Question 1

To be included in "cash on hand" cash must be:

Accepted Answer

A) available instantaneously. 
B) available almost instantaneously. 
C) next day available. 
D) available for borrowing immediately. 
A) available instantaneously. 
B) available almost instantaneously. 
C) next day available. 
D) available for borrowing immediately.

Question 2

Identify the pros and cons for being conservative/aggressive with respect to how much cash a firm should have.Also explain why creating liquidity quickly is expensive.

Accepted Answer

By adopting a conservative strategy with

Question 3

An open account credit occurs when a firm grants:

Accepted Answer

A) trade credit to customers who have an account with the firm. 
B) trade credit to customers who have depository accounts. 
C) trade credit to customers by collateralizing the assets sold to the customer. 
D) credit to customers who have an open bank account. 
A) trade credit to customers who have an account with the firm. 
B) trade credit to customers who have depository accounts. 
C) trade credit to customers by collateralizing the assets sold to the customer. 
D) credit to customers who have an open bank account.

Question 4

Which of the following is/ are part of the credit granting decision?

Accepted Answer

A) The credit terms 
B) Whether to grant credit 
C) Details of the collection process 
D) All of the above 
A) The credit terms 
B) Whether to grant credit 
C) Details of the collection process 
D) All of the above

Question 5

Creditors are interested in assessing a borrower's capacity and character, as well as overall economic conditions when reviewing a loan application.Which of the following would make a bank more willing to lend funds?

Accepted Answer

A) A small business faces deteriorating business conditions because of a recession in the overall economy. 
B) The owner of a small business has been personally bankrupt twice. 
C) A retail store has been diligent in making all of its payments on time and in full over the past five years. 
D) A large corporation missed an interest payment on one of its bond issues last month. 
A) A small business faces deteriorating business conditions because of a recession in the overall economy. 
B) The owner of a small business has been personally bankrupt twice. 
C) A retail store has been diligent in making all of its payments on time and in full over the past five years. 
D) A large corporation missed an interest payment on one of its bond issues last month.

Question 6

What determines the optimum amount of cash a firm should hold?

Accepted Answer

A) The motives for the use of the cash 
B) The firm's borrowing capacity 
C) a and b 
D) None of the above determines the optimum amount of cash a firm should hold 
A) The motives for the use of the cash 
B) The firm's borrowing capacity 
C) a and b 
D) None of the above determines the optimum amount of cash a firm should hold

Question 7

Clearly define what a zero-balance account is, how it functions, and the benefits associated with it in terms of a firm's cash management efforts.

Accepted Answer

A zero-balance account is an account tha

Question 8

Can trade credit be labelled as a financing strategy? Provide an example of a firm that uses this strategy in their business model.

Accepted Answer

Trade credit is a financing strategy bec

Question 9

Use the following statements to answer this question:
I.A high receivables turnover is a good credit strategy that allows firms to lower working capital requirements
II.Trade credit terms are financing tools to the supplier

Accepted Answer

A) I and II are correct. 
B) I and II are incorrect. 
C) I is correct and II is incorrect. 
D) I is incorrect and II is correct. 
A) I and II are correct. 
B) I and II are incorrect. 
C) I is correct and II is incorrect. 
D) I is incorrect and II is correct.

Question 10

List and explain the four C's of credit: capacity, character, collateral, and conditions.

Accepted Answer

Capacity refers to customers' ability to

Question 11

The float is defined as:

Accepted Answer

A) the time between when payables are accrued and when they are paid. 
B) the time between when the sale is made and when the money is available for use by the receiving firm. 
C) the time between when payment is initiated and the time the money is available for use by the receiving firm. 
D) the time between when sale is made and the time the payment cheque is issued to the receiving firm. 
A) the time between when payables are accrued and when they are paid. 
B) the time between when the sale is made and when the money is available for use by the receiving firm. 
C) the time between when payment is initiated and the time the money is available for use by the receiving firm. 
D) the time between when sale is made and the time the payment cheque is issued to the receiving firm.

Question 12

Current trends show firms holding less cash physically and preferring to hold liquidity in near-cash or cash equivalent securities or relying on standby lending.Explain fully why you think this is so.

Accepted Answer

Firms are favouring investing in near-ca

Question 13

You are offered the following terms: 5/25 net 50.What is the effective annual interest rate for not paying on time, approximately?

Accepted Answer

A) 111.5% 
B) 103.9% 
C) 76.8% 
D) 45.4% 
A) 111.5% 
B) 103.9% 
C) 76.8% 
D) 45.4%

Question 14

The ABC approach to inventory management divides inventory into

Accepted Answer

A) several categories based on first-in, first-out basis. 
B) several categories based on last-in, first-out basis. 
C) several categories based on overall level of importance and profitability. 
D) several categories based on overall type of product. 
A) several categories based on first-in, first-out basis. 
B) several categories based on last-in, first-out basis. 
C) several categories based on overall level of importance and profitability. 
D) several categories based on overall type of product.

Question 15

All of the following are tasks performed by a factor except:

Accepted Answer

A) purchasing payables and extending loans. 
B) purchasing receivables. 
C) checking customers' credit and authorizing credit. 
D) receivables bookkeeping and collection. 
A) purchasing payables and extending loans. 
B) purchasing receivables. 
C) checking customers' credit and authorizing credit. 
D) receivables bookkeeping and collection.

Question 16

Toronto Skaters Company is being offered a one-year variable rate loan at a rate of prime + 0.75%.The loan is to be paid in quarterly installments and there are no other fees associated with it.The prime lending rate is currently 6% compounded quarterly.What is the effective annual cost of this loan?

Accepted Answer

A) 6% 
B) 6.14% 
C) 6.75% 
D) 6.92% 
A) 6% 
B) 6.14% 
C) 6.75% 
D) 6.92%

Question 17

Which of the following scenarios is an example of securitization?

Accepted Answer

A) A bank issues more common shares to the public. 
B) A multinational manufacturing company sells fixed income securities to a European pension fund in a private deal. 
C) A bank creates fixed income securities using the receivables from mortgages on residential property, and sells them to a fixed income mutual fund. 
D) The Government of Canada sells 25-year Treasury bonds to raise funds for infrastructure. 
A) A bank issues more common shares to the public. 
B) A multinational manufacturing company sells fixed income securities to a European pension fund in a private deal. 
C) A bank creates fixed income securities using the receivables from mortgages on residential property, and sells them to a fixed income mutual fund. 
D) The Government of Canada sells 25-year Treasury bonds to raise funds for infrastructure.

Question 18

What is the optimal amount of cash a firm should hold?

Accepted Answer

A) As much as possible 
B) Just enough to pay for purchases 
C) Enough to be liquid 
D) None 
A) As much as possible 
B) Just enough to pay for purchases 
C) Enough to be liquid 
D) None

Question 19

Why might firms prefer to hold more liquidity in borrowing facilities rather than raising capital from shareholders?

Accepted Answer

A) Firms can obtain more capital from borrowing 
B) Obtaining the money is faster via borrowing 
C) Borrowing is often cheaper 
D) Firms would like to avoid paying dividends to investors 
A) Firms can obtain more capital from borrowing 
B) Obtaining the money is faster via borrowing 
C) Borrowing is often cheaper 
D) Firms would like to avoid paying dividends to investors

Question 20

Which of the following scenarios is an example of the precautionary motive to hold cash?

Accepted Answer

A) A retailer holds a reserve of cash in case customers return products for a cash refund. 
B) A bank holds cash on deposit for its customers. 
C) A car dealership holds cash to pay its utility bill. 
D) A small business pays a cash dividend to its owner because she's not sure she will have enough funds to pay for Christmas gifts for her family. 
A) A retailer holds a reserve of cash in case customers return products for a cash refund. 
B) A bank holds cash on deposit for its customers. 
C) A car dealership holds cash to pay its utility bill. 
D) A small business pays a cash dividend to its owner because she's not sure she will have enough funds to pay for Christmas gifts for her family.

Exam 24: Working Capital Management: Current Assets and Current Liabilities

To be included in "cash on hand" cash must be:

Identify the pros and cons for being conservative/aggressive with respect to how much cash a firm should have.Also explain why creating liquidity quickly is expensive.

An open account credit occurs when a firm grants:

Which of the following is/ are part of the credit granting decision?

Creditors are interested in assessing a borrower's capacity and character, as well as overall economic conditions when reviewing a loan application.Which of the following would make a bank more willing to lend funds?

What determines the optimum amount of cash a firm should hold?

Clearly define what a zero-balance account is, how it functions, and the benefits associated with it in terms of a firm's cash management efforts.

Can trade credit be labelled as a financing strategy? Provide an example of a firm that uses this strategy in their business model.

Use the following statements to answer this question: I.A high receivables turnover is a good credit strategy that allows firms to lower working capital requirements II.Trade credit terms are financing tools to the supplier

List and explain the four C's of credit: capacity, character, collateral, and conditions.

The float is defined as:

Current trends show firms holding less cash physically and preferring to hold liquidity in near-cash or cash equivalent securities or relying on standby lending.Explain fully why you think this is so.

You are offered the following terms: 5/25 net 50.What is the effective annual interest rate for not paying on time, approximately?

The ABC approach to inventory management divides inventory into

All of the following are tasks performed by a factor except:

Which of the following scenarios is an example of securitization?

What is the optimal amount of cash a firm should hold?

Why might firms prefer to hold more liquidity in borrowing facilities rather than raising capital from shareholders?

Which of the following scenarios is an example of the precautionary motive to hold cash?

An Introduction to Finance

Business Corporate Finance

Financial Statements

Financial Statement Analysis and Forecasting

Time Value of Money

Bond Valuation and Interest Rates

Equity Valuation

Risk, Return, and Portfolio Theory

The Capital Asset Pricing Model Capm

Market Efficiency

Forwards, Futures, and Swaps

Options

Capital Budgeting, Risk Considerations, and Other Special Issues

Cash Flow Estimation and Capital Budgeting Decisions

Mergers and Acquisitions

Leasing

Investment Banking and Securities Law

Debt Instruments

Equity and Hybrid Instruments

Cost of Capital

Capital Structure Decisions

Dividend Policy

Working Capital Management: General Issues

Filters