Question 1

A firm can avoid excess funds at regional banking facilities by using zero balance accounts, or ZBAs.

Accepted Answer

A) True 
 B)False

Question 2

Riordan Manufacturing has taken out an $80,000 short-term bank loan that has a 10% interest rate. The loan requires that Riordan maintain a compensating balance of 15% of the amount borrowed. Calculate the effective interest rate on the loan.

Accepted Answer

A) 10.0% 
B) 11.2% 
C) 11.8% 
D) 12.4% 
E) 12.8% 
A) 10.0% 
B) 11.2% 
C) 11.8% 
D) 12.4% 
E) 12.8%

Question 3

Which of the following is NOT used to accelerate cash receipts?

Accepted Answer

A) Lock Box Systems 
B) Wire Transfers 
C) Concentration Banks 
D) Remote Disbursing 
A) Lock Box Systems 
B) Wire Transfers 
C) Concentration Banks 
D) Remote Disbursing

Question 4

What is the effective rate on an 8% loan subject to a 20% minimum compensating balance?

Accepted Answer

A) 9.6% 
B) 10% 
C) 8.13% 
D) None of the above 
A) 9.6% 
B) 10% 
C) 8.13% 
D) None of the above

Question 5

What is the effective rate on an 8% loan subject to a 10% minimum compensating balance

Accepted Answer

A) 10.0% 
B) 8.0% 
C) 8.89% 
D) None of the above 
A) 10.0% 
B) 8.0% 
C) 8.89% 
D) None of the above

Question 6

Factoring involves the sale of accounts receivable by the firm that originally generated the receivables.

Accepted Answer

A) True 
 B)False

Question 7

The size of a firm's investment in working capital is a function of all of the following factors except:

Accepted Answer

A) sales level. 
B) inventory policies. 
C) credit policies. 
D) stockholders equity. 
A) sales level. 
B) inventory policies. 
C) credit policies. 
D) stockholders equity.

Question 8

Firms  will use short-term loans to support working capital.   Which of the following is not a source of short-term funding? ​

Accepted Answer

A) Unsecured bank loans ​ 
B) Commercial paper ​ 
C) Accounts payable ​ 
D) Accounts receivable​ 
A) Unsecured bank loans ​ 
B) Commercial paper ​ 
C) Accounts payable ​ 
D) Accounts receivable​

Question 9

The purpose of collateral in a secured loan agreement is to:

Accepted Answer

A) reduce the lender's risk. 
B) reduce the expense of administering the loan. 
C) make borrowers indifferent to the default risk of the loan. 
D) increase the rate borrowers are willing to pay for funds. 
A) reduce the lender's risk. 
B) reduce the expense of administering the loan. 
C) make borrowers indifferent to the default risk of the loan. 
D) increase the rate borrowers are willing to pay for funds.

Question 10

The services provided by an accounts receivable factor to the borrower may include:

Accepted Answer

A) performing credit checks on potential customers. 
B) collecting cash from customers. 
C) assuming the bad debt risk when customers of factored accounts do not pay. 
D) All of the above 
A) performing credit checks on potential customers. 
B) collecting cash from customers. 
C) assuming the bad debt risk when customers of factored accounts do not pay. 
D) All of the above

Question 11

The cash conversion cycle is the time it takes to convert a receivable into cash.

Accepted Answer

A) True 
 B)False

Question 12

Overland has a part with a unit cost of $40. It costs $52 to place, process and receive an order. The carrying cost of the inventory is approximately 20% of the part's dollar value per year. The firm uses 2,000 of the parts each year. What order quantity minimizes total inventory cost?

Accepted Answer

A) 93 
B) 127 
C) 161 
D) 205 
A) 93 
B) 127 
C) 161 
D) 205

Question 13

Characteristics of a line of credit include:

Accepted Answer

A) guaranteed access to funds. 
B) commitment fee. 
C) annual clean-up period. 
D) All of the above 
E) None of the above 
A) guaranteed access to funds. 
B) commitment fee. 
C) annual clean-up period. 
D) All of the above 
E) None of the above

Question 14

Commercial paper:

Accepted Answer

A) is normally issued by smaller firms that require cash for less than 270 days. 
B) is normally purchased by insurance companies and mutual funds that have excess funds to invest for a short period. 
C) is considered very safe and pays interest rates slightly below 3-month treasuries. 
D) requires SEC registration. 
E) All of the above are correct regarding commercial paper. 
A) is normally issued by smaller firms that require cash for less than 270 days. 
B) is normally purchased by insurance companies and mutual funds that have excess funds to invest for a short period. 
C) is considered very safe and pays interest rates slightly below 3-month treasuries. 
D) requires SEC registration. 
E) All of the above are correct regarding commercial paper.

Question 15

The level of a firm's receivables is influenced solely by factors outside the financial managers' control.

Accepted Answer

A) True 
 B)False

Question 16

A firm's credit terms stipulate:

Accepted Answer

A) the maturity of trade credit (time when the net amount is due). 
B) the minimum acceptable credit rating of a credit applicant. 
C) the extent of efforts to collect on overdue accounts. 
D) a and b 
E) All of the above 
A) the maturity of trade credit (time when the net amount is due). 
B) the minimum acceptable credit rating of a credit applicant. 
C) the extent of efforts to collect on overdue accounts. 
D) a and b 
E) All of the above

Question 17

Functions that can be performed by a factor include:

Accepted Answer

A) perform credit analysis. 
B) collect accounts receivable. 
C) assume bad debt risk. 
D) b and c 
E) All of the above 
A) perform credit analysis. 
B) collect accounts receivable. 
C) assume bad debt risk. 
D) b and c 
E) All of the above

Question 18

____ refers to the economic reason for holding cash in the bank to pay bills for the goods and services used.

Accepted Answer

A) Compensating balance 
B) Transactions demand 
C) Precautionary demand 
D) Speculative demand 
A) Compensating balance 
B) Transactions demand 
C) Precautionary demand 
D) Speculative demand

Question 19

Which of the following types of float can be virtually eliminated through the use of a lock box?

Accepted Answer

A) Mail float 
B) Processing float 
C) Transit float 
D) Both a. and b. can be eliminated. 
E) All of the above can be eliminated. 
A) Mail float 
B) Processing float 
C) Transit float 
D) Both a. and b. can be eliminated. 
E) All of the above can be eliminated.

Question 20

A bank line of credit usually requires both interest payments and a commitment fee.

Accepted Answer

A) True 
 B)False

A firm can avoid excess funds at regional banking facilities by using zero balance accounts, or ZBAs.

Riordan Manufacturing has taken out an $80,000 short-term bank loan that has a 10% interest rate. The loan requires that Riordan maintain a compensating balance of 15% of the amount borrowed. Calculate the effective interest rate on the loan.

Which of the following is NOT used to accelerate cash receipts?

What is the effective rate on an 8% loan subject to a 20% minimum compensating balance?

What is the effective rate on an 8% loan subject to a 10% minimum compensating balance

Factoring involves the sale of accounts receivable by the firm that originally generated the receivables.

The size of a firm's investment in working capital is a function of all of the following factors except:

Firms will use short-term loans to support working capital. Which of the following is not a source of short-term funding?

The purpose of collateral in a secured loan agreement is to:

The services provided by an accounts receivable factor to the borrower may include:

The cash conversion cycle is the time it takes to convert a receivable into cash.

Overland has a part with a unit cost of $40. It costs $52 to place, process and receive an order. The carrying cost of the inventory is approximately 20% of the part's dollar value per year. The firm uses 2,000 of the parts each year. What order quantity minimizes total inventory cost?

Characteristics of a line of credit include:

Commercial paper:

The level of a firm's receivables is influenced solely by factors outside the financial managers' control.

A firm's credit terms stipulate:

Functions that can be performed by a factor include:

____ refers to the economic reason for holding cash in the bank to pay bills for the goods and services used.

Which of the following types of float can be virtually eliminated through the use of a lock box?

A bank line of credit usually requires both interest payments and a commitment fee.

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

A firm can avoid excess funds at regional banking facilities by using zero balance accounts, or ZBAs.

Riordan Manufacturing has taken out an $80,000 short-term bank loan that has a 10% interest rate. The loan requires that Riordan maintain a compensating balance of 15% of the amount borrowed. Calculate the effective interest rate on the loan.

Which of the following is NOT used to accelerate cash receipts?

What is the effective rate on an 8% loan subject to a 20% minimum compensating balance?

What is the effective rate on an 8% loan subject to a 10% minimum compensating balance

Factoring involves the sale of accounts receivable by the firm that originally generated the receivables.

The size of a firm's investment in working capital is a function of all of the following factors except:

Firms will use short-term loans to support working capital. Which of the following is not a source of short-term funding? ​

The purpose of collateral in a secured loan agreement is to:

The services provided by an accounts receivable factor to the borrower may include:

The cash conversion cycle is the time it takes to convert a receivable into cash.

Overland has a part with a unit cost of $40. It costs $52 to place, process and receive an order. The carrying cost of the inventory is approximately 20% of the part's dollar value per year. The firm uses 2,000 of the parts each year. What order quantity minimizes total inventory cost?

Characteristics of a line of credit include:

Commercial paper:

The level of a firm's receivables is influenced solely by factors outside the financial managers' control.

A firm's credit terms stipulate:

Functions that can be performed by a factor include:

____ refers to the economic reason for holding cash in the bank to pay bills for the goods and services used.

Which of the following types of float can be virtually eliminated through the use of a lock box?

A bank line of credit usually requires both interest payments and a commitment fee.

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

Firms will use short-term loans to support working capital. Which of the following is not a source of short-term funding?