Question 1

Firm's can meet its financing needs by using a matching approach for financing. What is the matching approach?

Accepted Answer

Matching approach is one in which the ma

Question 2

Factoring accounts receivable is done:

Accepted Answer

A)  on a default basis 
B)  on a consignment basis 
C)  on an interest only basis 
D)  on a non-recourse basis 
A)  on a default basis 
B)  on a consignment basis 
C)  on an interest only basis 
D)  on a non-recourse basis

Question 3

The length of the operating cycle is equal to the length of the

Accepted Answer

A)  inventory conversion period 
B)  receivables conversion period 
C)  cash conversion period 
D)  a plus b 
A)  inventory conversion period 
B)  receivables conversion period 
C)  cash conversion period 
D)  a plus b

Question 4

Which of the following factors affect the firm's level of investment in working capital?

Accepted Answer

A)  the length of the firm's operating cycle 
B)  the firm's sales level 
C)  the firm's inventory and credit policies 
D)  all of the above 
A)  the length of the firm's operating cycle 
B)  the firm's sales level 
C)  the firm's inventory and credit policies 
D)  all of the above

Question 5

The size and nature of a firm's investment in current assets is a function of a number of different factors including all of the following except

Accepted Answer

A)  how efficient the firm manages its fixed assets 
B)  the length of the operating cycle 
C)  the sales level 
D)  credit policies 
A)  how efficient the firm manages its fixed assets 
B)  the length of the operating cycle 
C)  the sales level 
D)  credit policies

Question 6

If a firm shows a profit on the quarterly income statement, then

Accepted Answer

A)  there will be no need for additional financing 
B)  the firm may need additional financing 
C)  the firm will increase its cash balance 
D)  all the above may be correct 
A)  there will be no need for additional financing 
B)  the firm may need additional financing 
C)  the firm will increase its cash balance 
D)  all the above may be correct

Question 7

Crystal Oil has $9 million in accounts payable, $1.8 in salaries and taxes payable, and $10.4 in other current liabilities. If Crystal Oil had a cost of sales of $54 million and selling, general, and administrative expense of $18 million, what is the length of its payables deferral period?

Accepted Answer

A)  107.47 days 
B)  73.02 days 
C)  54.75 days 
D)  45.63 days 
A)  107.47 days 
B)  73.02 days 
C)  54.75 days 
D)  45.63 days

Question 8

Net working capital represents:

Accepted Answer

A)  the amount of current assets financed by noncurrent sources of funds. 
B)  the difference between current assets and long-term liabilities 
C)  the difference between current assets and fixed assets 
D)  a and b 
A)  the amount of current assets financed by noncurrent sources of funds. 
B)  the difference between current assets and long-term liabilities 
C)  the difference between current assets and fixed assets 
D)  a and b

Question 9

The size of a firm's investment in current assets is a function of all of the following factors except

Accepted Answer

A)  sales level 
B)  inventory policies 
C)  credit policies 
D)  stockholders equity 
A)  sales level 
B)  inventory policies 
C)  credit policies 
D)  stockholders equity

Question 10

Which of the following working capital financing policies subjects the firm to the greatest risk?

Accepted Answer

A)  financing fluctuating current assets with long-term debt 
B)  financing permanent current assets with long-term debt 
C)  financing permanent current assets with short-term debt 
D)  financing fluctuating current assets with short-term debt 
A)  financing fluctuating current assets with long-term debt 
B)  financing permanent current assets with long-term debt 
C)  financing permanent current assets with short-term debt 
D)  financing fluctuating current assets with short-term debt

Question 11

Cryo-vac expects sales to increase 20% next year from the current level of $5,000,000. The firm has current assets of $1,000,000 and fixed assets of $1,500,000. Cryo-vac has current liabilities of $750,000 of which $300,000 are in notes payable. What additional financing will Cryo-vac need to support the expected sales increase if its profit margin is 8% and the firm expects to pay out $200,000 in dividends? An increase in net fixed assets of $300,000 will be required.

Accepted Answer

A)  $130,000 
B)  $ 70,000 
C)  Surplus of $70,000 
D)  $270,000 
A)  $130,000 
B)  $ 70,000 
C)  Surplus of $70,000 
D)  $270,000

Question 12

What is financial forecasting?

Accepted Answer

Financial forecasting allows a firm to e

Question 13

Renfro Industries balance sheet for December 31, 20x3 is as follows:  
What is Renfro's net working capital at the end of 20x3?

Accepted Answer

A)  -$8 million 
B)  $36 million 
C)  $92 million 
D)  $172 million 
A)  -$8 million 
B)  $36 million 
C)  $92 million 
D)  $172 million

Question 14

All other things being equal, a policy of financing its assets with a relatively ____ proportion of short-term debt will tend to result in ____ expected after-tax earnings for the firm.

Accepted Answer

A)  large, lower 
B)  constant, higher 
C)  constant, lower 
D)  large, higher 
A)  large, lower 
B)  constant, higher 
C)  constant, lower 
D)  large, higher

Question 15

Historically, the yield curve has generally been ____, which indicates that long-term interest rates usually have been ____ short-term interest rates.

Accepted Answer

A)  upward sloping, lower than 
B)  downward sloping, higher than 
C)  upward sloping, higher than 
D)  level, about equal to 
A)  upward sloping, lower than 
B)  downward sloping, higher than 
C)  upward sloping, higher than 
D)  level, about equal to

Question 16

When pledging accounts receivables, which of the following statements is/are correct?
I. Pledging requires permission of the SEC.
II. In pledging accounts receivables, the firm loses title to the receivables and they are no longer listed on the balance sheet.

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 17

Laserscope has an inventory conversion period of 45 days, a receivables conversion period of 42 days, and a payables deferral period of 51 days. What is the length of its cash conversion cycle?

Accepted Answer

A)  54 days 
B)  36 days 
C)  48 days 
D)  can determine with more information 
A)  54 days 
B)  36 days 
C)  48 days 
D)  can determine with more information

Question 18

Which of the following assets (if any) are not part of a firm's working capital investment?

Accepted Answer

A)  cash 
B)  accounts receivable 
C)  inventory 
D)  none of the above 
A)  cash 
B)  accounts receivable 
C)  inventory 
D)  none of the above

Question 19

Gates Industries balance sheet and income statement for the year ending December 31, 1978 are as follows:  
 
*Note: Average inventories also equal $12.0 (million).
Determine the length of the firm's cash conversion cycle.

Accepted Answer

A)  102.2 days 
B)  29.2 days 
C)  39.6 days 
D)  none of the above/cannot be computed 
A)  102.2 days 
B)  29.2 days 
C)  39.6 days 
D)  none of the above/cannot be computed

Question 20

Which of the following factors does not directly affect the firm's level of investment in working capital?

Accepted Answer

A)  the firm's inventory and credit policies 
B)  the age of the firm's plant and equipment 
C)  the firm's sales level 
D)  the length of the firm's operating cycle 
A)  the firm's inventory and credit policies 
B)  the age of the firm's plant and equipment 
C)  the firm's sales level 
D)  the length of the firm's operating cycle

Exam 16: Working Capital Policy and Short-term Financing

Firm's can meet its financing needs by using a matching approach for financing. What is the matching approach?

Factoring accounts receivable is done:

The length of the operating cycle is equal to the length of the

Which of the following factors affect the firm's level of investment in working capital?

The size and nature of a firm's investment in current assets is a function of a number of different factors including all of the following except

If a firm shows a profit on the quarterly income statement, then

Crystal Oil has $9 million in accounts payable, $1.8 in salaries and taxes payable, and $10.4 in other current liabilities. If Crystal Oil had a cost of sales of $54 million and selling, general, and administrative expense of $18 million, what is the length of its payables deferral period?

Net working capital represents:

The size of a firm's investment in current assets is a function of all of the following factors except

Which of the following working capital financing policies subjects the firm to the greatest risk?

What is financial forecasting?

Renfro Industries balance sheet for December 31, 20x3 is as follows: What is Renfro's net working capital at the end of 20x3?

All other things being equal, a policy of financing its assets with a relatively ____ proportion of short-term debt will tend to result in ____ expected after-tax earnings for the firm.

Historically, the yield curve has generally been ____, which indicates that long-term interest rates usually have been ____ short-term interest rates.

When pledging accounts receivables, which of the following statements is/are correct? I. Pledging requires permission of the SEC. II. In pledging accounts receivables, the firm loses title to the receivables and they are no longer listed on the balance sheet.

Laserscope has an inventory conversion period of 45 days, a receivables conversion period of 42 days, and a payables deferral period of 51 days. What is the length of its cash conversion cycle?

Which of the following assets (if any) are not part of a firm's working capital investment?

Gates Industries balance sheet and income statement for the year ending December 31, 1978 are as follows: *Note: Average inventories also equal $12.0 (million). Determine the length of the firm's cash conversion cycle.

Which of the following factors does not directly affect the firm's level of investment in working capital?

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

Fixed Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Capital Structure Management in Practice

Dividend Policy

The Management of Cash and Marketable Securities

Management of Accounts Receivable and Inventories

Lease and Intermediate-term Financing

Financing With Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Continuous Compounding and Discounting

Mutually Exclusive Investments Having Unequal Lives

Breakeven Analysis

Bond Refunding Analysis

Taxes

Filters

All other things being equal, a policy of financing its assets with a relatively proportion of short-term debt will tend to result in expected after-tax earnings for the firm.

Historically, the yield curve has generally been , which indicates that long-term interest rates usually have been short-term interest rates.