Question 1

Which of the following is an administrative (non-economic)  reason for holding cash?

Accepted Answer

A)   To pay bills for the goods and services used
B)   To meet short-term obligations
C)   To compensate banks for services
D)   To have cash available to take advantage of unexpected opportunities

Question 2

Which of the following is not a source of short-term funds?

Accepted Answer

A)   Trade credit
B)   Accounts receivable
C)   Commercial paper
D)   Line of credit

Question 3

The purpose of collateral in a secured loan agreement is to:

Accepted Answer

A)   reduce the lender's risk.
B)   reduce the expense of administering the loan.
C)   make borrowers indifferent to the default risk of the loan.
D)   increase the rate borrowers are willing to pay for funds.

Question 4

Short-term liabilities:

Accepted Answer

A)   represent claims on a firm's income and assets.
B)   are sources of funds for the firm.
C)   can arise spontaneously from a firm's operations.
D)   All of the above

Question 5

Which of the following is not associated with short-term debt?

Accepted Answer

A)   Easily available to most companies.
B)   It is usually the lowest cost financing.
C)   It is a flexible form of financing.
D)   It is usually used to finance property, plant, equipment.

Question 6

Factoring receivables:

Accepted Answer

A)   means selling them at a discount to a financial organization.
B)   means the seller is always responsible for losses from uncollectible accounts.
C)   means the seller must do all of its own credit and collection functions.
D)   means the borrowed funds must be repaid to the lending company periodically.

Question 7

Self-liquidating debt must be ____when the item financed becomes cash.

Accepted Answer

A)   leveraged
B)   paid off
C)   amortized
D)   liquidated

Question 8

Mattingly, Inc. uses 40,000 weberwalls per year. On average, weberwalls cost $12, and the annual cost of carrying one in inventory is $1.50. The cost to place an order is $50. Based on this information, what is Mattingly's annual ordering cost for purchasing weberwalls if they observe the EOQ model?

Accepted Answer

A)   $1,155
B)   $1,225
C)   $1,633
D)   $1,731
E)   $2,450

Question 9

An effective program of working capital management requires that:

Accepted Answer

A)   the firm run with the absolute minimum in each current asset account.
B)   a series of cost/benefit tradeoffs be considered because running a business is easier with more working capital than with less, but holding working capital costs money.
C)   large inventories be maintained to adequately service customers.
D)   credit can be easily granted to customers to encourage higher sales.

Question 10

More aggressive collection procedures usually increases:

Accepted Answer

A)   average collection period.
B)   percentage of bad debts.
C)   credit sales.
D)   b and c
E)   None of the above

Question 11

The term "net working capital" means:

Accepted Answer

A)   the firm's gross working capital minus spontaneous financing.
B)   the firm's cash, accounts receivable, and inventory minus short-term payables and accruals.
C)   the firm's current assets minus its current liabilities.
D)   All of the above

Question 12

What is the effective interest rate on a 12% loan that requires a 10 percent minimum compensating balance?

Accepted Answer

A)   13.33 percent
B)   14.44 percent
C)   15.50 percent
D)   16.00 percent

Question 13

Which of the following is not a means for a bank to secure short-term loans made to a firm?

Accepted Answer

A)   Clean-up requirements
B)   Compensating balance
C)   Having a specific asset pledged as collateral for the loan
D)   Stretching payables

Question 14

Holding cash for speculative demand refers to:

Accepted Answer

A)   keeping cash on hand to pay for emergency needs.
B)   holding cash to compensate banks for the services they perform.
C)   keeping money in the bank to pay bills for the goods and services they use.
D)   keeping cash to take advantage of unexpected opportunities.

Question 15

Which of the following creates spontaneous financing?

Accepted Answer

A)   Accounts payable
B)   Accrual liabilities
C)   Trade credit
D)   Both a. and b. create spontaneous financing.
E)   All of the above create spontaneous financing.

Question 16

An aggressive working capital policy:

Accepted Answer

A)   uses more short-term financing than long-term.
B)   uses short-term financing to support only the peaks of temporary working capital.
C)   supports a portion of permanent working capital with short-term financing.
D)   Both a & b
E)   Both a & c

Question 17

The size of a firm's investment in working capital is a function of all of the following factors except:

Accepted Answer

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

Question 18

A firm's credit terms stipulate:

Accepted Answer

A)   the maturity of trade credit (time when the net amount is due) .
B)   the minimum acceptable credit rating of a credit applicant.
C)   the extent of efforts to collect on overdue accounts.
D)   a and b
E)   All of the above

Question 19

Under a line of credit agreement between a firm and its bank:

Accepted Answer

A)   the loan often must be completely paid off for a portion of the year.
B)   the firm can borrow up to a specified maximum during a specified period.
C)   the bank is contractually committed to lend the firm the money.
D)   a and b.

Question 20

Which of the following represents a carrying cost of inventory?

Accepted Answer

A)   Storage expenses
B)   Cost of insurance
C)   Losses from obsolescence
D)   a and b
E)   All of the above

Exam 16: The Management of Working Capital Multiple Choice Questions

Which of the following is not a means for a bank to secure short-term loans made to a firm?

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Holding cash for speculative demand refers to:

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The term "net working capital" means:

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A firm's credit terms stipulate:

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Self-liquidating debt must be ____when the item financed becomes cash.

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Which of the following is not a source of short-term funds?

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Which of the following represents a carrying cost of inventory?

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The purpose of collateral in a secured loan agreement is to:

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Factoring receivables:

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Which of the following is an administrative (non-economic) reason for holding cash?

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The size of a firm's investment in working capital is a function of all of the following factors except:

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Which of the following is not associated with short-term debt?

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More aggressive collection procedures usually increases:

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Which of the following creates spontaneous financing?

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Short-term liabilities:

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Under a line of credit agreement between a firm and its bank:

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What is the effective interest rate on a 12% loan that requires a 10 percent minimum compensating balance?

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An effective program of working capital management requires that:

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An aggressive working capital policy:

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