HB 311 Ch 16 Quiz

Net working capital is defined as: a. current assets minus current liabilities. b. working capital minus short-term debt. c. current assets plus current liabilities. d. All of the above

a

Seasonal working capital needs are best financed by: a. short-term loans. b. sales of long-term debt. c. forgoing dividend payments. d. selling inventories.

a

Which of the following is a component of a firm's gross working capital? a. Cash b. Accounts payable c. Fixed assets d. a and b e. All of the above

a

An effective program of working capital management requires that: 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.

b

The aggressive approach to the financing of a firm's current assets uses a ____ proportion of short-term debt and a ____ proportion of long-term debt. a. low, high b. relatively high, relatively low c. high interest, low interest d. None of the above

b

Which of the following transactions will cause net working capital to decrease? a. Inventory is purchased on credit. b. The firm declares and pays a cash dividend. c. An account payable is paid with cash. d. Inventory is sold for cash. e. None of the above would cause net working capital to decrease.

b

An aggressive working capital policy would include: a. using short term financing to finance only the peak temporary working capital. b. using short term financing to finance all temporary working capital. c. using short term financing to finance all temporary and some permanent working capital. d. both a. and b. above describe aggressive working capital policies. e. All of the above describe aggressive working capital policies.

c

Credit extended in connection with goods purchased for resale is called: a. commercial paper. b. bank loans. c. trade credit or payables. d. commercial credit.

c

Seasonal peaks in business are supported by: a. permanent working capital. b. long-term financing. c. temporary working capital. d. discretionary financing.

c

Short-term loans are generally used to: a. finance permanent additions to working capital. b. finance additions to fixed assets. c. finance seasonal working-capital requirements. d. retire equity, thus changing a firm's capital structure.

c

Temporary working capital is: a. the seasonal borrowing capacity of a firm. b. incremental working capital necessary to finance slower than expected collections of customer receivables. c. incremental working capital necessary to support peak activity in seasonal businesses. d. additional payroll cost and expenses incurred during seasonal peaks.

c

The cash conversion cycle measures the time: a. between the creation of receivables and their collection. b. it takes for inventory to be turned into product and sold. c. between payment for inventory and collection of cash for its subsequent sale as product. d. for a check to clear the banking system.

c

Which of the following bank loans/agreements requires a fee even 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.

c

Which of the following is not a source of short-term financing? a. Spontaneous financing from payables and accruals b. Unsecured bank loans c. Five year bonds with a call feature exercisable within one year d. Commercial paper

c

Which of the following represents spontaneous financing? a. The origination of a 9-month bank loan b. The issuance of a note payable with a maturity of less than one year c. An increase in accounts payable resulting from the purchase of inventories on 30-day credit d. a and c e. All of the above

c

____ working capital arises from the seasonal or cyclical nature of a company's sales. a. Current b. Permanent current c. Temporary d. None of the above

c

A revolving credit agreement: a. is similar to a line of credit except that it is binding on the bank. b. does not guarantee the availability of funds. c. requires the lender to pay a commitment fee. d. Both a& c. e. All of the above

d

A revolving-credit agreement between a firm and its bankers: a. is a contractual agreement between the firm and its bank. b. does not need to be "cleaned up" during the term of the arrangement. c. involves payment of a commitment fee to the bank. d. All of the above

d

Credit terms of 1/10, net 30 mean: a. purchases made between the first and tenth day of the month must be paid by month end. b. if the vendor is not paid within 30 days, 1% interest is charged for every 10 days thereafter. c. the vendor will grant a discount of 10% for payment within 30 days. d. the vendor will grant a 1% discount if paid within 10 days; otherwise the bill is due in full within 30 days.

d

The objectives of cash management include to: a. earn a return. b. hold cash to a minimum consistent with efficient operation. c. ensure adequate liquidity. d. Both b & c. e. All of the above

d

The term "net working capital" means: 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

d

Which of the following account changes would reduce a firm's net working capital if all other account balances are held constant? a. Increase in inventories b. Increase in accounts payable c. Decrease in accounts receivable d. b and c e. None of the above

d

Which of the following assets (if any) are not part of a firm's working capital investment? a. Cash b. Accounts receivable c. Inventory d. None of the above

d

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

d

Working capital policy involves a tradeoff between easier operation and ____. a. more working capital b. spontaneous liabilities c. temporary financing d. the cost of carrying short-term assets

d

Which of the following creates spontaneous financing? 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.

e

Which of the following is a source of short-term financing? a. Accounts Payable b. Accruals c. Commercial Paper d. Both a & c e. All of the above

e