Question 1

Find the average collection period for a firm that has credit sales of $120,000,000 and accounts receivable of $30,000,000.

Accepted Answer

A) 30 days 
B) 120 days 
C) 90 days 
D) 45 days 
E) 60 days 
A) 30 days 
B) 120 days 
C) 90 days 
D) 45 days 
E) 60 days

Question 2

Short-term liabilities:

Accepted Answer

A) represent claims on a firm's income and assets. 
B) are sources of funds for the firm. 
C) can arise spontaneously from a firm's operations. 
D) All of the above 
A) represent claims on a firm's income and assets. 
B) are sources of funds for the firm. 
C) can arise spontaneously from a firm's operations. 
D) All of the above

Question 3

Short-term projects should be financed with short-term funding while long-term projects should be funded with long-term funding.   This is principle is known as the: ​

Accepted Answer

A) Working Capital Principle ​ 
B) Maturity Matching Principle​ 
C) Conservative Financing Principle ​ 
D) Spontaneous Financing Principle ​ 
A) Working Capital Principle ​ 
B) Maturity Matching Principle​ 
C) Conservative Financing Principle ​ 
D) Spontaneous Financing Principle ​

Question 4

The main advantage of commercial paper is that its maturity is longer than that of a bank loan.

Accepted Answer

A) True 
 B)False

Question 5

By foregoing the prompt payment discount offered in terms of 2/10, net 30, the customer is effectively borrowing at rate of 36.5%.

Accepted Answer

A) True 
 B)False

Question 6

A lockbox system that accelerates cash collections also decreases a firm's receivables.

Accepted Answer

A) True 
 B)False

Question 7

Warehousing places the pledged inventory under the lender's legal and physical control.

Accepted Answer

A) True 
 B)False

Question 8

Explain the economic reasons for holding cash.

Accepted Answer

The economic reasons for holding cash ar

Question 9

The principal business of commercial banks is to make short-term loans to businesses. About two thirds of commercial bank loans are for less than:

Accepted Answer

A) six months. 
B) three years. 
C) nine months. 
D) one year. 
A) six months. 
B) three years. 
C) nine months. 
D) one year.

Question 10

Trade credit information is frequently exchanged among firms selling to the same customer through credit bureaus.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following provides financing that can vary in size over the life of a loan?

Accepted Answer

A) Revolving credit agreement 
B) Commercial paper 
C) Single payment note 
D) a and b 
E) None of the above 
A) Revolving credit agreement 
B) Commercial paper 
C) Single payment note 
D) a and b 
E) None of the above

Question 12

Working capital accounts are funds that are committed to support the day-to-day operations and include the following accounts: ​

Accepted Answer

A) Accounts Receivable, Accounts Payable, Accruals, Long-term debt and Inventory ​ 
B) Accounts Receivable, Accounts Payable, Accruals​ 
C) Cash, Accounts Receivable, Accounts Payable, Inventory and Long-term Debt ​ 
D) Accounts Receivable, Accounts Payable, Accruals, Long-term Debt and Fixed Assets ​ 
A) Accounts Receivable, Accounts Payable, Accruals, Long-term debt and Inventory ​ 
B) Accounts Receivable, Accounts Payable, Accruals​ 
C) Cash, Accounts Receivable, Accounts Payable, Inventory and Long-term Debt ​ 
D) Accounts Receivable, Accounts Payable, Accruals, Long-term Debt and Fixed Assets ​

Question 13

A large manufacturer needs a $100,000 loan to finance inventory. It can open a line of credit with a local bank at a 13 percent interest rate. However, it must also maintain a 10 percent minimum compensating balance. The effective interest rate on the loan is:

Accepted Answer

A) 13 percent. 
B) 13.13 percent. 
C) 14.44 percent. 
D) 23 percent. 
A) 13 percent. 
B) 13.13 percent. 
C) 14.44 percent. 
D) 23 percent.

Question 14

Under what conditions might larger balances in inventory and accounts receivable not help the firm to run more smoothly and efficiently?

Accepted Answer

Large receivables balances may be due to

Question 15

Which of the following is not an inventory carrying cost?

Accepted Answer

A) The cost of storage 
B) The cost of borrowing to acquire inventory 
C) The costs of spoilage, shrinkage, and breakage 
D) The cost of customer complaints about unavailable product 
A) The cost of storage 
B) The cost of borrowing to acquire inventory 
C) The costs of spoilage, shrinkage, and breakage 
D) The cost of customer complaints about unavailable product

Question 16

The effect of a change in a firm's credit terms from "net 30" to "2/10, net 30" on its customer's balance sheets 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

Policy decisions regarding inventories, accounts receivable, cash balances, and marketable securities can control the amount invested in these assets.

Accepted Answer

A) True 
 B)False

Question 18

A commitment fee is required by a commercial bank on:

Accepted Answer

A) line of credit. 
B) revolving credit agreement. 
C) single payment note. 
D) a and b. 
E) All of the above 
A) line of credit. 
B) revolving credit agreement. 
C) single payment note. 
D) a and b. 
E) All of the above

Question 19

While a firm's bad debts should rise as it relaxes its credit standards, its ACP should fall.

Accepted Answer

A) True 
 B)False

Question 20

Why might a portion of working capital be funded with long-term debt?

Accepted Answer

A) Because it is considered temporary working capital. 
B) Because working capital encompasses some fixed assets which tend to be long-term investments. 
C) Because of beneficial tax breaks on the interest paid on long-term debt. 
D) Because it is considered permanent working capital. 
A) Because it is considered temporary working capital. 
B) Because working capital encompasses some fixed assets which tend to be long-term investments. 
C) Because of beneficial tax breaks on the interest paid on long-term debt. 
D) Because it is considered permanent working capital.

Find the average collection period for a firm that has credit sales of $120,000,000 and accounts receivable of $30,000,000.

Short-term liabilities:

Short-term projects should be financed with short-term funding while long-term projects should be funded with long-term funding. This is principle is known as the:

The main advantage of commercial paper is that its maturity is longer than that of a bank loan.

By foregoing the prompt payment discount offered in terms of 2/10, net 30, the customer is effectively borrowing at rate of 36.5%.

A lockbox system that accelerates cash collections also decreases a firm's receivables.

Warehousing places the pledged inventory under the lender's legal and physical control.

Explain the economic reasons for holding cash.

The principal business of commercial banks is to make short-term loans to businesses. About two thirds of commercial bank loans are for less than:

Trade credit information is frequently exchanged among firms selling to the same customer through credit bureaus.

Which of the following provides financing that can vary in size over the life of a loan?

Working capital accounts are funds that are committed to support the day-to-day operations and include the following accounts:

A large manufacturer needs a $100,000 loan to finance inventory. It can open a line of credit with a local bank at a 13 percent interest rate. However, it must also maintain a 10 percent minimum compensating balance. The effective interest rate on the loan is:

Under what conditions might larger balances in inventory and accounts receivable not help the firm to run more smoothly and efficiently?

Which of the following is not an inventory carrying cost?

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

Policy decisions regarding inventories, accounts receivable, cash balances, and marketable securities can control the amount invested in these assets.

A commitment fee is required by a commercial bank on:

While a firm's bad debts should rise as it relaxes its credit standards, its ACP should fall.

Why might a portion of working capital be funded with long-term debt?

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

Find the average collection period for a firm that has credit sales of $120,000,000 and accounts receivable of $30,000,000.

Short-term liabilities:

Short-term projects should be financed with short-term funding while long-term projects should be funded with long-term funding. This is principle is known as the: ​

The main advantage of commercial paper is that its maturity is longer than that of a bank loan.

By foregoing the prompt payment discount offered in terms of 2/10, net 30, the customer is effectively borrowing at rate of 36.5%.

A lockbox system that accelerates cash collections also decreases a firm's receivables.

Warehousing places the pledged inventory under the lender's legal and physical control.

Explain the economic reasons for holding cash.

The principal business of commercial banks is to make short-term loans to businesses. About two thirds of commercial bank loans are for less than:

Trade credit information is frequently exchanged among firms selling to the same customer through credit bureaus.

Which of the following provides financing that can vary in size over the life of a loan?

Working capital accounts are funds that are committed to support the day-to-day operations and include the following accounts: ​

A large manufacturer needs a $100,000 loan to finance inventory. It can open a line of credit with a local bank at a 13 percent interest rate. However, it must also maintain a 10 percent minimum compensating balance. The effective interest rate on the loan is:

Under what conditions might larger balances in inventory and accounts receivable not help the firm to run more smoothly and efficiently?

Which of the following is not an inventory carrying cost?

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

Policy decisions regarding inventories, accounts receivable, cash balances, and marketable securities can control the amount invested in these assets.

A commitment fee is required by a commercial bank on:

While a firm's bad debts should rise as it relaxes its credit standards, its ACP should fall.

Why might a portion of working capital be funded with long-term debt?

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

Short-term projects should be financed with short-term funding while long-term projects should be funded with long-term funding. This is principle is known as the:

Working capital accounts are funds that are committed to support the day-to-day operations and include the following accounts: