Question 1

Firms that continually invest in non-trivial amounts of marketable securities may be guilty of:

Accepted Answer

A)  excessive short-term borrowing 
B)  not matching their sources and uses of cash 
C)  incurring excessive shortage costs 
D)  not maximizing shareholder returns

Question 2

A firm can reduce the cash conversion cycle by selling fewer goods on credit.

Accepted Answer

A) True 
 B)False

Question 3

Company that pays $5,000 previously owed to one of its suppliers will see no change in its net working capital.

Accepted Answer

A) True 
 B)False

Question 4

Ignoring the risk of theft,cash balances cannot spoil,yet managers are concerned with carrying costs.Why?

Accepted Answer

A)  the federal government may devalue the currency 
B)  higher balances require additional supervisors 
C)  cash balances are idle and face an opportunity cost 
D)  embezzlement is a real risk in most firms

Question 5

Managers who "stretch their payables" are attempting to:

Accepted Answer

A)  repay more recent charges prior to early charges 
B)  improve their current ratio prior to preparation of financial statements 
C)  offer finished goods at a discount for repayment 
D)  obtain a longer period of short-term financing

Question 6

How does the firm's sources and uses of cash relate to its need for short-term borrowing?

Accepted Answer

The answer of How does the firm's sources and uses...

Question 7

A firm's inventory and accounts payable periods are 80 and 42 days respectively.How long can the firm's receivables period be in order to have no longer than a 65 day cash conversion cycle?

Accepted Answer

A)  27 days 
B)  38 days 
C)  57 days 
D)  103 days

Question 8

The factoring firm,under the terms recourse,bears responsibility for default on accounts receivable purchased from a firm.

Accepted Answer

A) True 
 B)False

Question 9

When a firm finances long-term assets with short-term sources of funding,it:

Accepted Answer

A)  reduces the risk of cash shortage 
B)  will have lower interest expense 
C)  improves the leverage ratio 
D)  is ignoring the principle of matched maturities

Question 10

CumChan has issued commercial paper with a face value of $250,000 that will mature in 60 days.The present market value of the paper is $242,000.Interest on the paper is,therefore:

Accepted Answer

The answer of CumChan has issued commercial paper with a...

Question 11

A firm's permanent working capital refers to the:

Accepted Answer

A)  difference between current assets and current liabilities 
B)  minimum difference between current assets and current liabilities 
C)  portion of net working capital that is financed from long-term sources 
D)  amounts that must be held to meet debt covenants

Question 12

Which of the following would not be included as a source of short-term financing?

Accepted Answer

A)  line of credit 
B)  increase in the minimum operating cash balance 
C)  sale of marketable securities 
D)  stretching accounts payable

Question 13

If a firm increases its accounts payable period,other things equal,it increases the cash conversion cycle.

Accepted Answer

A) True 
 B)False

Question 14

Bank lines of credit must be judiciously requested because the lines often:

Accepted Answer

A)  accrue interest regardless of whether funds are borrowed 
B)  require payment of a commitment fee to establish 
C)  appear as a liability on the firm's balance sheet 
D)  have a negative impact on the firm's credit history

Question 15

In "field warehousing" the inventory is kept by the:

Accepted Answer

A)  borrowing firm 
B)  lending institution 
C)  independent warehousing company 
D)  jointly by the firm and the lender

Question 16

What motivation is provided for managers not to follow the relaxed strategy of long- versus short-term financing?

Accepted Answer

A)  transaction costs are required to continually obtain financing 
B)  short-term investment income is often unattractive 
C)  investment opportunities must frequently be ignored 
D)  long-term financing has burdensome tax consequences

Question 17

Managers are alerted to projected cash shortages by way of the:

Accepted Answer

A)  statement of sources and uses of cash 
B)  pro forma balance sheet 
C)  cash budget 
D)  monthly bank statements

Question 18

A firm borrows $200,000 from the bank,but has to maintain a compensating balance of $15,000 with the bank.The annual interest rate for the loan is 13%.What is the effective annual rate if the interest is compounded annually?

Accepted Answer

A)  12.03% 
B)  13.00% 
C)  14.05% 
D)  14.41%

Question 19

Show the effect of the following transactions on cash,net working capital,and the current ratio.Assume that the current ratio exceeds 1.0 to begin.
The firm borrows $1,000 short-term and pays $500 in accounts payable.
The firm factors $1,000 in receivables at a 5% discount.
The firm issues $1,000 in long-term bonds,using the proceeds to pay $800 in payables and purchase $200 in marketable securities.

Accepted Answer

The answer of Show the effect of the following transactions...

Question 20

When managers are continually short-term lenders they are said to follow a:

Accepted Answer

A)  middle-of-the-road financing strategy 
B)  restrictive financing strategy 
C)  relaxed financing strategy 
D)  permanent working-capital strategy

Exam 20: Short-Term Financial Planning

Firms that continually invest in non-trivial amounts of marketable securities may be guilty of:

A firm can reduce the cash conversion cycle by selling fewer goods on credit.

Company that pays $5,000 previously owed to one of its suppliers will see no change in its net working capital.

Ignoring the risk of theft,cash balances cannot spoil,yet managers are concerned with carrying costs.Why?

Managers who "stretch their payables" are attempting to:

How does the firm's sources and uses of cash relate to its need for short-term borrowing?

A firm's inventory and accounts payable periods are 80 and 42 days respectively.How long can the firm's receivables period be in order to have no longer than a 65 day cash conversion cycle?

The factoring firm,under the terms recourse,bears responsibility for default on accounts receivable purchased from a firm.

When a firm finances long-term assets with short-term sources of funding,it:

CumChan has issued commercial paper with a face value of $250,000 that will mature in 60 days.The present market value of the paper is $242,000.Interest on the paper is,therefore:

A firm's permanent working capital refers to the:

Which of the following would not be included as a source of short-term financing?

If a firm increases its accounts payable period,other things equal,it increases the cash conversion cycle.

Bank lines of credit must be judiciously requested because the lines often:

In "field warehousing" the inventory is kept by the:

What motivation is provided for managers not to follow the relaxed strategy of long- versus short-term financing?

Managers are alerted to projected cash shortages by way of the:

A firm borrows $200,000 from the bank,but has to maintain a compensating balance of $15,000 with the bank.The annual interest rate for the loan is 13%.What is the effective annual rate if the interest is compounded annually?

When managers are continually short-term lenders they are said to follow a: