Question 1

The outright sale of receivables by firms to financial organizations is called factoring.

Accepted Answer

A) True 
 B)False  True

Question 2

Banks often require borrowers to maintain an average amount in their checking accounts as a requirement of getting a loan. This is known as:

Accepted Answer

A)  a general line of credit. 
B)  guaranteed credit. 
C)  commercial paper. 
D)  a compensating balance. 
E)  a pledged receivable. 
A)  a general line of credit. 
B)  guaranteed credit. 
C)  commercial paper. 
D)  a compensating balance. 
E)  a pledged receivable. D

Question 3

For a firm, the receivables turnover is 33.5, the closing inventory is $120,000, and the accounts payable balance is $52,000. Assuming there are 360 days in a year, the receivables collection period is:

Accepted Answer

A)  19.23 days. 
B)  13.77 days. 
C)  14.56 days. 
D)  12.25 days. 
E)  10.75 days. 
A)  19.23 days. 
B)  13.77 days. 
C)  14.56 days. 
D)  12.25 days. 
E)  10.75 days. E

Question 4

In a general line of credit:

Accepted Answer

A)  the bank does not charge a commitment fee. 
B)  the bank charges a commitment fee on the total amount. 
C)  the bank charges a commitment fee on the used balance. 
D)  the bank charges a commitment fee on the unused balance. 
E)  the commitment fee charged is the same as that in a revolving credit agreement. 
A)  the bank does not charge a commitment fee. 
B)  the bank charges a commitment fee on the total amount. 
C)  the bank charges a commitment fee on the used balance. 
D)  the bank charges a commitment fee on the unused balance. 
E)  the commitment fee charged is the same as that in a revolving credit agreement.

Question 5

The current asset financing policy that calls for matching the maturities of assets and liabilities is known as the:

Accepted Answer

A)  moderate approach. 
B)  conservative approach. 
C)  aggressive approach. 
D)  permanent approach. 
E)  temporary approach. 
A)  moderate approach. 
B)  conservative approach. 
C)  aggressive approach. 
D)  permanent approach. 
E)  temporary approach.

Question 6

Which of the following statements is true of U.S. firms, financial institutions, and banking organizations?

Accepted Answer

A)  U.S. firms had much higher growth rates than their European counterparts. 
B)  U.S. firms follow less conservative working capital policies than European firms. 
C)  Corporations in the U.S. use significantly greater proportions of long-term financing than European firms. 
D)  U.S. financial institutions traditionally have been subject to less restrictions and regulations than banking organizations in other countries. 
E)  U.S. banking organizations often have very close relationships with the firms that borrow from them, which generally results in a greater willingness to provide more short-term, risky debt than we observe in European banks. 
A)  U.S. firms had much higher growth rates than their European counterparts. 
B)  U.S. firms follow less conservative working capital policies than European firms. 
C)  Corporations in the U.S. use significantly greater proportions of long-term financing than European firms. 
D)  U.S. financial institutions traditionally have been subject to less restrictions and regulations than banking organizations in other countries. 
E)  U.S. banking organizations often have very close relationships with the firms that borrow from them, which generally results in a greater willingness to provide more short-term, risky debt than we observe in European banks.

Question 7

The following information relates to Dane Corporation. Inventory conversion period 55.8 days
Days sales outstanding 23.9 days
Days payables outstanding 32.5 days
The cash conversion cycle of the company is:

Accepted Answer

A)  56.4 days. 
B)  112.2 days. 
C)  79.7 days. 
D)  64.4 days. 
E)  47.2 days. 
A)  56.4 days. 
B)  112.2 days. 
C)  79.7 days. 
D)  64.4 days. 
E)  47.2 days.

Question 8

Commercial paper is similar to a discount interest loan.

Accepted Answer

A) True 
 B)False

Question 9

Gripp Corporation is planning to borrow $780,000 from its bank to pay one of its suppliers. The bank requires a compensating balance of 15%. Since Gripp currently holds no funds at the lending bank, it has borrowed enough to cover for the compensating balance as well. To pay its suppliers, Gripp actually needs:

Accepted Answer

A)  $750,000. 
B)  $720,000. 
C)  $665,000. 
D)  $663,000. 
E)  $723,000. 
A)  $750,000. 
B)  $720,000. 
C)  $665,000. 
D)  $663,000. 
E)  $723,000.

Question 10

The following information relates to LoGo Corporation. Accounts payable $650,000
Credit purchases $21,000,000
Assuming there are 360 days in a year, the payables deferral period for the company is:

Accepted Answer

A)  21.45 days. 
B)  11.14 days. 
C)  18.56 days. 
D)  25.42 days. 
E)  15.89 days. 
A)  21.45 days. 
B)  11.14 days. 
C)  18.56 days. 
D)  25.42 days. 
E)  15.89 days.

Question 11

Lima Corporation makes purchases on credit, and its suppliers grant it credit terms of 2/15, net 30. Assuming there are 360 days in a year, the effective annual rate of non-free trade credit if the firm did not take discounts but did pay on the due date is:

Accepted Answer

A)  17.53%. 
B)  78.87%. 
C)  52.78%. 
D)  27.42%. 
E)  62.36%. 
A)  17.53%. 
B)  78.87%. 
C)  52.78%. 
D)  27.42%. 
E)  62.36%.

Question 12

An arrangement in which a bank agrees to lend up to a specified maximum amount of funds during a designated period is called:

Accepted Answer

A)  a line of credit. 
B)  commercial paper. 
C)  trade credit. 
D)  a promissory note. 
E)  a factoring arrangement. 
A)  a line of credit. 
B)  commercial paper. 
C)  trade credit. 
D)  a promissory note. 
E)  a factoring arrangement.

Question 13

The following information relates to Musk Corporation. Inventory conversion period 15 days
Closing inventory $28,000
Assuming there are 360 days in a year, what is the company's total cost of goods sold during the year? (Round your answer to two decimal places.)

Accepted Answer

A)  $550,000 
B)  $475,000 
C)  $750,000 
D)  $672,000 
E)  $580,000 
A)  $550,000 
B)  $475,000 
C)  $750,000 
D)  $672,000 
E)  $580,000

Question 14

Pelican Corporation receives a ten-month $200,000 discount interest loan with a 14 percent quoted (simple) interest rate. What is the annual percentage interest rate for the loan? (Round your answer to two decimal places.)

Accepted Answer

A)  15.54% 
B)  14.96% 
C)  15.85% 
D)  16.08% 
E)  14.75% 
A)  15.54% 
B)  14.96% 
C)  15.85% 
D)  16.08% 
E)  14.75%

Question 15

The maturity matching approach calls for matching the maturities of:

Accepted Answer

A)  long-term liabilities and equity. 
B)  long-term liabilities and short-term liabilities. 
C)  long-term assets and short-term assets. 
D)  assets and equity. 
E)  assets and liabilities. 
A)  long-term liabilities and equity. 
B)  long-term liabilities and short-term liabilities. 
C)  long-term assets and short-term assets. 
D)  assets and equity. 
E)  assets and liabilities.

Question 16

Recurring short-term liabilities such as wages and taxes that change spontaneously with operations are known as:

Accepted Answer

A)  trade credits. 
B)  accruals. 
C)  promissory notes. 
D)  lines of credit. 
E)  commercial paper. 
A)  trade credits. 
B)  accruals. 
C)  promissory notes. 
D)  lines of credit. 
E)  commercial paper.

Question 17

Accruals are considered:

Accepted Answer

A)  adjustable rate debt since a varying rate of interest is paid on them. 
B)  expensive debt since high rates of interest are paid on them. 
C)  cheap debt since low rates of interest are paid on them. 
D)  free debt since no interest is paid on them. 
E)  fixed-rate debt since a constant rate of interest is paid on them. 
A)  adjustable rate debt since a varying rate of interest is paid on them. 
B)  expensive debt since high rates of interest are paid on them. 
C)  cheap debt since low rates of interest are paid on them. 
D)  free debt since no interest is paid on them. 
E)  fixed-rate debt since a constant rate of interest is paid on them.

Question 18

The following information relates to Gear Corporation. Inventory conversion period 68.2 days
Receivables collection period 35.8 days
Payables deferral period 24.6 days
The cash conversion cycle of the company is:

Accepted Answer

A)  128.6 days. 
B)  79.4 days. 
C)  57.0 days. 
D)  79.2 days. 
E)  60.4 days. 
A)  128.6 days. 
B)  79.4 days. 
C)  57.0 days. 
D)  79.2 days. 
E)  60.4 days.

Question 19

A document specifying the terms and conditions of a loan, including the amount, interest rate, and repayment schedule is called a(n):

Accepted Answer

A)  promissory note. 
B)  factoring agreement. 
C)  commercial paper agreement. 
D)  trade credit note. 
E)  unsecured note. 
A)  promissory note. 
B)  factoring agreement. 
C)  commercial paper agreement. 
D)  trade credit note. 
E)  unsecured note.

Question 20

The following information relates to RAM Corporation. Accounts receivable $160,000
Total credit sales $2,500,000
Assuming there are 360 days in a year, the receivables collection period of the company is:

Accepted Answer

A)  23.04 days. 
B)  21.56 days. 
C)  25.42 days. 
D)  22.59 days. 
E)  24.60 days. 
A)  23.04 days. 
B)  21.56 days. 
C)  25.42 days. 
D)  22.59 days. 
E)  24.60 days.

The outright sale of receivables by firms to financial organizations is called factoring.

Banks often require borrowers to maintain an average amount in their checking accounts as a requirement of getting a loan. This is known as:

For a firm, the receivables turnover is 33.5, the closing inventory is $120,000, and the accounts payable balance is $52,000. Assuming there are 360 days in a year, the receivables collection period is:

In a general line of credit:

The current asset financing policy that calls for matching the maturities of assets and liabilities is known as the:

Which of the following statements is true of U.S. firms, financial institutions, and banking organizations?

The following information relates to Dane Corporation. Inventory conversion period 55.8 days Days sales outstanding 23.9 days Days payables outstanding 32.5 days The cash conversion cycle of the company is:

Commercial paper is similar to a discount interest loan.

The following information relates to LoGo Corporation. Accounts payable $650,000 Credit purchases $21,000,000 Assuming there are 360 days in a year, the payables deferral period for the company is:

Lima Corporation makes purchases on credit, and its suppliers grant it credit terms of 2/15, net 30. Assuming there are 360 days in a year, the effective annual rate of non-free trade credit if the firm did not take discounts but did pay on the due date is:

An arrangement in which a bank agrees to lend up to a specified maximum amount of funds during a designated period is called:

The following information relates to Musk Corporation. Inventory conversion period 15 days Closing inventory $28,000 Assuming there are 360 days in a year, what is the company's total cost of goods sold during the year? (Round your answer to two decimal places.)

Pelican Corporation receives a ten-month $200,000 discount interest loan with a 14 percent quoted (simple) interest rate. What is the annual percentage interest rate for the loan? (Round your answer to two decimal places.)

The maturity matching approach calls for matching the maturities of:

Recurring short-term liabilities such as wages and taxes that change spontaneously with operations are known as:

Accruals are considered:

The following information relates to Gear Corporation. Inventory conversion period 68.2 days Receivables collection period 35.8 days Payables deferral period 24.6 days The cash conversion cycle of the company is:

A document specifying the terms and conditions of a loan, including the amount, interest rate, and repayment schedule is called a(n):

The following information relates to RAM Corporation. Accounts receivable $160,000 Total credit sales $2,500,000 Assuming there are 360 days in a year, the receivables collection period of the company is:

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debtcharacteristics and Valuation

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Assets

Financial Planning and Control

Filters

Exam 14: Managing Short-Term Financing Liabilities

The outright sale of receivables by firms to financial organizations is called factoring.

Banks often require borrowers to maintain an average amount in their checking accounts as a requirement of getting a loan. This is known as:

For a firm, the receivables turnover is 33.5, the closing inventory is $120,000, and the accounts payable balance is $52,000. Assuming there are 360 days in a year, the receivables collection period is:

In a general line of credit:

The current asset financing policy that calls for matching the maturities of assets and liabilities is known as the:

Which of the following statements is true of U.S. firms, financial institutions, and banking organizations?

The following information relates to Dane Corporation. Inventory conversion period 55.8 days Days sales outstanding 23.9 days Days payables outstanding 32.5 days The cash conversion cycle of the company is:

Commercial paper is similar to a discount interest loan.

The following information relates to LoGo Corporation. Accounts payable $650,000 Credit purchases $21,000,000 Assuming there are 360 days in a year, the payables deferral period for the company is:

Lima Corporation makes purchases on credit, and its suppliers grant it credit terms of 2/15, net 30. Assuming there are 360 days in a year, the effective annual rate of non-free trade credit if the firm did not take discounts but did pay on the due date is:

An arrangement in which a bank agrees to lend up to a specified maximum amount of funds during a designated period is called:

The following information relates to Musk Corporation. Inventory conversion period 15 days Closing inventory $28,000 Assuming there are 360 days in a year, what is the company's total cost of goods sold during the year? (Round your answer to two decimal places.)

Pelican Corporation receives a ten-month $200,000 discount interest loan with a 14 percent quoted (simple) interest rate. What is the annual percentage interest rate for the loan? (Round your answer to two decimal places.)

The maturity matching approach calls for matching the maturities of:

Recurring short-term liabilities such as wages and taxes that change spontaneously with operations are known as:

Accruals are considered:

The following information relates to Gear Corporation. Inventory conversion period 68.2 days Receivables collection period 35.8 days Payables deferral period 24.6 days The cash conversion cycle of the company is:

A document specifying the terms and conditions of a loan, including the amount, interest rate, and repayment schedule is called a(n):

The following information relates to RAM Corporation. Accounts receivable $160,000 Total credit sales $2,500,000 Assuming there are 360 days in a year, the receivables collection period of the company is:

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Bonds Debtcharacteristics and Valuation

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Assets

Financial Planning and Control

Filters