
D)  Equity only 
A)  Bonds and equity 
B)  Short-term loans 
C)  Accounts payable and accrued expenses 
D)  Equity only

Question 11

Pledging accounts receivable as a source of short-term credit

Accepted Answer

A)  is a type of loan secured by accounts receivable. 
B)  is a form of spontaneous credit. 
C)  involves the outright sale of accounts receivable to a financial institution. 
D)  is an inexpensive but risky source of short-term financing. 
A)  is a type of loan secured by accounts receivable. 
B)  is a form of spontaneous credit. 
C)  involves the outright sale of accounts receivable to a financial institution. 
D)  is an inexpensive but risky source of short-term financing.

Question 12

Which of the following is most likely to occur if a firm under-invests in net working capital?

Accepted Answer

A)  The firm might not have sufficient cash to pay its bill in a timely manner. 
B)  The firm might not have adequate inventory to meet the needs of its customers. 
C)  The firm could be losing sales because its terms of sale are too strict. 
D)  All of the above. 
A)  The firm might not have sufficient cash to pay its bill in a timely manner. 
B)  The firm might not have adequate inventory to meet the needs of its customers. 
C)  The firm could be losing sales because its terms of sale are too strict. 
D)  All of the above.

Question 13

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 14

Which of the following is most likely to be a temporary source of financing?

Accepted Answer

A)  Commercial paper 
B)  Preferred stock 
C)  Long-term debt 
D)  All of the above 
A)  Commercial paper 
B)  Preferred stock 
C)  Long-term debt 
D)  All of the above

Question 15

Firms should hold the minimum amounts of inventories that will not jeopardize productions schedules or the satisfaction of customer expectations.

Accepted Answer

A) True 
 B)False

Question 16

Georgia Peaches Corporation (GPC) has a line of credit with Trust Company Bank that allows GPC to borrow up to $300,000 at an annual interest rate of 5.5%. However, GPC must keep a compensating balance of 20% of any amount borrowed on deposit at the Trust Company Bank. GPC does not normally have a cash balance account with the Trust Company. What is the effective annual cost of credit?

Accepted Answer

A)  6.875% 
B)  6.975% 
C)  7.075% 
D)  7.775% 
A)  6.875% 
B)  6.975% 
C)  7.075% 
D)  7.775%

Question 17

Short-term debt is frequently less expensive because it provides the borrower more security.

Accepted Answer

A) True 
 B)False

Question 18

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 19

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 20

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

Commercial paper offers the borrower the same flexibility that exists when bank credit is used to meet financing needs.

Discuss the advantages of using commercial paper.

The annual percentage rate (APR) on short-term loans from Bank A is 5.75% per year. Bank B claims that their interest rate is only 5.44% per year. However, Bank B charges interest on a discount basis. Which bank is charging the lowest APR on a one-year loan?

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

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 would result in a negative cash conversion cycle?

Spontaneous sources of financing include

Which of the following will reduce the liquidity of a firm? An increase in

All else equal, which of the following is the most likely to occur if actual sales are much less than forecasted sales?

What is the conventional method for financing permanent levels of accounts receivable and inventory?

Pledging accounts receivable as a source of short-term credit

Which of the following is most likely to occur if a firm under-invests in net working capital?

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 most likely to be a temporary source of financing?

Firms should hold the minimum amounts of inventories that will not jeopardize productions schedules or the satisfaction of customer expectations.

Short-term debt is frequently less expensive because it provides the borrower more security.

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 is NOT a spontaneous source of financing?

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

Commercial paper offers the borrower the same flexibility that exists when bank credit is used to meet financing needs.

Discuss the advantages of using commercial paper.

The annual percentage rate (APR) on short-term loans from Bank A is 5.75% per year. Bank B claims that their interest rate is only 5.44% per year. However, Bank B charges interest on a discount basis. Which bank is charging the lowest APR on a one-year loan?

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

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 would result in a negative cash conversion cycle?

Spontaneous sources of financing include

Which of the following will reduce the liquidity of a firm? An increase in

All else equal, which of the following is the most likely to occur if actual sales are much less than forecasted sales?

What is the conventional method for financing permanent levels of accounts receivable and inventory?

Pledging accounts receivable as a source of short-term credit

Which of the following is most likely to occur if a firm under-invests in net working capital?

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 most likely to be a temporary source of financing?

Firms should hold the minimum amounts of inventories that will not jeopardize productions schedules or the satisfaction of customer expectations.

Short-term debt is frequently less expensive because it provides the borrower more security.

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 is NOT a spontaneous source of financing?

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