FIN 401-chapter 19 Multiple Choice

A

1) Which of these events reduces cash holdings? 1) _______ A) The firm pays more promptly for its raw materials. B) The firm changes its terms of sale and gives customers less time to pay for their purchases. C) The firm sells a parcel of land at a profit. D) The firm sells a parcel of land at a loss.

a

10) Which one of the following is a use of cash? 10) ______ A) Repayment of a bank loan B) Depreciation C) Net incomeD) Reduction in accounts receivable

a

11) In the preparation of cash budgets, capital expenditures are: 11) ______ A) included as uses of cash and make the budget lumpy. B) traditionally offset as a use of cash by interest income. C) included as sources of operating cash. D) not included because these items are depreciated

d

12) Which one of the following would not be included as a source of short-term financing? 12) ______ A) Line of credit from a bank B) Sale of marketable securities C) Stretching of accounts payable D) Increase in the minimum operating cash balance

c Issuing new long-term debt is a source of cash and buying new assets is a use of cash. So, the net cash flow is zero.

14) Issuing additional long-term debt of $5 million and buying new long-term assets worth $4 million and short-term assets of $1 million will result in a net cash flow of: 14) ______ A) $5 million B) $4 million C) $0 million D) $9 million

a

3) Which of the following transactions would not be a source of cash: 3) _______ A) The firm issues $1 million of short-term debt and invests the proceeds in inventory. B) The firm receives $10 million from an insurance company to compensate for flood damage earlier that month. C) The firm sells $10 million of marketable securities. D) A customer pays an outstanding bill.

a

5) A firm's permanent working capital refers to the: 5) _______ A) portion of net working capital that is financed from long-term sources. B) difference between fixed assets and current assets. C) amounts that must be held to meet debt covenants. D) maximum difference between current assets and current liabilities.

b

6) What happens to a firm whose uses of cash exceed its sources of cash during an accounting period? 6) _______ A) It has a loss of net working capital. B) It experiences a decrease in its cash balance. C) It declares a net loss on the income statement. D) It experiences a decrease in sales.

c

8) When the length of the financing is directly related to the life of the asset being financed, the firm is said to follow a: 8) _______ A) matched depreciation strategy. B) minimum working capital strategy. C) policy of maturity matching. D) restrictive financing strategy.

c

9) Which of the following would increase the firm's cash balance? 9) _______ A) increase the cash dividend B) increase accounts receivable C) increase the accounts payable D) increase inventory