Question 1

Credit extended in connection with goods purchased for resale is called:

Accepted Answer

A)  commercial paper. 
B)  bank loans. 
C)  trade credit or payables. 
D)  commercial credit. 
A)  commercial paper. 
B)  bank loans. 
C)  trade credit or payables. 
D)  commercial credit.

Question 2

Which of the following is NOT used to accelerate cash receipts?

Accepted Answer

A)  Lock Box Systems 
B)  Wire Transfers 
C)  Concentration Banks 
D)  Remote Disbursing 
A)  Lock Box Systems 
B)  Wire Transfers 
C)  Concentration Banks 
D)  Remote Disbursing

Question 3

Which of the following types of float can be virtually eliminated through the use of a lock box?

Accepted Answer

A)  Mail float 
B)  Processing float 
C)  Transit float 
D)  Both a. and b. can be eliminated. 
E)  All of the above can be eliminated. 
A)  Mail float 
B)  Processing float 
C)  Transit float 
D)  Both a. and b. can be eliminated. 
E)  All of the above can be eliminated.

Question 4

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 5

A commitment fee is required by a commercial bank on:

Accepted Answer

A)  line of credit. 
B)  revolving credit agreement. 
C)  single payment note. 
D)  a and b. 
E)  All of the above 
A)  line of credit. 
B)  revolving credit agreement. 
C)  single payment note. 
D)  a and b. 
E)  All of the above

Question 6

If a vendor's invoice states terms of sale of 2/10 net 60, the implied annual cost of interest from foregoing the discount would be:

Accepted Answer

A)  13.2%. 
B)  14.6%. 
C)  2.0%. 
D)  13.7%. 
A)  13.2%. 
B)  14.6%. 
C)  2.0%. 
D)  13.7%.

Question 7

If the prompt payment discount is foregone, which of the following credit terms implies the customer is borrowing at a rate that is less than 20% (assume 365 days per year)?

Accepted Answer

A)  2/10, net 30 
B)  1.5/10, net 30 
C)  1/10, net 20 
D)  3/20, net 75 
E)  All of the above imply borrowing at 20% or more. 
A)  2/10, net 30 
B)  1.5/10, net 30 
C)  1/10, net 20 
D)  3/20, net 75 
E)  All of the above imply borrowing at 20% or more.

Question 8

What type of situation will result in a firm having temporary working capital needs?

Accepted Answer

A)  A steady clientele of buyers for the firm's product. 
B)  A specialized product for summer outdoor sports. 
C)  A product that is essential for a number of different manufacturing processes. 
D)  A routine service provided on the basis of long-term contracts. 
A)  A steady clientele of buyers for the firm's product. 
B)  A specialized product for summer outdoor sports. 
C)  A product that is essential for a number of different manufacturing processes. 
D)  A routine service provided on the basis of long-term contracts.

Question 9

J&J Production Inc. has annual sales of $30 million and accounts receivables of $1.5 million. They have an inventory turnover of 4. How long is J &J's operating cycle? (Assume a 360-day year)

Accepted Answer

A)  18 days 
B)  90 days 
C)  108 days 
D)  72 days 
A)  18 days 
B)  90 days 
C)  108 days 
D)  72 days

Question 10

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 11

The ____ measures the promptness with which customers pay their credit obligations.

Accepted Answer

A)  bad-debt loss ratio 
B)  average collection period 
C)  credit term 
D)  cash discount 
A)  bad-debt loss ratio 
B)  average collection period 
C)  credit term 
D)  cash discount

Question 12

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 13

Trade credit is implicitly costless only:

Accepted Answer

A)  during the entire net period. 
B)  during the prompt payment discount period. 
C)  between the first and last days of the net period. 
D)  at no time. 
A)  during the entire net period. 
B)  during the prompt payment discount period. 
C)  between the first and last days of the net period. 
D)  at no time.

Question 14

More aggressive collection procedures should:

Accepted Answer

A)  increase credit sales. 
B)  decrease accounts receivable. 
C)  increase ACP. 
D)  All of the above 
E)  None of the above 
A)  increase credit sales. 
B)  decrease accounts receivable. 
C)  increase ACP. 
D)  All of the above 
E)  None of the above

Question 15

Forming working capital policy involves a series of:

Accepted Answer

A)  profit-risk tradeoffs. 
B)  financial choices. 
C)  capital budgeting decisions. 
D)  None of the above 
A)  profit-risk tradeoffs. 
B)  financial choices. 
C)  capital budgeting decisions. 
D)  None of the above

Question 16

If a vendor's invoice states terms of sale of 2/10 net 30, the implied annual cost of interest from foregoing the discount would be:

Accepted Answer

A)  18.25% 
B)  2.0% 
C)  12% 
D)  36.5% 
A)  18.25% 
B)  2.0% 
C)  12% 
D)  36.5%

Question 17

Find the average collection period for a firm that has credit sales of $120,000,000 and accounts receivable of $30,000,000.

Accepted Answer

A)  30 days 
B)  120 days 
C)  90 days 
D)  45 days 
E)  60 days 
A)  30 days 
B)  120 days 
C)  90 days 
D)  45 days 
E)  60 days

Question 18

A decrease in a firm's inventory should decrease:

Accepted Answer

A)  carrying costs. 
B)  sales. 
C)  ordering costs. 
D)  a and b 
E)  All of the above 
A)  carrying costs. 
B)  sales. 
C)  ordering costs. 
D)  a and b 
E)  All of the above

Question 19

A large manufacturer needs a $100,000 loan to finance inventory. It can open a line of credit with a local bank at a 13 percent interest rate. However, it must also maintain a 10 percent minimum compensating balance. The effective interest rate on the loan is:

Accepted Answer

A)  13 percent. 
B)  13.13 percent. 
C)  14.44 percent. 
D)  23 percent. 
A)  13 percent. 
B)  13.13 percent. 
C)  14.44 percent. 
D)  23 percent.

Question 20

Which of the following bank loans/agreements requires a fee even if no money is borrowed?

Accepted Answer

A)  Promissory note 
B)  Line of credit 
C)  Revolving credit agreement 
D)  Compensating balance 
E)  None of the above has fees if no money is borrowed. 
A)  Promissory note 
B)  Line of credit 
C)  Revolving credit agreement 
D)  Compensating balance 
E)  None of the above has fees if no money is borrowed.

Credit extended in connection with goods purchased for resale is called:

Which of the following is NOT used to accelerate cash receipts?

Which of the following types of float can be virtually eliminated through the use of a lock box?

Inventory carrying costs include:

A commitment fee is required by a commercial bank on:

If a vendor's invoice states terms of sale of 2/10 net 60, the implied annual cost of interest from foregoing the discount would be:

If the prompt payment discount is foregone, which of the following credit terms implies the customer is borrowing at a rate that is less than 20% (assume 365 days per year)?

What type of situation will result in a firm having temporary working capital needs?

J&J Production Inc. has annual sales of $30 million and accounts receivables of $1.5 million. They have an inventory turnover of 4. How long is J &J's operating cycle? (Assume a 360-day year)

Which of the following describe commercial paper instruments?

The ____ measures the promptness with which customers pay their credit obligations.

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

Trade credit is implicitly costless only:

More aggressive collection procedures should:

Forming working capital policy involves a series of:

If a vendor's invoice states terms of sale of 2/10 net 30, the implied annual cost of interest from foregoing the discount would be:

Find the average collection period for a firm that has credit sales of $120,000,000 and accounts receivable of $30,000,000.

A decrease in a firm's inventory should decrease:

A large manufacturer needs a $100,000 loan to finance inventory. It can open a line of credit with a local bank at a 13 percent interest rate. However, it must also maintain a 10 percent minimum compensating balance. The effective interest rate on the loan is:

Which of the following bank loans/agreements requires a fee even if no money is borrowed?

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

Credit extended in connection with goods purchased for resale is called:

Which of the following is NOT used to accelerate cash receipts?

Which of the following types of float can be virtually eliminated through the use of a lock box?

Inventory carrying costs include:

A commitment fee is required by a commercial bank on:

If a vendor's invoice states terms of sale of 2/10 net 60, the implied annual cost of interest from foregoing the discount would be:

If the prompt payment discount is foregone, which of the following credit terms implies the customer is borrowing at a rate that is less than 20% (assume 365 days per year)?

What type of situation will result in a firm having temporary working capital needs?

J&J Production Inc. has annual sales of $30 million and accounts receivables of $1.5 million. They have an inventory turnover of 4. How long is J &J's operating cycle? (Assume a 360-day year)

Which of the following describe commercial paper instruments?

The ____ measures the promptness with which customers pay their credit obligations.

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

Trade credit is implicitly costless only:

More aggressive collection procedures should:

Forming working capital policy involves a series of:

If a vendor's invoice states terms of sale of 2/10 net 30, the implied annual cost of interest from foregoing the discount would be:

Find the average collection period for a firm that has credit sales of $120,000,000 and accounts receivable of $30,000,000.

A decrease in a firm's inventory should decrease:

A large manufacturer needs a $100,000 loan to finance inventory. It can open a line of credit with a local bank at a 13 percent interest rate. However, it must also maintain a 10 percent minimum compensating balance. The effective interest rate on the loan is:

Which of the following bank loans/agreements requires a fee even if no money is borrowed?

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