Question 1

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

Accepted Answer

A) self-liquidating approach. 
B) conservative approach. 
C) aggressive approach. 
D) permanent current ratio approach. 
E) temporary net working capital approach. 
A) self-liquidating approach. 
B) conservative approach. 
C) aggressive approach. 
D) permanent current ratio approach. 
E) temporary net working capital approach. A

Question 2

At the extreme, a firm that adheres to the conservative approach to finance current assets will finance all of its seasonal needs with long-term financing alternatives, thereby eliminating the need to use short-term financing. Such a firm will have extra permanent funds during off-peak periods, allowing it to store liquidity in the form of short-term investments during the off-season.

Accepted Answer

A) True 
 B)False  True

Question 3

All else equal, when a firm purchases raw materials on credit from its supplier, which of the following accounts is affected?

Accepted Answer

A) Accruals 
B) Cash 
C) Accounts payable 
D) Accounts receivable 
E) Notes payable 
A) Accruals 
B) Cash 
C) Accounts payable 
D) Accounts receivable 
E) Notes payable C

Question 4

A(n) ______ is a type of legal claim (lien) against a firm's inventory when it is used as collateral for a loan and the goods are relatively high priced, slow moving, and easy to identify individually using serial numbers or other distinguishing characteristics.

Accepted Answer

A) note payable 
B) trust receipt 
C) blanket lien 
D) bond indenture 
E) recourse inventories order 
A) note payable 
B) trust receipt 
C) blanket lien 
D) bond indenture 
E) recourse inventories order

Question 5

The task of managing working capital accounts in multinational corporations is far simpler than in purely domestic firms because domestic firms are not affected by different languages, different cultures, different political environments, different economic conditions, and so forth.

Accepted Answer

A) True 
 B)False

Question 6

The following information relates to RAM Corporation:

$\begin{array} { l c } 
\text { Accounts receivable } & \$ 160,000 \
\text { Total credit sales } & \$ 2,500,000 \
\text { Accounts payable } & \$ 220,000
\end{array}$

What is RAM's receivables collection period (DSO)? In your computations, assume there are 360 days in a year.

Accepted Answer

A) 23.04 days 
B) 21.56 days 
C) 15.62 days 
D) 22.50 days 
E) 160.00 days 
A) 23.04 days 
B) 21.56 days 
C) 15.62 days 
D) 22.50 days 
E) 160.00 days

Question 7

Yesterday, Mars Inc. borrowed $225,000 from its bank at a simple interest rate of 12 percent. The loan is for nine months and the loan agreement requires the interest to be added to the amount borrowed and the total amount to be repaid in monthly installments. What is the loan's approximate annual percentage rate (APR).

Accepted Answer

A) 17.59% 
B) 16.20% 
C) 21.60% 
D) 15.83% 
E) 16.99% 
A) 17.59% 
B) 16.20% 
C) 21.60% 
D) 15.83% 
E) 16.99%

Question 8

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

Which of the following is the cash conversion cycle of the company?

Accepted Answer

A) -0.6 days 
B) 112.2 days 
C) 79.7 days 
D) 64.4 days 
E) 47.2 days 
A) -0.6 days 
B) 112.2 days 
C) 79.7 days 
D) 64.4 days 
E) 47.2 days

Question 9

The following information relates to Musk Corporation:

Nventory conversion period       15 days
Average inventory                      $28,000              
Average accounts payable          $25,000

What is Musk's cost of goods sold during the year? In your computations, assume there are 360 days in a year.

Accepted Answer

A) $550,000 
B) $420,000 
C) $750,000 
D) $672,000 
E) $580,008 
A) $550,000 
B) $420,000 
C) $750,000 
D) $672,000 
E) $580,008

Question 10

Which of the following mathematical equations is used to calculate days sales outstanding (DSO)?

Accepted Answer

A) Days sales outstanding (DSO) = Receivables + Daily credit sales 
B) Days sales outstanding (DSO) = Payables + Daily credit sales 
C) Days sales outstanding (DSO) = Receivables/Cost of goods sold 
D) Days sales outstanding (DSO) = Accounts payable/Cost of goods sold 
E) Days sales outstanding (DSO) = Receivables/Daily credit sales 
A) Days sales outstanding (DSO) = Receivables + Daily credit sales 
B) Days sales outstanding (DSO) = Payables + Daily credit sales 
C) Days sales outstanding (DSO) = Receivables/Cost of goods sold 
D) Days sales outstanding (DSO) = Accounts payable/Cost of goods sold 
E) Days sales outstanding (DSO) = Receivables/Daily credit sales

Question 11

The inventory conversion period of a firm is equivalent to the average age of its inventory.

Accepted Answer

A) True 
 B)False

Question 12

The inventory conversion period refers to the average length of time required:

Accepted Answer

A) to convert raw materials into finished goods. 
B) to sell all the finished goods once the production process is completed. 
C) to convert materials into finished goods and then to sell those goods. 
D) to collect cash following the sale of inventory. 
E) to provide payment in cash for the purchase of raw materials and labor. 
A) to convert raw materials into finished goods. 
B) to sell all the finished goods once the production process is completed. 
C) to convert materials into finished goods and then to sell those goods. 
D) to collect cash following the sale of inventory. 
E) to provide payment in cash for the purchase of raw materials and labor.

Question 13

Venus Inc. recently borrowed $750,000 from its bank at a simple interest rate of 10 percent. The loan is for six months. The loan agreement requires the interest to be added to the amount borrowed and the total amount to be repaid in monthly installments. What is the loan's effective annual rate (EAR)?

Accepted Answer

A) 18.18% 
B) 17.50% 
C) 18.32% 
D) 14.12% 
E) 16.94% 
A) 18.18% 
B) 17.50% 
C) 18.32% 
D) 14.12% 
E) 16.94%

Question 14

Kerry Corporation must pay $500,000 to its supplier. Kerry's bank has offered a 270-day simple interest loan with a quoted interest rate of 12 percent. The bank requires a 20 percent compensating balance requirement on business loans. If Kerry currently holds no funds at the lending bank, what is the loan's effective annual rate (rEAR)? In your computations, assume there are 360 days in a year.

Accepted Answer

A) 11.25% 
B) 15.00% 
C) 12.00% 
D) 15.27% 
E) 11.35% 
A) 11.25% 
B) 15.00% 
C) 12.00% 
D) 15.27% 
E) 11.35%

Question 15

Accruals represent a form of:

Accepted Answer

A) adjustable-rate debt because a varying rate of interest is paid on the outstanding balance (amount). 
B) expensive debt because high rates of interest are paid on the outstanding balance. 
C) cheap debt because low rates of interest are paid on the outstanding balance. 
D) free debt because no explicit interest is paid on the outstanding balance. 
E) fixed-rate debt because a fixed rate of interest is paid on the outstanding balance. 
A) adjustable-rate debt because a varying rate of interest is paid on the outstanding balance (amount). 
B) expensive debt because high rates of interest are paid on the outstanding balance. 
C) cheap debt because low rates of interest are paid on the outstanding balance. 
D) free debt because no explicit interest is paid on the outstanding balance. 
E) fixed-rate debt because a fixed rate of interest is paid on the outstanding balance.

Question 16

Which of the following current asset financing policies/approaches asserts that all of a firm's fixed assets, all of its permanent current assets, and some of its temporary current assets should be financed with long-term capital?

Accepted Answer

A) Maturity matching approach 
B) Aggressive approach 
C) Conservative approach 
D) Self-liquidating approach 
E) Permanent current assets approach 
A) Maturity matching approach 
B) Aggressive approach 
C) Conservative approach 
D) Self-liquidating approach 
E) Permanent current assets approach

Question 17

Lima Corporation makes purchases on credit with terms of 2/15, net 45. What is the effective annual rate (rEAR) of non-free trade credit if Lima does not take discounts and pays on Day 45? In your computations, assume there are 360 days in a year.

Accepted Answer

A) 42.98% 
B) 24.49% 
C) 148.21% 
D) 35.40% 
E) 27.43% 
A) 42.98% 
B) 24.49% 
C) 148.21% 
D) 35.40% 
E) 27.43%

Question 18

If a firm wants to decrease its cash conversion cycle, which of the following actions should it take? Assume everything else is equal.

Accepted Answer

A) Loosen credit terms to increase the firm's sales. 
B) Delay payments made to suppliers so that the firm pays late. 
C) Purchase more raw materials to increase the average inventory the firm maintains. 
D) Increase the amount the firm borrows from its bank. 
E) Decrease the common equity on the firm's balance sheet. 
A) Loosen credit terms to increase the firm's sales. 
B) Delay payments made to suppliers so that the firm pays late. 
C) Purchase more raw materials to increase the average inventory the firm maintains. 
D) Increase the amount the firm borrows from its bank. 
E) Decrease the common equity on the firm's balance sheet.

Question 19

BarLey Inc. recently borrowed $125,000 from its bank at a simple interest rate of 12 percent. The loan is for one year, and the loan agreement requires the interest to be added to the amount borrowed and the total amount to be repaid in monthly installments. Compute the amount of the monthly payments on the loan.

Accepted Answer

A) $11,667 
B) $12,222 
C) $11,111 
D) $11,997 
E) $12,677 
A) $11,667 
B) $12,222 
C) $11,111 
D) $11,997 
E) $12,677

Question 20

Pelican Corporation took out a nine-month $200,000 discount interest loan with a 14 percent quoted (simple) interest rate. What is the annual percentage (APR) interest rate for the loan?

Accepted Answer

A) 15.94% 
B) 14.96% 
C) 15.64% 
D) 11.73% 
E) 14.00% 
A) 15.94% 
B) 14.96% 
C) 15.64% 
D) 11.73% 
E) 14.00%

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

All else equal, when a firm purchases raw materials on credit from its supplier, which of the following accounts is affected?

A(n) ______ is a type of legal claim (lien) against a firm's inventory when it is used as collateral for a loan and the goods are relatively high priced, slow moving, and easy to identify individually using serial numbers or other distinguishing characteristics.

The task of managing working capital accounts in multinational corporations is far simpler than in purely domestic firms because domestic firms are not affected by different languages, different cultures, different political environments, different economic conditions, and so forth.

The following information relates to RAM Corporation: Accounts receivable \ 160,000 Total credit sales \ 2,500,000 Accounts payable \ 220,000 What is RAM's receivables collection period (DSO)? In your computations, assume there are 360 days in a year.

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 Which of the following is the cash conversion cycle of the company?

The following information relates to Musk Corporation: Nventory conversion period 15 days Average inventory $28,000 Average accounts payable $25,000 What is Musk's cost of goods sold during the year? In your computations, assume there are 360 days in a year.

Which of the following mathematical equations is used to calculate days sales outstanding (DSO)?

The inventory conversion period of a firm is equivalent to the average age of its inventory.

The inventory conversion period refers to the average length of time required:

Accruals represent a form of:

Which of the following current asset financing policies/approaches asserts that all of a firm's fixed assets, all of its permanent current assets, and some of its temporary current assets should be financed with long-term capital?

Lima Corporation makes purchases on credit with terms of 2/15, net 45. What is the effective annual rate (rEAR) of non-free trade credit if Lima does not take discounts and pays on Day 45? In your computations, assume there are 360 days in a year.

If a firm wants to decrease its cash conversion cycle, which of the following actions should it take? Assume everything else is equal.

Pelican Corporation took out a nine-month $200,000 discount interest loan with a 14 percent quoted (simple) interest rate. What is the annual percentage (APR) interest rate for the loan?

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 Debt Characteristics 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 current asset financing policy that calls for matching the maturities of assets with the maturities of liabilities is known as the:

All else equal, when a firm purchases raw materials on credit from its supplier, which of the following accounts is affected?

A(n) ______ is a type of legal claim (lien) against a firm's inventory when it is used as collateral for a loan and the goods are relatively high priced, slow moving, and easy to identify individually using serial numbers or other distinguishing characteristics.

The task of managing working capital accounts in multinational corporations is far simpler than in purely domestic firms because domestic firms are not affected by different languages, different cultures, different political environments, different economic conditions, and so forth.

The following information relates to RAM Corporation: Accounts receivable \ 160,000 Total credit sales \ 2,500,000 Accounts payable \ 220,000 What is RAM's receivables collection period (DSO)? In your computations, assume there are 360 days in a year.

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 Which of the following is the cash conversion cycle of the company?

The following information relates to Musk Corporation: Nventory conversion period 15 days Average inventory $28,000 Average accounts payable $25,000 What is Musk's cost of goods sold during the year? In your computations, assume there are 360 days in a year.

Which of the following mathematical equations is used to calculate days sales outstanding (DSO)?

The inventory conversion period of a firm is equivalent to the average age of its inventory.

The inventory conversion period refers to the average length of time required:

Accruals represent a form of:

Which of the following current asset financing policies/approaches asserts that all of a firm's fixed assets, all of its permanent current assets, and some of its temporary current assets should be financed with long-term capital?

Lima Corporation makes purchases on credit with terms of 2/15, net 45. What is the effective annual rate (rEAR) of non-free trade credit if Lima does not take discounts and pays on Day 45? In your computations, assume there are 360 days in a year.

If a firm wants to decrease its cash conversion cycle, which of the following actions should it take? Assume everything else is equal.

Pelican Corporation took out a nine-month $200,000 discount interest loan with a 14 percent quoted (simple) interest rate. What is the annual percentage (APR) interest rate for the loan?

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 Debt Characteristics 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