Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Which of the following reasons for holding cash is not under the control of management as a matter of policy?

Accepted Answer

A) Transaction demand 
B) Precautionary demand 
C) Speculative demand 
D) Compensating balances 
E) All of these reasons are under the complete control of management. 
A) Transaction demand 
B) Precautionary demand 
C) Speculative demand 
D) Compensating balances 
E) All of these reasons are under the complete control of management.

Question 3

When accounts receivable are pledged as collateral for a loan:

Accepted Answer

A) title to the receivables is transferred to the lender. 
B) the borrower's customers are usually notified of the pledging arrangement. 
C) the lender assumes the default risk on the receivables. 
D) b and c. 
E) None of the above 
A) title to the receivables is transferred to the lender. 
B) the borrower's customers are usually notified of the pledging arrangement. 
C) the lender assumes the default risk on the receivables. 
D) b and c. 
E) None of the above

Question 4

Which of the following describes the cash conversion cycle?

Accepted Answer

A) From the purchase of inventory to the collection of cash from the sale of that inventory. 
B) From the payment for inventory to the sale of that inventory. 
C) From the payment for inventory to the collection of cash from the sale of that inventory. 
D) From the purchase of inventory to the sale of that inventory. 
E) None of the above describes the cash conversion cycle. 
A) From the purchase of inventory to the collection of cash from the sale of that inventory. 
B) From the payment for inventory to the sale of that inventory. 
C) From the payment for inventory to the collection of cash from the sale of that inventory. 
D) From the purchase of inventory to the sale of that inventory. 
E) None of the above describes the cash conversion cycle.

Question 5

The operating cycle is _____.

Accepted Answer

A) the same as the cash cycle 
B) not calculated with items from the income statement 
C) the length of time it takes to purchase inventory and then convert the sale of the product/inventory into cash 
D) generally less than the cash cycle 
A) the same as the cash cycle 
B) not calculated with items from the income statement 
C) the length of time it takes to purchase inventory and then convert the sale of the product/inventory into cash 
D) generally less than the cash cycle

Question 6

The availability of funds under a line of credit is not guaranteed by the lender.

Accepted Answer

A) True 
 B)False

Question 7

Assume the following facts about a firm that borrows by pledging its receivables   What is the effective cost of financing stated as an annual rate?

Accepted Answer

A) 23.5% 
B) 20.0% 
C) 13.0% 
D) 16.8% 
A) 23.5% 
B) 20.0% 
C) 13.0% 
D) 16.8%

Question 8

Calculate the effective interest rate of a 2/5, net 25 terms of sale, using a 365-day year.

Accepted Answer

A) 24.5% 
B) 36.5% 
C) 42.5% 
D) 55.5% 
A) 24.5% 
B) 36.5% 
C) 42.5% 
D) 55.5%

Question 9

An aggressive working capital policy:

Accepted Answer

A) uses more short-term financing than long-term. 
B) uses short-term financing to support only the peaks of temporary working capital. 
C) supports a portion of permanent working capital with short-term financing. 
D) Both a & b 
E) Both a & c 
A) uses more short-term financing than long-term. 
B) uses short-term financing to support only the peaks of temporary working capital. 
C) supports a portion of permanent working capital with short-term financing. 
D) Both a & b 
E) Both a & c

Question 10

A $3 million revolving credit agreement charges a commitment fee of .3% on unborrowed funds. The borrowing company owed nothing at the beginning of April, and during the month made only one take-down on the fifteenth. The commitment fee for April was $562.50. How much did the firm borrow on the fifteenth?

Accepted Answer

A) $3,000,000 
B) $1,500,000 
C) $2,250,000 
D) $2,500,000 
A) $3,000,000 
B) $1,500,000 
C) $2,250,000 
D) $2,500,000

Question 11

Traditional reasons for holding cash DO NOT include:

Accepted Answer

A) to make transactions. 
B) to pay dividends. 
C) for speculative opportunities. 
D) to maintain compensating balances. 
A) to make transactions. 
B) to pay dividends. 
C) for speculative opportunities. 
D) to maintain compensating balances.

Question 12

Which of the following is a component of a firm's gross working capital?

Accepted Answer

A) Cash 
B) Accounts payable 
C) Fixed assets 
D) a and b 
E) All of the above 
A) Cash 
B) Accounts payable 
C) Fixed assets 
D) a and b 
E) All of the above

Question 13

Holding cash for speculative 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 14

A firm can increase the size of the cash discount received by paying on the first day of the discount period rather than on the last day.

Accepted Answer

A) True 
 B)False

Question 15

Relaxation of credit policy results in:

Accepted Answer

A) an increase in credit sales. 
B) a decrease in credit expenses. 
C) a decrease in investment in receivables. 
D) b and c 
E) All of the above 
A) an increase in credit sales. 
B) a decrease in credit expenses. 
C) a decrease in investment in receivables. 
D) b and c 
E) All of the above

Question 16

By foregoing the prompt payment discount offered in terms of 1/10, net 30, the customer is effectively borrowing at rate of 36.5%.

Accepted Answer

A) True 
 B)False

Question 17

Short-term loans are generally used to:

Accepted Answer

A) finance permanent additions to working capital. 
B) finance additions to fixed assets. 
C) finance seasonal working-capital requirements. 
D) retire equity, thus changing a firm's capital structure. 
A) finance permanent additions to working capital. 
B) finance additions to fixed assets. 
C) finance seasonal working-capital requirements. 
D) retire equity, thus changing a firm's capital structure.

Question 18

Excess cash can be invested in marketable securities which earn a modest return but are almost as liquid as cash itself.

Accepted Answer

A) True 
 B)False

Question 19

An aggressive working capital policy would include:

Accepted Answer

A) using short term financing to finance only the peak temporary working capital. 
B) using short term financing to finance all temporary working capital. 
C) using short term financing to finance all temporary and some permanent working capital. 
D) both a. and b. above describe aggressive working capital policies. 
E) All of the above describe aggressive working capital policies. 
A) using short term financing to finance only the peak temporary working capital. 
B) using short term financing to finance all temporary working capital. 
C) using short term financing to finance all temporary and some permanent working capital. 
D) both a. and b. above describe aggressive working capital policies. 
E) All of the above describe aggressive working capital policies.

Question 20

Virtually all accruals are best guess estimates of obligations arising from merchandise purchases for which vendor invoices have not yet been received.

Accepted Answer

A) True 
 B)False

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

Which of the following reasons for holding cash is not under the control of management as a matter of policy?

When accounts receivable are pledged as collateral for a loan:

Which of the following describes the cash conversion cycle?

The operating cycle is _____.

The availability of funds under a line of credit is not guaranteed by the lender.

Assume the following facts about a firm that borrows by pledging its receivables What is the effective cost of financing stated as an annual rate?

Calculate the effective interest rate of a 2/5, net 25 terms of sale, using a 365-day year.

An aggressive working capital policy:

Traditional reasons for holding cash DO NOT include:

Which of the following is a component of a firm's gross working capital?

Holding cash for speculative demand refers to:

A firm can increase the size of the cash discount received by paying on the first day of the discount period rather than on the last day.

Relaxation of credit policy results in:

By foregoing the prompt payment discount offered in terms of 1/10, net 30, the customer is effectively borrowing at rate of 36.5%.

Short-term loans are generally used to:

Excess cash can be invested in marketable securities which earn a modest return but are almost as liquid as cash itself.

An aggressive working capital policy would include:

Virtually all accruals are best guess estimates of obligations arising from merchandise purchases for which vendor invoices have not yet been received.

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

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

Which of the following reasons for holding cash is not under the control of management as a matter of policy?

When accounts receivable are pledged as collateral for a loan:

Which of the following describes the cash conversion cycle?

The operating cycle is _____.

The availability of funds under a line of credit is not guaranteed by the lender.

Assume the following facts about a firm that borrows by pledging its receivables What is the effective cost of financing stated as an annual rate?

Calculate the effective interest rate of a 2/5, net 25 terms of sale, using a 365-day year.

An aggressive working capital policy:

Traditional reasons for holding cash DO NOT include:

Which of the following is a component of a firm's gross working capital?

Holding cash for speculative demand refers to:

A firm can increase the size of the cash discount received by paying on the first day of the discount period rather than on the last day.

Relaxation of credit policy results in:

By foregoing the prompt payment discount offered in terms of 1/10, net 30, the customer is effectively borrowing at rate of 36.5%.

Short-term loans are generally used to:

Excess cash can be invested in marketable securities which earn a modest return but are almost as liquid as cash itself.

An aggressive working capital policy would include:

Virtually all accruals are best guess estimates of obligations arising from merchandise purchases for which vendor invoices have not yet been received.

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