Question 1

If a vendor's invoice states terms of sale of 2/10 net 30, the implied annual cost of interest from foregoing the discount would be:

Accepted Answer

A) 18.25% 
B) 2.0% 
C) 12% 
D) 36.5% 
A) 18.25% 
B) 2.0% 
C) 12% 
D) 36.5%

Question 2

Under which of the following inventory financing arrangements does the borrower remain in physical control of the inventory?

Accepted Answer

A) Blanket liens and chattel mortgage agreements 
B) Field warehousing 
C) Public warehousing 
D) The borrower doesn't remain in complete physical control of the inventory under any of these arrangements. 
A) Blanket liens and chattel mortgage agreements 
B) Field warehousing 
C) Public warehousing 
D) The borrower doesn't remain in complete physical control of the inventory under any of these arrangements.

Question 3

If a vendor's invoice states terms of sale of 1/10 net 30, and the buyer fails to take the prompt payment discount, it is effectively borrowing money at an annual rate of:

Accepted Answer

A) 18.25%. 
B) 1.0%. 
C) 12%. 
D) 36.5%. 
A) 18.25%. 
B) 1.0%. 
C) 12%. 
D) 36.5%.

Question 4

Criteria for extending credit to new customers usually involve the following issues: 
 (1)length of time in business 
 (2)adequate net worth 
 (3)an acceptable current ratio 
 (4)a "clean" credit record.

Accepted Answer

A) True 
 B)False

Question 5

Terms of sale of 2/10 net 30 mean:

Accepted Answer

A) the buyer may take a 10% discount if payment is made within two days of receiving the bill. 
B) a 10% penalty is due of the bill is not paid within two days of the due date which is in 30 days. 
C) the buyer may take a 2% prompt payment discount if the bill is paid within 10 days, should pay in 30 days, and will be liable for a 2% penalty if payment isn't made in 30 days. 
D) the buyer is borrowing money at 36.5% if it fails to take the prompt payment discount offered. 
A) the buyer may take a 10% discount if payment is made within two days of receiving the bill. 
B) a 10% penalty is due of the bill is not paid within two days of the due date which is in 30 days. 
C) the buyer may take a 2% prompt payment discount if the bill is paid within 10 days, should pay in 30 days, and will be liable for a 2% penalty if payment isn't made in 30 days. 
D) the buyer is borrowing money at 36.5% if it fails to take the prompt payment discount offered.

Question 6

Explain marketable securities. How are they useful to companies?

Accepted Answer

Marketable securities are liquid investm

Question 7

In the context of working capital an accrual is not:

Accepted Answer

A) an estimate of an obligation of the firm. 
B) effectively a short term loan from the unpaid supplier of services. 
C) an adjustment to the accrued depreciation account. 
D) a source of spontaneous financing. 
A) an estimate of an obligation of the firm. 
B) effectively a short term loan from the unpaid supplier of services. 
C) an adjustment to the accrued depreciation account. 
D) a source of spontaneous financing.

Question 8

If a firm issues $5 million of commercial paper with a maturity of three months at an annual interest rate of 8%, the proceeds of the issue are:

Accepted Answer

A) $4,900,000. 
B) $4,629,630. 
C) $4,901,961. 
D) $4,600,000. 
A) $4,900,000. 
B) $4,629,630. 
C) $4,901,961. 
D) $4,600,000.

Question 9

Which of the following is not a reason that firms typically hold cash?

Accepted Answer

A) To make routine transactions 
B) To satisfy compensating balance requirements 
C) To earn interest 
D) To be able to respond to emergencies and opportunities 
A) To make routine transactions 
B) To satisfy compensating balance requirements 
C) To earn interest 
D) To be able to respond to emergencies and opportunities

Question 10

A bank's ____ is the rate it charges its largest and most creditworthy corporate customers.

Accepted Answer

A) risk-free rate 
B) commitment fee 
C) prime rate 
D) nominal rate 
A) risk-free rate 
B) commitment fee 
C) prime rate 
D) nominal rate

Question 11

Which of the following is not a cost related to the extension of credit to customers?

Accepted Answer

A) Bad-debt losses 
B) Prompt payment discounts 
C) Quantity discounts 
D) Collection costs 
A) Bad-debt losses 
B) Prompt payment discounts 
C) Quantity discounts 
D) Collection costs

Question 12

Which of the following creates spontaneous financing?

Accepted Answer

A) Accounts payable 
B) Accrual liabilities 
C) Trade credit 
D) Both a. and b. create spontaneous financing. 
E) All of the above create spontaneous financing. 
A) Accounts payable 
B) Accrual liabilities 
C) Trade credit 
D) Both a. and b. create spontaneous financing. 
E) All of the above create spontaneous financing.

Question 13

In a pledging agreement the borrower is obligated for default on any account receivable.

Accepted Answer

A) True 
 B)False

Question 14

Relaxation of credit policy normally involves an expansion of investment in accounts receivable.

Accepted Answer

A) True 
 B)False

Question 15

CNN Corporation needs $750,000 and plans to borrow from its bank under the terms of its line-of-credit arrangement. These terms call for a minimum compensating balance of 12 percent. How much will CNN have to borrow to obtain the needed cash?

Accepted Answer

A) $750,000 
B) $798,307 
C) $840,000 
D) $852,273 
A) $750,000 
B) $798,307 
C) $840,000 
D) $852,273

Question 16

If net working capital became negative, this is considered _____.

Accepted Answer

A) bad, because it will reduce cash flow 
B) good, because entities other than the firm are supplying all of the short-term funding for running the operations of the firm 
C) bad, because it makes the current ratio less than one 
D) good, because it makes the current ratio greater than one 
A) bad, because it will reduce cash flow 
B) good, because entities other than the firm are supplying all of the short-term funding for running the operations of the firm 
C) bad, because it makes the current ratio less than one 
D) good, because it makes the current ratio greater than one

Question 17

In the course of normal operations, firms incur short-term liabilities that partially offset the need to fund working capital assets. This is generally called automatic financing.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is true regarding pledged receivables?

Accepted Answer

A) They are collateral for a loan. 
B) Uncollected accounts are usually the responsibility of the lender. 
C) The process involves factoring. 
D) Both a & b 
A) They are collateral for a loan. 
B) Uncollected accounts are usually the responsibility of the lender. 
C) The process involves factoring. 
D) Both a & b

Question 19

The financial managers have little control over the level of current assets associated with a given volume of sales.

Accepted Answer

A) True 
 B)False

Question 20

A firm's credit policy affects both its credit sales and its ACP.

Accepted Answer

A) True 
 B)False

If a vendor's invoice states terms of sale of 2/10 net 30, the implied annual cost of interest from foregoing the discount would be:

Under which of the following inventory financing arrangements does the borrower remain in physical control of the inventory?

If a vendor's invoice states terms of sale of 1/10 net 30, and the buyer fails to take the prompt payment discount, it is effectively borrowing money at an annual rate of:

Criteria for extending credit to new customers usually involve the following issues: (1)length of time in business (2)adequate net worth (3)an acceptable current ratio (4)a "clean" credit record.

Terms of sale of 2/10 net 30 mean:

Explain marketable securities. How are they useful to companies?

In the context of working capital an accrual is not:

If a firm issues $5 million of commercial paper with a maturity of three months at an annual interest rate of 8%, the proceeds of the issue are:

Which of the following is not a reason that firms typically hold cash?

A bank's ____ is the rate it charges its largest and most creditworthy corporate customers.

Which of the following is not a cost related to the extension of credit to customers?

Which of the following creates spontaneous financing?

In a pledging agreement the borrower is obligated for default on any account receivable.

Relaxation of credit policy normally involves an expansion of investment in accounts receivable.

CNN Corporation needs $750,000 and plans to borrow from its bank under the terms of its line-of-credit arrangement. These terms call for a minimum compensating balance of 12 percent. How much will CNN have to borrow to obtain the needed cash?

If net working capital became negative, this is considered _____.

In the course of normal operations, firms incur short-term liabilities that partially offset the need to fund working capital assets. This is generally called automatic financing.

Which of the following is true regarding pledged receivables?

The financial managers have little control over the level of current assets associated with a given volume of sales.

A firm's credit policy affects both its credit sales and its ACP.

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

If a vendor's invoice states terms of sale of 2/10 net 30, the implied annual cost of interest from foregoing the discount would be:

Under which of the following inventory financing arrangements does the borrower remain in physical control of the inventory?

If a vendor's invoice states terms of sale of 1/10 net 30, and the buyer fails to take the prompt payment discount, it is effectively borrowing money at an annual rate of:

Criteria for extending credit to new customers usually involve the following issues: (1)length of time in business (2)adequate net worth (3)an acceptable current ratio (4)a "clean" credit record.

Terms of sale of 2/10 net 30 mean:

Explain marketable securities. How are they useful to companies?

In the context of working capital an accrual is not:

If a firm issues $5 million of commercial paper with a maturity of three months at an annual interest rate of 8%, the proceeds of the issue are:

Which of the following is not a reason that firms typically hold cash?

A bank's ____ is the rate it charges its largest and most creditworthy corporate customers.

Which of the following is not a cost related to the extension of credit to customers?

Which of the following creates spontaneous financing?

In a pledging agreement the borrower is obligated for default on any account receivable.

Relaxation of credit policy normally involves an expansion of investment in accounts receivable.

CNN Corporation needs $750,000 and plans to borrow from its bank under the terms of its line-of-credit arrangement. These terms call for a minimum compensating balance of 12 percent. How much will CNN have to borrow to obtain the needed cash?

If net working capital became negative, this is considered _____.

In the course of normal operations, firms incur short-term liabilities that partially offset the need to fund working capital assets. This is generally called automatic financing.

Which of the following is true regarding pledged receivables?

The financial managers have little control over the level of current assets associated with a given volume of sales.

A firm's credit policy affects both its credit sales and its ACP.

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