Question 1

A firm's working capital position is important from an internal and external standpoint.Which of the following apply:

Accepted Answer

A)  It measures a firm's risk.
B)  Provisions for a minimum working capital position are often included in restrictive covenants.
C)  A firm's policy often affects its ability to obtain debt.
D)  A working capital position determines its level of common stock sales.

Question 2

Name some factors that affect the firm's investment decision to invest in current assets.

Accepted Answer

The firm must consider:
1.the type of pr...

Question 3

The firm's receivables conversion period (measured in days)  is equal to its accounts receivable divided by its .

Accepted Answer

A)  annual credit sales/365
B)  annual credit sales
C)  annual sales/365
D)  none of these

Question 4

Working capital policy involves day-to-day decisions that determine all of the following EXCEPT:

Accepted Answer

A)  firm's level of long­term assets.
B)  proportions of short-term and long-term debt used to finance assets.
C)  level of each type of current asset.
D)  specific sourcers and mix of short-term liabilities the firm should employ.

Question 5

Under a conservative approach to working capital management, a firm tends to hold a relatively proportion of its total assets in the form of current assets.

Accepted Answer

A)  small
B)  constant
C)  stable
D)  large

Question 6

Efficient current assets management refers to the firm’s ability to economize on which of the following?
I.Inventory
II.Marketable  securities

Accepted Answer

A)  Only inventory
B)  Only marketable securities
C)  Both inventory and marketable securities
D)  Neither inventory nor marketable securities

Question 7

The operating cycle begins with the and ends with the .

Accepted Answer

A)  purchase of resources, selling of the product on credit
B)  payment for purchases, liquidation of receivables
C)  purchases of resources, receipt of cash
D)  payment for purchases, receipt of cash

Question 8

A firm's working capital position is important since::

Accepted Answer

A)  it is a measure of risk.
B)  it is a measure of efficiency.
C)  it is much more in demand due to its scarcity.
D)  it reflects the amount of short-term liabilities that the firm must consider.

Question 9

Gates Industries balance sheet and income statement for the year ending December 31, 1978 are as follows:

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

Question 10

Explain how a firm uses commercial paper as a short-term financing source and explain the disadvantage of using this form of financing.

Accepted Answer

Commercial paper is a short-term unsecur...

Question 11

In considering factoring accounts receivable, which of the following statements is/are correct?
I.Maturity factoring occurs when the firm receives payment at the normal collection or due date of the factored accounts.
II.Advance factoring occurs when the firm receives payment in prior to the normal collection or due date of the factored accounts.

Accepted Answer

A)  Only statement I is correct
B)  Only statement II is correct
C)  Both statements I and II are correct
D)  Neither statement I nor II is correct

Question 12

All other things being equal, a policy of financing its assets with a relatively proportion of short-term debt will tend to the variability (or risk)  of the after-tax earnings of the firm.

Accepted Answer

A)  large, decrease
B)  small, increase
C)  constant, lower
D)  large, increase

Question 13

Linear Technology had sales (all on credit)  of $36 million and a gross profit margin of 30% last year.If Linear Technology's inventory averaged $3.9 million, and its accounts receivable were $5.0 million, what was the length of its operating cycle?

Accepted Answer

A)  90.2 days
B)  128.9 days
C)  111.9 days
D)  107.2 days

Question 14

Lenders normally feel that the relative risk associated with short-term debt is the risk associated with long- term debt.

Accepted Answer

A)  lower than
B)  equal to
C)  higher than
D)  none of these

Question 15

What is "stretching accounts payable" and what are the advantages and disadvantages of doing it?

Accepted Answer

Stretching accounts payable is a method ...

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)  Only statement I is correct
B)  Only statement II is correct
C)  Both statements I and II are correct
D)  Neither statement I nor II is correct

Question 17

Commercial paper is:

Accepted Answer

A)  long-term with maturities greater than one year.
B)  short-term with maturities under six months.
C)  short-term with maturities that do not exceed nine months.
D)  long-term with maturities of greater than five years.

Question 18

Fluctuating current assets are those assets that are affected by:

Accepted Answer

A)  the consumer's demand for the product
B)  the seasonal nature of the company
C)  management preferences
D)  IRS regulations

Question 19

When the level of working capital is increased, all of the following are expected to occur except

Accepted Answer

A)  expected profitability decreases
B)  expected profitability increases
C)  risk decreases
D)  none of these

Question 20

Runners Ink, Inc.had sales last year of $700,000 and 35 percent of its sales are for cash, with the remainder buying on terms of net 30 days.If the receivables conversion period is actually 38 days, what is Runners Ink's accounts receivable?

Accepted Answer

A)  $72,877
B)  $25,507
C)  $47,370
D)  none of these

Exam 16: Working Capital Management

Under a conservative approach to working capital management, a firm tends to hold a relatively proportion of its total assets in the form of current assets.

Correct Answer
verified

Efficient current assets management refers to the firm’s ability to economize on which of the following? I.Inventory II.Marketable securities

Correct Answer
verified

The operating cycle begins with the and ends with the .

Correct Answer
verified

Explain how a firm uses commercial paper as a short-term financing source and explain the disadvantage of using this form of financing.

Correct Answer
verified
Commercial paper is a short-term unsecur...
View Answer

Linear Technology had sales (all on credit) of $36 million and a gross profit margin of 30% last year.If Linear Technology's inventory averaged $3.9 million, and its accounts receivable were $5.0 million, what was the length of its operating cycle?

Correct Answer
verified

All other things being equal, a policy of financing its assets with a relatively proportion of short-term debt will tend to the variability (or risk) of the after-tax earnings of the firm.

Correct Answer
verified

Correct Answer
verified

A firm's working capital position is important since::

Correct Answer
verified

Commercial paper is:

Correct Answer
verified

Lenders normally feel that the relative risk associated with short-term debt is the risk associated with long- term debt.

Correct Answer
verified

Runners Ink, Inc.had sales last year of $700,000 and 35 percent of its sales are for cash, with the remainder buying on terms of net 30 days.If the receivables conversion period is actually 38 days, what is Runners Ink's accounts receivable?

Correct Answer
verified

Working capital policy involves day-to-day decisions that determine all of the following EXCEPT:

Correct Answer
verified

Gates Industries balance sheet and income statement for the year ending December 31, 1978 are as follows: Determine the length of the firm’s cash conversion cycle.

Correct Answer
verified

Name some factors that affect the firm's investment decision to invest in current assets.

Correct Answer
verified
The firm must consider:
1.the type of pr...
View Answer

What is "stretching accounts payable" and what are the advantages and disadvantages of doing it?

Correct Answer
verified
Stretching accounts payable is a method ...
View Answer

The firm's receivables conversion period (measured in days) is equal to its accounts receivable divided by its .

Correct Answer
verified

A firm's working capital position is important from an internal and external standpoint.Which of the following apply:

Correct Answer
verified

When the level of working capital is increased, all of the following are expected to occur except

Correct Answer
verified

Fluctuating current assets are those assets that are affected by:

Correct Answer
verified

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.

Correct Answer
verified

Exam 16: Working Capital Management

Under a conservative approach to working capital management, a firm tends to hold a relatively proportion of its total assets in the form of current assets.

Correct AnswerverifiedShow Answer

Efficient current assets management refers to the firm’s ability to economize on which of the following? I.Inventory II.Marketable securities

Correct AnswerverifiedShow Answer

The operating cycle begins with the and ends with the .

Correct AnswerverifiedShow Answer

Explain how a firm uses commercial paper as a short-term financing source and explain the disadvantage of using this form of financing.

Correct AnswerverifiedCommercial paper is a short-term unsecur...View AnswerShow Answer

Linear Technology had sales (all on credit) of $36 million and a gross profit margin of 30% last year.If Linear Technology's inventory averaged $3.9 million, and its accounts receivable were $5.0 million, what was the length of its operating cycle?

Correct AnswerverifiedShow Answer

All other things being equal, a policy of financing its assets with a relatively proportion of short-term debt will tend to the variability (or risk) of the after-tax earnings of the firm.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A firm's working capital position is important since::

Correct AnswerverifiedShow Answer

Commercial paper is:

Correct AnswerverifiedShow Answer

Lenders normally feel that the relative risk associated with short-term debt is the risk associated with long- term debt.

Correct AnswerverifiedShow Answer

Runners Ink, Inc.had sales last year of $700,000 and 35 percent of its sales are for cash, with the remainder buying on terms of net 30 days.If the receivables conversion period is actually 38 days, what is Runners Ink's accounts receivable?

Correct AnswerverifiedShow Answer

Working capital policy involves day-to-day decisions that determine all of the following EXCEPT:

Correct AnswerverifiedShow Answer

Gates Industries balance sheet and income statement for the year ending December 31, 1978 are as follows: Determine the length of the firm’s cash conversion cycle.

Correct AnswerverifiedShow Answer

Name some factors that affect the firm's investment decision to invest in current assets.

Correct AnswerverifiedThe firm must consider:1.the type of pr...View AnswerShow Answer

What is "stretching accounts payable" and what are the advantages and disadvantages of doing it?

Correct AnswerverifiedStretching accounts payable is a method ...View AnswerShow Answer

The firm's receivables conversion period (measured in days) is equal to its accounts receivable divided by its .

Correct AnswerverifiedShow Answer

A firm's working capital position is important from an internal and external standpoint.Which of the following apply:

Correct AnswerverifiedShow Answer

When the level of working capital is increased, all of the following are expected to occur except

Correct AnswerverifiedShow Answer

Fluctuating current assets are those assets that are affected by:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
Commercial paper is a short-term unsecur...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The firm must consider:
1.the type of pr...
View Answer

Correct Answer
verified
Stretching accounts payable is a method ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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