Question 1

Financing long-term projects with short term financing is risky because the bank may refuse to renew the short-term loan when it comes due.

Accepted Answer

A) True 
 B)False

Question 2

Match between columns
                        Premises: ZBA

Accepted Answer

The Answer of An attempt to transfer the task of is...

Question 3

Holding cash for which of the following reasons is an example of transactions demand?

Accepted Answer

A) Purchase of inputs in response to an abrupt price drop 
B) Acquisition of raw material for an emergency demand 
C) Immediately producing a new batch of product to replace goods damaged by a flood 
D) Payments to tax authorities 
A) Purchase of inputs in response to an abrupt price drop 
B) Acquisition of raw material for an emergency demand 
C) Immediately producing a new batch of product to replace goods damaged by a flood 
D) Payments to tax authorities

Question 4

Factoring receivables:

Accepted Answer

A) means selling them at a discount to a financial organization. 
B) means the seller is always responsible for losses from uncollectible accounts. 
C) means the seller must do all of its own credit and collection functions. 
D) means the borrowed funds must be repaid to the lending company periodically. 
A) means selling them at a discount to a financial organization. 
B) means the seller is always responsible for losses from uncollectible accounts. 
C) means the seller must do all of its own credit and collection functions. 
D) means the borrowed funds must be repaid to the lending company periodically.

Question 5

Which of the following statements related to trade credit is true?

Accepted Answer

A) Trade credit has an explicit interest cost. 
B) Large firms tend to use trade credit more than small firms. 
C) The total trade credit owed at any point in time is called accounts receivable. 
D) Trade credit arises from the time lag between the receipt of and payment for supplies. 
A) Trade credit has an explicit interest cost. 
B) Large firms tend to use trade credit more than small firms. 
C) The total trade credit owed at any point in time is called accounts receivable. 
D) Trade credit arises from the time lag between the receipt of and payment for supplies.

Question 6

The more efficient the management of cash, the larger the amount of cash the firm needs to hold.

Accepted Answer

A) True 
 B)False

Question 7

Trade credit is implicitly costless only:

Accepted Answer

A) during the entire net period. 
B) during the prompt payment discount period. 
C) between the first and last days of the net period. 
D) at no time. 
A) during the entire net period. 
B) during the prompt payment discount period. 
C) between the first and last days of the net period. 
D) at no time.

Question 8

Compensating balances can be stated as a percentage of the loan outstanding under a line of credit.

Accepted Answer

A) True 
 B)False

Question 9

Waller Corporation has an $18 million revolving credit agreement with its bank at prime plus 3%, based on a calendar year.  It borrowed $3 million on June 1, when it accessed the agreement for the first time.  Prime is 8.75% and the bank's commitment fee is 1/4% annually.  What bank charges will Waller incur for the month of June?

Accepted Answer

A) $262,500 
B) $3,120 
C) $32,496 
D) $29,375 
A) $262,500 
B) $3,120 
C) $32,496 
D) $29,375

Question 10

The cash manager's goal is to minimize the firm's cash balances.

Accepted Answer

A) True 
 B)False

Question 11

Explain the idea of spontaneous financing and explain why, in spite of it, we still have to fund working capital from outside sources.

Accepted Answer

Spontaneous financing comes from the fac

Question 12

In a field warehouse arrangement for a loan against inventory:

Accepted Answer

A) the inventory is held in a public warehouse and must be transported to a firm's plant. 
B) the inventory is kept on the firm's premises but is under the control of the warehouse manager. 
C) the inventory is kept by the firm but is identified by a serial number for the lender's protection. 
D) the borrower pledges inventory as collateral for a loan without specifying the exact items involved. 
A) the inventory is held in a public warehouse and must be transported to a firm's plant. 
B) the inventory is kept on the firm's premises but is under the control of the warehouse manager. 
C) the inventory is kept by the firm but is identified by a serial number for the lender's protection. 
D) the borrower pledges inventory as collateral for a loan without specifying the exact items involved.

Question 13

Assume the following facts about a firm:
  Would a lock box system that reduces check clearing time from six to three days be justified?

Accepted Answer

A) Yes, because it would save more than $1,800 annually. 
B) No, because it would cost $2,100 annually. 
C) Yes, because of the additional convenience of a shorter clearing time. 
D) Indifferent, the cost and expense are about the same. 
A) Yes, because it would save more than $1,800 annually. 
B) No, because it would cost $2,100 annually. 
C) Yes, because of the additional convenience of a shorter clearing time. 
D) Indifferent, the cost and expense are about the same.

Question 14

Information about a credit applicant:

Accepted Answer

A) is rarely available. 
B) can be obtained directly from the applicant. 
C) is frequently exchanged among firms selling to the same customer through credit bureaus. 
D) cannot be obtained from commercial banks. 
E) b and c 
A) is rarely available. 
B) can be obtained directly from the applicant. 
C) is frequently exchanged among firms selling to the same customer through credit bureaus. 
D) cannot be obtained from commercial banks. 
E) b and c

Question 15

Which of the following is an administrative (non-economic)reason for holding cash?

Accepted Answer

A) To pay bills for the goods and services used 
B) To meet short-term obligations 
C) To compensate banks for services 
D) To have cash available to take advantage of unexpected opportunities 
A) To pay bills for the goods and services used 
B) To meet short-term obligations 
C) To compensate banks for services 
D) To have cash available to take advantage of unexpected opportunities

Question 16

The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its own balance sheet is likely to be:

Accepted Answer

A) decreased accounts receivable. 
B) increased accounts receivable. 
C) decreased accounts payable. 
D) increased accounts payable. 
A) decreased accounts receivable. 
B) increased accounts receivable. 
C) decreased accounts payable. 
D) increased accounts payable.

Question 17

Commercial paper is similar to a bond, except that it is sold at a discount rather than having coupon payments and has a maturity of 9 months or less.

Accepted Answer

A) True 
 B)False

Question 18

Payables financing is costless during the prompt payment discount period.

Accepted Answer

A) True 
 B)False

Question 19

Lock boxes are designed to reduce mail float.

Accepted Answer

A) True 
 B)False

Question 20

Transit float in the check clearing system is the time required for checks to clear through the banking system.

Accepted Answer

A) True 
 B)False

Financing long-term projects with short term financing is risky because the bank may refuse to renew the short-term loan when it comes due.

Holding cash for which of the following reasons is an example of transactions demand?

Factoring receivables:

Which of the following statements related to trade credit is true?

The more efficient the management of cash, the larger the amount of cash the firm needs to hold.

Trade credit is implicitly costless only:

Compensating balances can be stated as a percentage of the loan outstanding under a line of credit.

The cash manager's goal is to minimize the firm's cash balances.

Explain the idea of spontaneous financing and explain why, in spite of it, we still have to fund working capital from outside sources.

In a field warehouse arrangement for a loan against inventory:

Assume the following facts about a firm: Would a lock box system that reduces check clearing time from six to three days be justified?

Information about a credit applicant:

Which of the following is an administrative (non-economic)reason for holding cash?

The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its own balance sheet is likely to be:

Commercial paper is similar to a bond, except that it is sold at a discount rather than having coupon payments and has a maturity of 9 months or less.

Payables financing is costless during the prompt payment discount period.

Lock boxes are designed to reduce mail float.

Transit float in the check clearing system is the time required for checks to clear through the banking system.

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

Financing long-term projects with short term financing is risky because the bank may refuse to renew the short-term loan when it comes due.

Holding cash for which of the following reasons is an example of transactions demand?

Factoring receivables:

Which of the following statements related to trade credit is true?

The more efficient the management of cash, the larger the amount of cash the firm needs to hold.

Trade credit is implicitly costless only:

Compensating balances can be stated as a percentage of the loan outstanding under a line of credit.

The cash manager's goal is to minimize the firm's cash balances.

Explain the idea of spontaneous financing and explain why, in spite of it, we still have to fund working capital from outside sources.

In a field warehouse arrangement for a loan against inventory:

Assume the following facts about a firm: Would a lock box system that reduces check clearing time from six to three days be justified?

Information about a credit applicant:

Which of the following is an administrative (non-economic)reason for holding cash?

The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its own balance sheet is likely to be:

Commercial paper is similar to a bond, except that it is sold at a discount rather than having coupon payments and has a maturity of 9 months or less.

Payables financing is costless during the prompt payment discount period.

Lock boxes are designed to reduce mail float.

Transit float in the check clearing system is the time required for checks to clear through the banking system.

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