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