MGMT*3320 Chapter 6

Assuming a tax rate of 30%, the after-tax cost of interest expense of $400,000 is:

$280,000.

A firm has current assets of $150,000 and total assets of $750,000. The firm's sales are $1,800,000. The firm's capital asset turnover is:

3.0x

A firm has targeted a 40% growth in sales this year. Last year's cash as a percent of sales was 15%, accounts receivable 30%, and inventory 35%. What percentage growth in current assets is required to support the growth in sales under the percent-of-sales forecasting method?

32%

The yield on a 2-year security is 7.8%. If the yield of a security maturing in 1 year is 7.2%, what is the expected yield on a 1-year security maturing at the end of year 2?

8.4%

An aggressive working capital policy would have which of the following characteristics?

A high ratio of short-term debt to long-term sources of funds

RFID chips have been used to

All of the options are true.

Which of the following is not a primary source of capital to the firm?

Assets

Ideally, which of the following types of assets should be financed with long-term financing?

Capital assets and permanent current assets

Which of the following is a true statement concerning interest rates?

During 1990 the term structure of interest rates formed an inverted yield curve.

Which of the following techniques allows explicit consideration of more than one possible outcome?

Expected value

Which of the following combinations of asset structures and financing patterns is likely to create the most volatile earnings?

Illiquid assets and heavy short-term borrowing

Which of the following is not a condition under which a prudent manager would accept some risk in financing?

Inventory is highly perishable

The concept of a self-liquidating asset implies that:

all the product will be sold, receivables collected, and bills paid over the time period specified.

A corporate buy-back, or the repurchasing of shares, is:

an example of balance sheet restructuring.

If sales volume exceeds the break-even point, the firm will experience:

an operating profit.

If a firm uses level production with seasonal sales:

as sales decline inventory will increase.

In the percent-of-sales method:

as the dividend payout ratio goes up, the required new funds also rise.

If a firm uses long-term financing to cover short-term needs it is:

assuring itself of having adequate capital always.

An aggressive, risk-oriented firm will likely:

borrow short-term and carry low levels of liquidity.

Risk exposure due to heavy short-term borrowing can be compensated for by:

carrying highly liquid assets.

It is difficult to construct a perfectly hedged financial plan because:

exact timing of asset liquidation is difficult.

The theory of the term structure of interest rates, which suggests that long-term rates are determined by the average of short-term rates expected over the time that a long-term bond is outstanding is the:

expectations hypothesis.

When the term structure of interest rates is downward sloping and interest rates are expected to decline, the:

financial manager generally borrows short-term.

In general, the larger the portion of a firm's sales that are on credit, the:

higher will be the firm's need to borrow.

The use of cash budgeting procedures:

illustrates fluctuating levels of current assets for a given production plan.

An inverted yield curve would suggest that:

interest rates are expected to fall.

The term structure of interest rates:

is an indication of investors' expectations about inflation and future interest rates. is usually constructed with Government of Canada securities of varying maturities.

Well-implemented Web-based supply chain management has all of the following benefits except

it limits the number of suppliers bidding for a company's business.

Normally, permanent current assets should be financed by:

long-term funds.

A balance sheet valuation measure is:

market value to book value.

When actual sales are greater than forecasted sales:

production schedules might have to be revised upward.

Retail companies like Canadian Tire and Indigo exhibit sales patterns that are mostly influenced by:

seasonality.

Permanent current assets are not a factor in a manager's decision-making process when all current assets are

self-liquidating.

Generally, more use is made of short-term financing because:

short-term interest rates are generally lower than long-term interest rates.

The term "permanent current assets" implies:

some minimum level of current assets that is not self-liquidating.

Insider trading occurs when:

someone has information not available to the public, which they use to profit from trading in stocks.

If the price per unit increases but the cost structure remains the same:

the break-even point falls.

The belief that investors require a higher return to entice them into holding long-term securities is the viewpoint of the:

the liquidity premium theory.

Financial leverage deals with:

the relationship between debt and equity in the capital structure.

A conservatively financed firm would:

use long-term financing for permanent assets and capital assets and a portion of the short-term fluctuating assets and use short-term financing for all other short-term assets.