Question 1

Unlike accruals, the volume of trade payables is controllable by the financial manager.

Accepted Answer

A) True 
 B)False

Question 2

The three broad issues involved in receivables policy are (1)which customers should receive credit and how much, (2)what terms of sale (due dates and discounts)should be extended to customers, and (3)how should customers who don't pay on time be handled.

Accepted Answer

A) True 
 B)False

Question 3

A compensating balance arrangement between a firm and its bank:

Accepted Answer

A) increases the return on the loan to the bank. 
B) forces the firm to keep a minimum balance in its checking account. 
C) increases the cost of the loan to the firm. 
D) All of the above 
A) increases the return on the loan to the bank. 
B) forces the firm to keep a minimum balance in its checking account. 
C) increases the cost of the loan to the firm. 
D) All of the above

Question 4

Which of the following is not a method of accelerating cash receipts?

Accepted Answer

A) Lock box systems 
B) Wire transfers 
C) Float management 
D) Concentration banking 
A) Lock box systems 
B) Wire transfers 
C) Float management 
D) Concentration banking

Question 5

Accruals represent spontaneous financing from things such as purchasing inventory on credit.

Accepted Answer

A) True 
 B)False

Question 6

Bank credit is a minor source of short-term financing for firms.

Accepted Answer

A) True 
 B)False

Question 7

More aggressive collection procedures will generally reduce credit sales.

Accepted Answer

A) True 
 B)False

Question 8

Marketable securities are liquid investments that can be held instead of cash but do not earn any return.

Accepted Answer

A) True 
 B)False

Question 9

Schubert Manufacturing borrows from the bank at 8% with a .30% commitment fee on any unused funds. The company borrowed $4 million last month with another $6 million available on their revolving line of credit.   Fifteen days into the new month the company borrowed another $2 million.   What is the firm's interest expense for the month? Assume a 30 day month. ​

Accepted Answer

A) $35,500​ 
B) $33,500​ 
C) $35,000​ 
D) $34,000​ 
A) $35,500​ 
B) $33,500​ 
C) $35,000​ 
D) $34,000​

Question 10

Which of the following transactions will cause net working capital to decrease?

Accepted Answer

A) Inventory is purchased on credit. 
B) The firm declares and pays a cash dividend. 
C) An account payable is paid with cash. 
D) Inventory is sold for cash. 
E) None of the above would cause net working capital to decrease. 
A) Inventory is purchased on credit. 
B) The firm declares and pays a cash dividend. 
C) An account payable is paid with cash. 
D) Inventory is sold for cash. 
E) None of the above would cause net working capital to decrease.

Question 11

Which of the following is not a source of short-term financing?

Accepted Answer

A) Spontaneous financing from payables and accruals 
B) Unsecured bank loans 
C) Five year bonds with a call feature exercisable within one year 
D) Commercial paper 
A) Spontaneous financing from payables and accruals 
B) Unsecured bank loans 
C) Five year bonds with a call feature exercisable within one year 
D) Commercial paper

Question 12

Which of the following describe commercial paper instruments?

Accepted Answer

A) They always mature within six months. 
B) They typically have rates below the prime rate. 
C) They typically require compensating balances. 
D) a and b 
A) They always mature within six months. 
B) They typically have rates below the prime rate. 
C) They typically require compensating balances. 
D) a and b

Question 13

Inventory carrying costs include:

Accepted Answer

A) the costs of storage, security, taxes, and insurance. 
B) the costs of financing and obsolescence. 
C) the costs of spoilage, shrinkage, and breakage. 
D) All of the above 
A) the costs of storage, security, taxes, and insurance. 
B) the costs of financing and obsolescence. 
C) the costs of spoilage, shrinkage, and breakage. 
D) All of the above

Question 14

Loosening a firm's credit standards is likely to result in:

Accepted Answer

A) lower sales. 
B) smaller bad-debt losses. 
C) a shorter average collection period. 
D) None of the above 
A) lower sales. 
B) smaller bad-debt losses. 
C) a shorter average collection period. 
D) None of the above

Question 15

If a bank lends at 10% but requires a 12% compensating balance, what is the effective interest rate on the loan?

Accepted Answer

A) 10.0% 
B) 10.8% 
C) 11.4% 
D) 12.0% 
E) 12.6% 
A) 10.0% 
B) 10.8% 
C) 11.4% 
D) 12.0% 
E) 12.6%

Question 16

Firms are required to commit capital to funding cash balances just as they commit capital to fund inventory, receivables, and fixed assets.

Accepted Answer

A) True 
 B)False

Question 17

A ____ gives the lender a claim against all inventories held by the borrower.

Accepted Answer

A) warehousing arrangement 
B) chattel mortgage agreement 
C) trust receipt 
D) blanket lien 
A) warehousing arrangement 
B) chattel mortgage agreement 
C) trust receipt 
D) blanket lien

Question 18

The interest rate on commercial paper normally exceeds the prime rate.

Accepted Answer

A) True 
 B)False

Question 19

Net working capital is defined as:

Accepted Answer

A) current assets minus current liabilities. 
B) working capital minus short-term debt. 
C) current assets plus current liabilities. 
D) All of the above 
A) current assets minus current liabilities. 
B) working capital minus short-term debt. 
C) current assets plus current liabilities. 
D) All of the above

Question 20

The primary objective of offering a cash discount is to:

Accepted Answer

A) reduce the investment in receivables. 
B) reduce the number of bad checks received from customers. 
C) encourage customers to place their orders prior to the peak selling period. 
D) None of the above 
A) reduce the investment in receivables. 
B) reduce the number of bad checks received from customers. 
C) encourage customers to place their orders prior to the peak selling period. 
D) None of the above

Unlike accruals, the volume of trade payables is controllable by the financial manager.

The three broad issues involved in receivables policy are (1)which customers should receive credit and how much, (2)what terms of sale (due dates and discounts)should be extended to customers, and (3)how should customers who don't pay on time be handled.

A compensating balance arrangement between a firm and its bank:

Which of the following is not a method of accelerating cash receipts?

Accruals represent spontaneous financing from things such as purchasing inventory on credit.

Bank credit is a minor source of short-term financing for firms.

More aggressive collection procedures will generally reduce credit sales.

Marketable securities are liquid investments that can be held instead of cash but do not earn any return.

Which of the following transactions will cause net working capital to decrease?

Which of the following is not a source of short-term financing?

Which of the following describe commercial paper instruments?

Inventory carrying costs include:

Loosening a firm's credit standards is likely to result in:

If a bank lends at 10% but requires a 12% compensating balance, what is the effective interest rate on the loan?

Firms are required to commit capital to funding cash balances just as they commit capital to fund inventory, receivables, and fixed assets.

A ____ gives the lender a claim against all inventories held by the borrower.

The interest rate on commercial paper normally exceeds the prime rate.

Net working capital is defined as:

The primary objective of offering a cash discount is to:

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

Unlike accruals, the volume of trade payables is controllable by the financial manager.

The three broad issues involved in receivables policy are (1)which customers should receive credit and how much, (2)what terms of sale (due dates and discounts)should be extended to customers, and (3)how should customers who don't pay on time be handled.

A compensating balance arrangement between a firm and its bank:

Which of the following is not a method of accelerating cash receipts?

Accruals represent spontaneous financing from things such as purchasing inventory on credit.

Bank credit is a minor source of short-term financing for firms.

More aggressive collection procedures will generally reduce credit sales.

Marketable securities are liquid investments that can be held instead of cash but do not earn any return.

Which of the following transactions will cause net working capital to decrease?

Which of the following is not a source of short-term financing?

Which of the following describe commercial paper instruments?

Inventory carrying costs include:

Loosening a firm's credit standards is likely to result in:

If a bank lends at 10% but requires a 12% compensating balance, what is the effective interest rate on the loan?

Firms are required to commit capital to funding cash balances just as they commit capital to fund inventory, receivables, and fixed assets.

A ____ gives the lender a claim against all inventories held by the borrower.

The interest rate on commercial paper normally exceeds the prime rate.

Net working capital is defined as:

The primary objective of offering a cash discount is to:

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