Question 1

Which of the following credit and collections decisions would typically not increase the accounts receivable balance?

Accepted Answer

A) Extending credit to less creditworthy customers 
B) Increasing the discount offered for prompt payment 
C) Extending the time allowed for payment of a customer's bill 
D) Delaying dunning letters from the credit department 
E) All of the above would typically increase the accounts receivable balance. 
A) Extending credit to less creditworthy customers 
B) Increasing the discount offered for prompt payment 
C) Extending the time allowed for payment of a customer's bill 
D) Delaying dunning letters from the credit department 
E) All of the above would typically increase the accounts receivable balance.

Question 2

Spontaneous financing can take the form of current liabilities or long-term debt.

Accepted Answer

A) True 
 B)False

Question 3

Credit extended in connection with goods purchased for resale is called:

Accepted Answer

A) commercial paper. 
B) bank loans. 
C) trade credit or payables. 
D) commercial credit. 
A) commercial paper. 
B) bank loans. 
C) trade credit or payables. 
D) commercial credit.

Question 4

Economic Order Quantity (EOQ)increases with an increase in ____.

Accepted Answer

A) carrying cost per unit 
B) fixed cost per order 
C) annual demand 
D) Both b & c 
E) All of the above 
A) carrying cost per unit 
B) fixed cost per order 
C) annual demand 
D) Both b & c 
E) All of the above

Question 5

Carson  Inc. has a revolving credit agreement with the local bank.   The bank charges 2.5% above prime plus a .20% commitment fee on any unused funds. Prime rate is currently 5%. Carson borrowed $3 million last month and has $8 million unused.   Twelve days into the new month, Carson borrowed another $5 million. What is the firm's interest expense for the month? ​

Accepted Answer

A) $26,250​ 
B) $8,500​ 
C) $34,750​ 
D) $27,250​ 
A) $26,250​ 
B) $8,500​ 
C) $34,750​ 
D) $27,250​

Question 6

Large, strong companies frequently resort to commercial paper as a source of short-term funds because:

Accepted Answer

A) commercial paper dealers and lenders are flexible about repayment terms. 
B) commercial paper is normally cheaper than other sources of short-term credit. 
C) interest rates on commercial paper are very stable. 
D) All of the above 
A) commercial paper dealers and lenders are flexible about repayment terms. 
B) commercial paper is normally cheaper than other sources of short-term credit. 
C) interest rates on commercial paper are very stable. 
D) All of the above

Question 7

Pledging accounts receivable:

Accepted Answer

A) is similar to factoring in that the receivables no longer belong to the borrowing firm. 
B) may involve recourse which means that the borrower is responsible for losses from uncollectible accounts. 
C) always requires the lender to review each account individually and determine which ones are creditworthy before agreeing to a loan. 
D) is a relatively inexpensive form of financing. 
E) All of the above are correct regarding pledging accounts receivable. 
A) is similar to factoring in that the receivables no longer belong to the borrowing firm. 
B) may involve recourse which means that the borrower is responsible for losses from uncollectible accounts. 
C) always requires the lender to review each account individually and determine which ones are creditworthy before agreeing to a loan. 
D) is a relatively inexpensive form of financing. 
E) All of the above are correct regarding pledging accounts receivable.

Question 8

Hatter Enterprises has current assets of $15 million and a current ratio of 3. The bank has offered Hatter a $13 million revolving credit agreement at an interest rate of 10%. Hatter will have to pay a commitment fee of 1% on the unused balance. Assuming that current assets and the current ratio remain constant, calculate the total annual financing charge associated with this agreement if Hatter borrows enough to support all of its net working capital.

Accepted Answer

A) $1,030,000 
B) $1,240,000 
C) $1,310,000 
D) $1,390,000 
A) $1,030,000 
B) $1,240,000 
C) $1,310,000 
D) $1,390,000

Question 9

Temporary working capital is:

Accepted Answer

A) the seasonal borrowing capacity of a firm. 
B) incremental working capital necessary to finance slower than expected collections of customer receivables. 
C) incremental working capital necessary to support peak activity in seasonal businesses. 
D) additional payroll cost and expenses incurred during seasonal peaks. 
A) the seasonal borrowing capacity of a firm. 
B) incremental working capital necessary to finance slower than expected collections of customer receivables. 
C) incremental working capital necessary to support peak activity in seasonal businesses. 
D) additional payroll cost and expenses incurred during seasonal peaks.

Question 10

Which of the following is not an element of working capital policy?

Accepted Answer

A) The amount of working capital used 
B) The level of attention that top management pays to working capital issues 
C) The nature and source of financing that supports working capital 
D) How the components of working capital are managed 
E) The extent to which working capital is supported by short versus long term financing 
A) The amount of working capital used 
B) The level of attention that top management pays to working capital issues 
C) The nature and source of financing that supports working capital 
D) How the components of working capital are managed 
E) The extent to which working capital is supported by short versus long term financing

Question 11

The optimum credit policy is one at which the incremental profits and expenses connected with a policy change exactly offset each other.

Accepted Answer

A) True 
 B)False

Question 12

Company presidents and CEOs often come from marketing or engineering backgrounds and don't understand much about finance. When faced with cash flow problems it isn't unusual for them to demand across the board cuts in working capital assets while stretching payables, all to conserve cash. If working capital management was reasonably efficient beforehand such an order can be a disaster. Explain why.

Accepted Answer

Cutting current assets and stretching pa

Question 13

Under just-in-time (JIT)inventory systems, manufacturers shifts the task of maintaining inventory to their suppliers, who in turn shift it to their own suppliers.

Accepted Answer

A) True 
 B)False

Question 14

Methods used by lenders who advance funds with the borrower's inventory as collateral involve varying amounts of administration, attention, and cost. They do not include:

Accepted Answer

A) trust receipts or chattel mortgage agreements whereby the inventory is specifically identified by serial number and cannot be sold without the lender's permission. 
B) warehousing the collateralized inventory at the lender's facility. 
C) a blanket lien granting the lender a collateral position in all of the borrower's inventory, which is physically maintained at the borrower's facility. 
D) using public or field warehousing facilities. 
A) trust receipts or chattel mortgage agreements whereby the inventory is specifically identified by serial number and cannot be sold without the lender's permission. 
B) warehousing the collateralized inventory at the lender's facility. 
C) a blanket lien granting the lender a collateral position in all of the borrower's inventory, which is physically maintained at the borrower's facility. 
D) using public or field warehousing facilities.

Question 15

The economic order quantity model attempts to minimize total inventory cost by recognizing the tradeoff between carrying and ordering costs.

Accepted Answer

A) True 
 B)False

Question 16

In  a Just in Time (JIT)inventory system: ​

Accepted Answer

A) Suppliers to deliver inventory just prior to use in production ​ 
B) Manufacturers eliminate inventory putting the responsibility of carrying inventory onto the ir suppliers ​ 
C) Works for manufacturers of all sizes ​ 
D) All of the above​ 
E) A & B only​
F)B & C only​ 
A) Suppliers to deliver inventory just prior to use in production ​ 
B) Manufacturers eliminate inventory putting the responsibility of carrying inventory onto the ir suppliers ​ 
C) Works for manufacturers of all sizes ​ 
D) All of the above​ 
E) A & B only​
F)B & C only​

Question 17

Commercial paper is an example of marketable securities.

Accepted Answer

A) True 
 B)False

Question 18

Increasing collection expenditures is likely to result in:

Accepted Answer

A) shorter average collection period. 
B) reduced bad-debt losses. 
C) higher accounts receivable balances. 
D) a and b 
A) shorter average collection period. 
B) reduced bad-debt losses. 
C) higher accounts receivable balances. 
D) a and b

Question 19

A lockbox system can eliminate processing float.

Accepted Answer

A) True 
 B)False

Question 20

The only negative consequence of slow paying is that the particular vendor involved may refuse to make additional credit sales. If that happens the customer firm can always go to other vendors and get credit.

Accepted Answer

A) True 
 B)False

Which of the following credit and collections decisions would typically not increase the accounts receivable balance?

Spontaneous financing can take the form of current liabilities or long-term debt.

Credit extended in connection with goods purchased for resale is called:

Economic Order Quantity (EOQ)increases with an increase in ____.

Large, strong companies frequently resort to commercial paper as a source of short-term funds because:

Pledging accounts receivable:

Temporary working capital is:

Which of the following is not an element of working capital policy?

The optimum credit policy is one at which the incremental profits and expenses connected with a policy change exactly offset each other.

Under just-in-time (JIT)inventory systems, manufacturers shifts the task of maintaining inventory to their suppliers, who in turn shift it to their own suppliers.

Methods used by lenders who advance funds with the borrower's inventory as collateral involve varying amounts of administration, attention, and cost. They do not include:

The economic order quantity model attempts to minimize total inventory cost by recognizing the tradeoff between carrying and ordering costs.

In a Just in Time (JIT)inventory system:

Commercial paper is an example of marketable securities.

Increasing collection expenditures is likely to result in:

A lockbox system can eliminate processing float.

The only negative consequence of slow paying is that the particular vendor involved may refuse to make additional credit sales. If that happens the customer firm can always go to other vendors and get credit.

Foundations

Financial Background: a Review of Accounting Financial Statements and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System Corporate Governance and Interest

Time Value of Money

The Valuation and Characteristics of Bonds and Leasing

The Valuation and Characteristics of Stock

Risk and Return

Capital Budgeting

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends and Repurchases

Corporate Restructuring

International Finance

Filters

Exam 16: The Management of Working Capital

Which of the following credit and collections decisions would typically not increase the accounts receivable balance?

Spontaneous financing can take the form of current liabilities or long-term debt.

Credit extended in connection with goods purchased for resale is called:

Economic Order Quantity (EOQ)increases with an increase in ____.

Large, strong companies frequently resort to commercial paper as a source of short-term funds because:

Pledging accounts receivable:

Temporary working capital is:

Which of the following is not an element of working capital policy?

The optimum credit policy is one at which the incremental profits and expenses connected with a policy change exactly offset each other.

Under just-in-time (JIT)inventory systems, manufacturers shifts the task of maintaining inventory to their suppliers, who in turn shift it to their own suppliers.

Methods used by lenders who advance funds with the borrower's inventory as collateral involve varying amounts of administration, attention, and cost. They do not include:

The economic order quantity model attempts to minimize total inventory cost by recognizing the tradeoff between carrying and ordering costs.

In a Just in Time (JIT)inventory system: ​

Commercial paper is an example of marketable securities.

Increasing collection expenditures is likely to result in:

A lockbox system can eliminate processing float.

The only negative consequence of slow paying is that the particular vendor involved may refuse to make additional credit sales. If that happens the customer firm can always go to other vendors and get credit.

Foundations

Financial Background: a Review of Accounting Financial Statements and Taxes

Cash Flows and Financial Analysis

Financial Planning

The Financial System Corporate Governance and Interest

Time Value of Money

The Valuation and Characteristics of Bonds and Leasing

The Valuation and Characteristics of Stock

Risk and Return

Capital Budgeting

Cash Flow Estimation

Risk Topics and Real Options in Capital Budgeting

Cost of Capital

Capital Structure and Leverage

Dividends and Repurchases

Corporate Restructuring

International Finance

Filters

In a Just in Time (JIT)inventory system: