Question 1

Loans are said to be self-liquidating if the project the funds support automatically generates the cash to repay the loan.

Accepted Answer

A) True 
 B)False

Question 2

A firm has a $5 million revolving credit agreement with its bank at 1.5% over prime with a commitment fee of .5% unborrowed balance. What is the total cost of borrowing in a month when the prime rate is 8% if the firm borrowed $2 million prior to the beginning of the month and takes down an additional $1 million two thirds through the month on the 21st? (Correct answers may differ due to rounding.)

Accepted Answer

A) $21,875 
B) $20,833 
C) $20,417 
D) $19,583 
A) $21,875 
B) $20,833 
C) $20,417 
D) $19,583

Question 3

The provision in short-term credit agreements that require customers to be out of debt for 30 to 45 days each year is referred to as a:

Accepted Answer

A) loan payoff requirement. 
B) clean-up requirement. 
C) debt free period requirement. 
D) solvency period requirement. 
A) loan payoff requirement. 
B) clean-up requirement. 
C) debt free period requirement. 
D) solvency period requirement.

Question 4

Holding cash for precautionary demand refers to:

Accepted Answer

A) keeping cash on hand to pay for emergency needs. 
B) holding cash to compensate banks for the services they perform. 
C) keeping money in the bank to pay bills for the goods and services they use. 
D) keeping cash to take advantage of unexpected opportunities. 
A) keeping cash on hand to pay for emergency needs. 
B) holding cash to compensate banks for the services they perform. 
C) keeping money in the bank to pay bills for the goods and services they use. 
D) keeping cash to take advantage of unexpected opportunities.

Question 5

All of the following are components of carrying costs except:

Accepted Answer

A) insurance. 
B) storage costs. 
C) deterioration. 
D) set-up costs. 
A) insurance. 
B) storage costs. 
C) deterioration. 
D) set-up costs.

Question 6

Jensen Corporation uses the ABC system of inventory management. It has placed common bolts in a bin that is accessible to any employees needing these parts. When the bin gets low, an order is placed with the local hardware distributor to replace this item. The bolts would be a categorized as a(an)____ item.

Accepted Answer

A) A 
B) B 
C) C 
D) JIT 
A) A 
B) B 
C) C 
D) JIT

Question 7

"Leaning on the trade" is an expression associated with a customer's insistence that vendors extend more liberal credit terms.

Accepted Answer

A) True 
 B)False

Question 8

Match between columns
                        Premises: JIT inventory

Accepted Answer

The Answer of Permits the disbursement of funds at remote is...

Question 9

A firm's net working capital reflects the amount of funds required to support its day-to-day routine operations. The word net reflects the fact that the requirement is net of spontaneous financing.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following represents spontaneous financing?

Accepted Answer

A) The origination of a 9-month bank loan 
B) The issuance of a note payable with a maturity of less than one year 
C) An increase in accounts payable resulting from the purchase of inventories on 30-day credit 
D) a and c 
E) All of the above 
A) The origination of a 9-month bank loan 
B) The issuance of a note payable with a maturity of less than one year 
C) An increase in accounts payable resulting from the purchase of inventories on 30-day credit 
D) a and c 
E) All of the above

Question 11

The term "net working capital" means:

Accepted Answer

A) the firm's gross working capital minus spontaneous financing. 
B) the firm's cash, accounts receivable, and inventory minus short-term payables and accruals. 
C) the firm's current assets minus its current liabilities. 
D) All of the above 
A) the firm's gross working capital minus spontaneous financing. 
B) the firm's cash, accounts receivable, and inventory minus short-term payables and accruals. 
C) the firm's current assets minus its current liabilities. 
D) All of the above

Question 12

JIT systems work well, even when suppliers are located far away and sell to many similar manufacturers.

Accepted Answer

A) True 
 B)False

Question 13

A revolving credit agreement is a guaranteed line of credit.

Accepted Answer

A) True 
 B)False

Question 14

A firm's bad debts:

Accepted Answer

A) should be reduced by more aggressive collection procedures. 
B) are normally positively related to a firm's ACP. 
C) are normally unaffected by changes in a firm's cash discount. 
D) a and b 
E) All of the above 
A) should be reduced by more aggressive collection procedures. 
B) are normally positively related to a firm's ACP. 
C) are normally unaffected by changes in a firm's cash discount. 
D) a and b 
E) All of the above

Question 15

Cash reserved to make payments to vendors is an example of precautionary demand.

Accepted Answer

A) True 
 B)False

Question 16

Manning Inc. has the following account balances: ​   What is the firm's net working capital?
​

Accepted Answer

A) $1,270,000​ 
B) $635,000​ 
C) $845,000​ 
D) $3,585,000​ 
A) $1,270,000​ 
B) $635,000​ 
C) $845,000​ 
D) $3,585,000​

Question 17

Working capital policy involves a tradeoff between easier operation and ____.

Accepted Answer

A) more working capital 
B) spontaneous liabilities 
C) temporary financing 
D) the cost of carrying short-term assets 
A) more working capital 
B) spontaneous liabilities 
C) temporary financing 
D) the cost of carrying short-term assets

Question 18

A firm's total investment in accounts receivable at any point in time is determined by:

Accepted Answer

A) the amount of credit sales. 
B) the credit period. 
C) the firm's credit policy. 
D) All of the above 
A) the amount of credit sales. 
B) the credit period. 
C) the firm's credit policy. 
D) All of the above

Question 19

Mattingly, Inc. uses 40,000 weberwalls per year. On average, weberwalls cost $12, and the annual cost of carrying one in inventory is $1.50. The cost to place an order is $50. Based on this information, what is Mattingly's annual ordering cost for purchasing weberwalls if they observe the EOQ model?

Accepted Answer

A) $1,155 
B) $1,225 
C) $1,633 
D) $1,731 
E) $2,450 
A) $1,155 
B) $1,225 
C) $1,633 
D) $1,731 
E) $2,450

Question 20

Explain the difference between a promissory note, a line of credit, and a revolving credit agreement.

Accepted Answer

A promissory note is a contract associat

Loans are said to be self-liquidating if the project the funds support automatically generates the cash to repay the loan.

The provision in short-term credit agreements that require customers to be out of debt for 30 to 45 days each year is referred to as a:

Holding cash for precautionary demand refers to:

All of the following are components of carrying costs except:

"Leaning on the trade" is an expression associated with a customer's insistence that vendors extend more liberal credit terms.

A firm's net working capital reflects the amount of funds required to support its day-to-day routine operations. The word net reflects the fact that the requirement is net of spontaneous financing.

Which of the following represents spontaneous financing?

The term "net working capital" means:

JIT systems work well, even when suppliers are located far away and sell to many similar manufacturers.

A revolving credit agreement is a guaranteed line of credit.

A firm's bad debts:

Cash reserved to make payments to vendors is an example of precautionary demand.

Manning Inc. has the following account balances: What is the firm's net working capital?

Working capital policy involves a tradeoff between easier operation and ____.

A firm's total investment in accounts receivable at any point in time is determined by:

Mattingly, Inc. uses 40,000 weberwalls per year. On average, weberwalls cost $12, and the annual cost of carrying one in inventory is $1.50. The cost to place an order is $50. Based on this information, what is Mattingly's annual ordering cost for purchasing weberwalls if they observe the EOQ model?

Explain the difference between a promissory note, a line of credit, and a revolving credit agreement.

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

Loans are said to be self-liquidating if the project the funds support automatically generates the cash to repay the loan.

The provision in short-term credit agreements that require customers to be out of debt for 30 to 45 days each year is referred to as a:

Holding cash for precautionary demand refers to:

All of the following are components of carrying costs except:

"Leaning on the trade" is an expression associated with a customer's insistence that vendors extend more liberal credit terms.

A firm's net working capital reflects the amount of funds required to support its day-to-day routine operations. The word net reflects the fact that the requirement is net of spontaneous financing.

Which of the following represents spontaneous financing?

The term "net working capital" means:

JIT systems work well, even when suppliers are located far away and sell to many similar manufacturers.

A revolving credit agreement is a guaranteed line of credit.

A firm's bad debts:

Cash reserved to make payments to vendors is an example of precautionary demand.

Manning Inc. has the following account balances: ​ What is the firm's net working capital? ​

Working capital policy involves a tradeoff between easier operation and ____.

A firm's total investment in accounts receivable at any point in time is determined by:

Explain the difference between a promissory note, a line of credit, and a revolving credit agreement.

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

Manning Inc. has the following account balances: What is the firm's net working capital?