Question 1

If a firm only accepts cash for the purchase of its products, what effect would this have on the operating and cash cycles?

Accepted Answer

A)  The operating and cash cycles would be equal. 
B)  The operating and cash cycles would decrease relative to offering credit to customers. 
C)  Only the cash cycle would decrease relative to offering credit to customers. 
D)  Only the operating cycle would increase relative to offering credit to customers. 
A)  The operating and cash cycles would be equal. 
B)  The operating and cash cycles would decrease relative to offering credit to customers. 
C)  Only the cash cycle would decrease relative to offering credit to customers. 
D)  Only the operating cycle would increase relative to offering credit to customers. B

Question 2

Which of the following is(are) true?

Accepted Answer

A)  Secured lenders have lower priority claims than unsecured creditors. 
B)  Trade credit, commercial paper, and unsecured loans are all methods of financing which require no specific pledging of assets as collateral. 
C)  Short-term bank debt is used more frequently than trade credit. 
D)  a and b 
A)  Secured lenders have lower priority claims than unsecured creditors. 
B)  Trade credit, commercial paper, and unsecured loans are all methods of financing which require no specific pledging of assets as collateral. 
C)  Short-term bank debt is used more frequently than trade credit. 
D)  a and b B

Question 3

Which of the following changes would result in higher receivables?

Accepted Answer

A)  Tightening credit policy 
B)  An increase in the net period of the terms of sale 
C)  An increase in the prompt payment discount offered 
D)  All of the above 
A)  Tightening credit policy 
B)  An increase in the net period of the terms of sale 
C)  An increase in the prompt payment discount offered 
D)  All of the above B

Question 4

A firm's bad debts:

Accepted Answer

A)  should be reduced by more aggressive collection procedures. 
B)  are normally positively related to a firm's ACP. 
C)  are normally unaffected by changes in a firm's cash discount. 
D)  a and b 
E)  All of the above 
A)  should be reduced by more aggressive collection procedures. 
B)  are normally positively related to a firm's ACP. 
C)  are normally unaffected by changes in a firm's cash discount. 
D)  a and b 
E)  All of the above

Question 5

Which of the following is a component of a firm's gross working capital?

Accepted Answer

A)  Cash 
B)  Accounts payable 
C)  Fixed assets 
D)  a and b 
E)  All of the above 
A)  Cash 
B)  Accounts payable 
C)  Fixed assets 
D)  a and b 
E)  All of the above

Question 6

There is more risk associated with short-term debt than long-term debt because of:

Accepted Answer

A)  uncertainty arising from interest rate fluctuations. 
B)  the risk of being unable to refund the debt. 
C)  relatively high cost of short-term debt. 
D)  a and b 
A)  uncertainty arising from interest rate fluctuations. 
B)  the risk of being unable to refund the debt. 
C)  relatively high cost of short-term debt. 
D)  a and b

Question 7

Information about a credit applicant:

Accepted Answer

A)  is rarely available. 
B)  can be obtained directly from the applicant. 
C)  is frequently exchanged among firms selling to the same customer through credit bureaus. 
D)  cannot be obtained from commercial banks. 
E)  b and c 
A)  is rarely available. 
B)  can be obtained directly from the applicant. 
C)  is frequently exchanged among firms selling to the same customer through credit bureaus. 
D)  cannot be obtained from commercial banks. 
E)  b and c

Question 8

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 9

Overland has a part with a unit cost of $40. It costs $52 to place, process and receive an order. The carrying cost of the inventory is approximately 20% of the part's dollar value per year. The firm uses 2,000 of the parts each year. What order quantity minimizes total inventory cost?

Accepted Answer

A)  93 
B)  127 
C)  161 
D)  205 
A)  93 
B)  127 
C)  161 
D)  205

Question 10

Which of the following account changes would reduce a firm's net working capital if all other account balances are held constant?

Accepted Answer

A)  Increase in inventories 
B)  Increase in accounts payable 
C)  Decrease in accounts receivable 
D)  b and c 
E)  None of the above 
A)  Increase in inventories 
B)  Increase in accounts payable 
C)  Decrease in accounts receivable 
D)  b and c 
E)  None of the above

Question 11

The principal business of commercial banks is to make short-term loans to businesses. About two thirds of commercial bank loans are for less than:

Accepted Answer

A)  six months. 
B)  three years. 
C)  nine months. 
D)  one year. 
A)  six months. 
B)  three years. 
C)  nine months. 
D)  one year.

Question 12

Which of the following accounts is (are) not part of a firm's working capital?

Accepted Answer

A)  Plant and equipment 
B)  Marketable securities 
C)  Cash 
D)  a and c 
A)  Plant and equipment 
B)  Marketable securities 
C)  Cash 
D)  a and c

Question 13

Haverly, Inc. has borrowed $100,000. The loan is subject to a 10% compensating balance and has an effective interest rate of 13.33%. Calculate the quoted interest rate on the loan. (Round to nearest whole percent)

Accepted Answer

A)  10% 
B)  11% 
C)  12% 
D)  13% 
A)  10% 
B)  11% 
C)  12% 
D)  13%

Question 14

Which of the following describes the cash conversion cycle?

Accepted Answer

A)  From the purchase of inventory to the collection of cash from the sale of that inventory. 
B)  From the payment for inventory to the sale of that inventory. 
C)  From the payment for inventory to the collection of cash from the sale of that inventory. 
D)  From the purchase of inventory to the sale of that inventory. 
E)  None of the above describes the cash conversion cycle. 
A)  From the purchase of inventory to the collection of cash from the sale of that inventory. 
B)  From the payment for inventory to the sale of that inventory. 
C)  From the payment for inventory to the collection of cash from the sale of that inventory. 
D)  From the purchase of inventory to the sale of that inventory. 
E)  None of the above describes the cash conversion cycle.

Question 15

Which of the following is not a part of working capital?

Accepted Answer

A)  The short-term credit offered by a supplier. 
B)  The tax that is due within a year. 
C)  The cash held in the cash register for making change on a daily basis. 
D)  The building in which daily operations take place. 
A)  The short-term credit offered by a supplier. 
B)  The tax that is due within a year. 
C)  The cash held in the cash register for making change on a daily basis. 
D)  The building in which daily operations take place.

Question 16

Which of the following is not an element of working capital policy?

Accepted Answer

A)  The amount of working capital used 
B)  The level of attention that top management pays to working capital issues 
C)  The nature and source of financing that supports working capital 
D)  How the components of working capital are managed 
E)  The extent to which working capital is supported by short versus long term financing 
A)  The amount of working capital used 
B)  The level of attention that top management pays to working capital issues 
C)  The nature and source of financing that supports working capital 
D)  How the components of working capital are managed 
E)  The extent to which working capital is supported by short versus long term financing

Question 17

Which of the following describe(s) the Economic Order Quantity (EOQ)?

Accepted Answer

A)  The quantity at which carrying and ordering costs are equal. 
B)  The quantity that minimizes total inventory cost (ordering plus carrying). 
C)  The quantity that eliminates stockouts. 
D)  Both a and b describe EOQ. 
E)  All of the above describe EOQ. 
A)  The quantity at which carrying and ordering costs are equal. 
B)  The quantity that minimizes total inventory cost (ordering plus carrying). 
C)  The quantity that eliminates stockouts. 
D)  Both a and b describe EOQ. 
E)  All of the above describe EOQ.

Question 18

The objectives of cash management include to:

Accepted Answer

A)  earn a return. 
B)  hold cash to a minimum consistent with efficient operation. 
C)  ensure adequate liquidity. 
D)  Both b & c. 
E)  All of the above 
A)  earn a return. 
B)  hold cash to a minimum consistent with efficient operation. 
C)  ensure adequate liquidity. 
D)  Both b & c. 
E)  All of the above

Question 19

An aggressive working capital policy would include:

Accepted Answer

A)  using short term financing to finance only the peak temporary working capital. 
B)  using short term financing to finance all temporary working capital. 
C)  using short term financing to finance all temporary and some permanent working capital. 
D)  both a. and b. above describe aggressive working capital policies. 
E)  All of the above describe aggressive working capital policies. 
A)  using short term financing to finance only the peak temporary working capital. 
B)  using short term financing to finance all temporary working capital. 
C)  using short term financing to finance all temporary and some permanent working capital. 
D)  both a. and b. above describe aggressive working capital policies. 
E)  All of the above describe aggressive working capital policies.

Question 20

What is the borrowing rate for a firm that is offered terms of sale of 3/12, net 60 that does not take advantage of the discount?

Accepted Answer

A)  3.0% 
B)  15.9% 
C)  16.5% 
D)  22.8% 
A)  3.0% 
B)  15.9% 
C)  16.5% 
D)  22.8%

If a firm only accepts cash for the purchase of its products, what effect would this have on the operating and cash cycles?

Which of the following is(are) true?

Which of the following changes would result in higher receivables?

A firm's bad debts:

Which of the following is a component of a firm's gross working capital?

There is more risk associated with short-term debt than long-term debt because of:

Information about a credit applicant:

A compensating balance arrangement between a firm and its bank:

Overland has a part with a unit cost of $40. It costs $52 to place, process and receive an order. The carrying cost of the inventory is approximately 20% of the part's dollar value per year. The firm uses 2,000 of the parts each year. What order quantity minimizes total inventory cost?

Which of the following account changes would reduce a firm's net working capital if all other account balances are held constant?

The principal business of commercial banks is to make short-term loans to businesses. About two thirds of commercial bank loans are for less than:

Which of the following accounts is (are) not part of a firm's working capital?

Haverly, Inc. has borrowed $100,000. The loan is subject to a 10% compensating balance and has an effective interest rate of 13.33%. Calculate the quoted interest rate on the loan. (Round to nearest whole percent)

Which of the following describes the cash conversion cycle?

Which of the following is not a part of working capital?

Which of the following is not an element of working capital policy?

Which of the following describe(s) the Economic Order Quantity (EOQ)?

The objectives of cash management include to:

An aggressive working capital policy would include:

What is the borrowing rate for a firm that is offered terms of sale of 3/12, net 60 that does not take advantage of the discount?

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

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

The Management of Working Capital

Corporate Restructuring

International Finance

Filters

Exam 16: The Management of Working Capital Multiple Choice Questions

If a firm only accepts cash for the purchase of its products, what effect would this have on the operating and cash cycles?

Which of the following is(are) true?

Which of the following changes would result in higher receivables?

A firm's bad debts:

Which of the following is a component of a firm's gross working capital?

There is more risk associated with short-term debt than long-term debt because of:

Information about a credit applicant:

A compensating balance arrangement between a firm and its bank:

Overland has a part with a unit cost of $40. It costs $52 to place, process and receive an order. The carrying cost of the inventory is approximately 20% of the part's dollar value per year. The firm uses 2,000 of the parts each year. What order quantity minimizes total inventory cost?

Which of the following account changes would reduce a firm's net working capital if all other account balances are held constant?

The principal business of commercial banks is to make short-term loans to businesses. About two thirds of commercial bank loans are for less than:

Which of the following accounts is (are) not part of a firm's working capital?

Haverly, Inc. has borrowed $100,000. The loan is subject to a 10% compensating balance and has an effective interest rate of 13.33%. Calculate the quoted interest rate on the loan. (Round to nearest whole percent)

Which of the following describes the cash conversion cycle?

Which of the following is not a part of working capital?

Which of the following is not an element of working capital policy?

Which of the following describe(s) the Economic Order Quantity (EOQ)?

The objectives of cash management include to:

An aggressive working capital policy would include:

What is the borrowing rate for a firm that is offered terms of sale of 3/12, net 60 that does not take advantage of the discount?

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

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

The Management of Working Capital

Corporate Restructuring

International Finance

Filters