chapter 16 test
the aggressive approach to the financing of a firms current assets uses a __ proportions of short term debt and ___ proportions of long term debt
-high -low
a firms operating cycle is equal to its
-inventory conversion period + receivables conversion period
all equal, a policy of financing its assets with relatively __ proportion of short term debt will tend to result in ___ expected after tax earnings for the firm
-large -higher
all equal, policy of financing its assets with relatively ___ proportions or short term debt will tend to ___ the variability of the after tax earnings
-large -increase
many __ contain provisions requiring firms to maintain a min net working capital provision
-loan agrements -bond indentures
with the matching approach to meeting the financial needs of the firm, fixed and permanent current assets are financed with
-long term debt -equity funds
which of the following factors affect the firms level if investment in working capital
-the length of the firms operating cycle -firms sales level -firms inventory and credit policies
borrowers feel that there is more risk associated with short term debt because
-uncertainty from interest rate fluctuations -risk of being unable to refund the debt
historically the yield curve has generally been ___ which indicates that long term interest rates usually have been ___ short term interest rates
-upward sloping -higher than
if a firm shows a profit on the quarterly income statement
all
an anticipated need for short term borrow funds is
cash budget
the __ shows the time interval over which additional non spontaneous sources of working capital financing must be obtained to carry out the firms activities
cash conversion cycle
the firms inventory conversion period is equal to its average inventory divided by
cost of sales/365
net working capital is defined as
current assets minus current liabilities
when the level of working capital is increased all of the following are expected to occur except
expected profitability increases
which of the following working capital financing policies subjects the firm to the greatest risk
financing permanent current assets with short term debt
the ___ assets are those that are affected by the seasonal or cyclical nature of company sales
fluctuating current
the rate of return on fixed assets is normally assumed to be ___ the rate of return on current assets
greater than
the size and nature of a firms investment is current assets is a function of a number of different factors including all except
how efficient the firm manages its fixed assets
the length of the operating cycle is equal to the length of the
inventory conversion period + receivables conversion period
under a conservative approach to working capital management a firm tends to hold relatively ___ proportion of its total adders in the form of current assets
large
lenders normally feel that the relative risk associated with short term debt is __ the risk associated with long term debt
lower than
if a firm uses only short term debt to finance the fluctuating level of current assets the firm is said to the using the __ approach to asset financing
matching
the optimal level of working capital investment is the level that is expected to
maximize shareholder wealth
a firms cash conversion cycle is equal to its operating cycle
minus its payables deferral period
which of the following asset are not part of a firms working capital
non
the __ is the optimal working capital investment and financing policy
none
computerized financial planning models may be classified as nay of the following except
optimistic
the length of the operating cycle for a firm is equal to the length of the
payables deferral period + cash conversion cycle
of the accounts listed the accounts that is not part of a firms working capital
plant and equipment
basically the overall working capital policy decisions involves a ___ of alternative policies
profit risk trade off
the operating cycle begins with __ and ends wit___
purchase of resources, receipt of cash
a firms net working capital position is widely used measure of its
risk
all equal, a policy holding a relatively __ proportion of the firms total assets in the form of current assets will tend to result in a ___ risk of the firm encountering financial difficulties
small, higher
all equal, a policy of holding a relatively __ proportion of the firms total assets in the form of current assets will tend to result in a __ expected profitability or rate of return on the total assets of the firm
small, higher
the size of firms investment is current assets is a function of all of the following except
stockholders equity
the relationship between the maturity of debt and its associated cost is referred to as the
term structure of interest rates
which of the following factors does not directly affect the firms level of investment working caputal
the age of the firms plant and equipment
net working capital represents
the amount of current assets financed by non current sources of funds