Question 1

  1.  

One type of investment that would not be suitable for marketable securities would be:

[removed]

 

bankers’ acceptances

[removed]

 

short-term notes of U.S. government agencies

[removed]

 

negotiable CD’s

[removed]

 

mortgages

 

Question 2

  1.  The objective of managing current assets and liabilities is to

 

[removed]

 

achieve as low a level of current assets as possible.

[removed]

 

achieve as low a level of current liabilities as possible.

[removed]

 

achieve a balance between profitability and risk that contributes to the firm’s value.

[removed]

 

achieve as high a level of current liabilities as possible.

 

Question 3

  1.  The goal of a company’s cash management policy is to

 

[removed]

 

increase the cash conversion cycle.

[removed]

 

increase the payment period.

[removed]

 

minimize the cash requirement.

[removed]

 

maximize cash outflows.

 

Question 4

  1.  Working capital does not include:

 

[removed]

 

cash

[removed]

 

accounts receivable

[removed]

 

marketable securities

[removed]

 

property, plant, and equipment

 

Question 5

  1.  Calculation of a firm’s average collection period is the same as calculating the:

 

[removed]

 

accounts receivable cycle

[removed]

 

inventory cycle

[removed]

 

accounts payable cycle

[removed]

 

short-term operating cycle

  

Question 6

  1.  A negative cash conversion cycle indicates that the

 

[removed]

 

operating cycle exceeds the average payment period.

[removed]

 

average payment period exceeds the operating cycle.

[removed]

 

firm is shortening its average payment period and lengthening its average collection period.

[removed]

 

lengthening its average collection period and lengthening its inventory period.

  

Question 7

  1.  The time between when a payee sends payment and the funds are credited to the payer’s bank account is called the:

 

[removed]

 

collection float

[removed]

 

disbursement float

[removed]

 

total float

[removed]

 

transmittal float

  

Question 8

  1.  Sources of short-term financing such as accounts payable, notes payable, and accruals should be used to finance:

 

[removed]

 

all current assets

[removed]

 

all fixed assets

[removed]

 

a portion of the current assets needed to support nonseasonal sales levels plus all of the seasonal build-up in current assets

[removed]

 

a portion of the fixed assets plus all of the seasonal build-up in current assets

  

Question 9

  1.  Holding all other factors constant, if a firm increases its current liabilities relative to total assets,

 

[removed]

 

it increases return and reduces risk.

[removed]

 

it increases return and increases risk.

[removed]

 

it reduces return and reduces risk.

[removed]

 

it reduces return and increases risk.

  

Question 10

  1.  If a firm purchases materials on credit and thus has accounts payable, its cash conversion cycle will be:

 

[removed]

 

longer than its operating cycle

[removed]

 

the same length as its operating cycle

[removed]

 

shorter than its operating cycle

[removed]

 

the same length as its sales turnover cycle

  

Question 11

  1.  Firms who wish to obtain short-term secured loans generally have two major current assets available as collateral in the form of:

 

[removed]

 

cash and marketable securities

[removed]

 

receivables and inventory

[removed]

 

receivables and factoring

[removed]

 

inventory and floor planning

  

Question 12

  1.  Net working capital is defined as:

 

[removed]

 

current assets plus current liabilities

[removed]

 

current assets less fixed assets

[removed]

 

current assets less current liabilities

[removed]

 

current liabilities plus long-term liabilities

  

Question 13

  1.  Commercial finance companies obtain loanable funds:

 

[removed]

 

to a lesser extent than commercial banks through equity capital

[removed]

 

through both long- and short-term borrowing

[removed]

 

from the Small Business Administration

[removed]

 

primarily from the sale of preferred stock

  

Question 14

  1.  The prime rate offered by commercial banks is their _____________ rate to their ______________ quality business customers.

 

[removed]

 

highest, highest

[removed]

 

lowest, lowest

[removed]

 

lowest, highest

[removed]

 

highest, lowest

  

Question 15

  1.  The most important reason for directly issuing or using commercial paper dealers is:

 

[removed]

 

the cost of borrowing is generally less than regular bank rates

[removed]

 

it’s a profitable alternative to the purchase of Treasury bills

[removed]

 

the avoidance of compensating balances

[removed]

 

the convenience and profitability

  

Question 16

  1.  The bank line of credit is:

 

[removed]

 

the type of business activity on which a particular bank concentrates its lending

[removed]

 

the maximum amount of credit extended to a business customer during a period of one year

[removed]

 

the average of loans made to a business customer during a year

[removed]

 

the loan limit that a bank has established for a business customer

  

Question 17

  1.  Permanent current assets are:

 

[removed]

 

accounts receivable that have become bad debts

[removed]

 

inventories that have become obsolete

[removed]

 

the level of current assets equal to fixed assets

[removed]

 

the level of current assets needed to support sales

  

Question 18

  1.  If a firm actually sells its accounts receivable, the process is known as:

 

[removed]

 

wholesale financing

[removed]

 

floor planning

[removed]

 

field crediting

[removed]

 

factoring

  

Question 19

  1.  The purchaser may deduct 2% from the purchase price if payment is made within 10 days; but if not paid within 10 days, the net amount of the purchase is due within 30 days. The sale is made on what terms?

 

[removed]

 

10/30, net/2

[removed]

 

2/10, net/30

[removed]

 

2/30, net/10

[removed]

 

10/2, net/30

  

Question 20

  1.  A __________________ is a claim against a customer’s inventory when the individual items are indistinguishable.

 

[removed]

 

floor plan receipt

[removed]

 

trust receipt

[removed]

 

warehouse receipt

[removed]

 

blanket inventory lien

 

Question 1

  1.  

One type of investment that would not be suitable for marketable securities would be:

[removed]

 

bankers’ acceptances

[removed]

 

short-term notes of U.S. government agencies

[removed]

 

negotiable CD’s

[removed]

 

mortgages

 

Question 2

  1.  The objective of managing current assets and liabilities is to

 

[removed]

 

achieve as low a level of current assets as possible.

[removed]

 

achieve as low a level of current liabilities as possible.

[removed]

 

achieve a balance between profitability and risk that contributes to the firm’s value.

[removed]

 

achieve as high a level of current liabilities as possible.

 

Question 3

  1.  The goal of a company’s cash management policy is to

 

[removed]

 

increase the cash conversion cycle.

[removed]

 

increase the payment period.

[removed]

 

minimize the cash requirement.

[removed]

 

maximize cash outflows.

 

Question 4

  1.  Working capital does not include:

 

[removed]

 

cash

[removed]

 

accounts receivable

[removed]

 

marketable securities

[removed]

 

property, plant, and equipment

 

Question 5

  1.  Calculation of a firm’s average collection period is the same as calculating the:

 

[removed]

 

accounts receivable cycle

[removed]

 

inventory cycle

[removed]

 

accounts payable cycle

[removed]

 

short-term operating cycle

  

Question 6

  1.  A negative cash conversion cycle indicates that the

 

[removed]

 

operating cycle exceeds the average payment period.

[removed]

 

average payment period exceeds the operating cycle.

[removed]

 

firm is shortening its average payment period and lengthening its average collection period.

[removed]

 

lengthening its average collection period and lengthening its inventory period.

  

Question 7

  1.  The time between when a payee sends payment and the funds are credited to the payer’s bank account is called the:

 

[removed]

 

collection float

[removed]

 

disbursement float

[removed]

 

total float

[removed]

 

transmittal float

  

Question 8

  1.  Sources of short-term financing such as accounts payable, notes payable, and accruals should be used to finance:

 

[removed]

 

all current assets

[removed]

 

all fixed assets

[removed]

 

a portion of the current assets needed to support nonseasonal sales levels plus all of the seasonal build-up in current assets

[removed]

 

a portion of the fixed assets plus all of the seasonal build-up in current assets

  

Question 9

  1.  Holding all other factors constant, if a firm increases its current liabilities relative to total assets,

 

[removed]

 

it increases return and reduces risk.

[removed]

 

it increases return and increases risk.

[removed]

 

it reduces return and reduces risk.

[removed]

 

it reduces return and increases risk.

  

Question 10

  1.  If a firm purchases materials on credit and thus has accounts payable, its cash conversion cycle will be:

 

[removed]

 

longer than its operating cycle

[removed]

 

the same length as its operating cycle

[removed]

 

shorter than its operating cycle

[removed]

 

the same length as its sales turnover cycle

  

Question 11

  1.  Firms who wish to obtain short-term secured loans generally have two major current assets available as collateral in the form of:

 

[removed]

 

cash and marketable securities

[removed]

 

receivables and inventory

[removed]

 

receivables and factoring

[removed]

 

inventory and floor planning

  

Question 12

  1.  Net working capital is defined as:

 

[removed]

 

current assets plus current liabilities

[removed]

 

current assets less fixed assets

[removed]

 

current assets less current liabilities

[removed]

 

current liabilities plus long-term liabilities

  

Question 13

  1.  Commercial finance companies obtain loanable funds:

 

[removed]

 

to a lesser extent than commercial banks through equity capital

[removed]

 

through both long- and short-term borrowing

[removed]

 

from the Small Business Administration

[removed]

 

primarily from the sale of preferred stock

  

Question 14

  1.  The prime rate offered by commercial banks is their _____________ rate to their ______________ quality business customers.

 

[removed]

 

highest, highest

[removed]

 

lowest, lowest

[removed]

 

lowest, highest

[removed]

 

highest, lowest

  

Question 15

  1.  The most important reason for directly issuing or using commercial paper dealers is:

 

[removed]

 

the cost of borrowing is generally less than regular bank rates

[removed]

 

it’s a profitable alternative to the purchase of Treasury bills

[removed]

 

the avoidance of compensating balances

[removed]

 

the convenience and profitability

  

Question 16

  1.  The bank line of credit is:

 

[removed]

 

the type of business activity on which a particular bank concentrates its lending

[removed]

 

the maximum amount of credit extended to a business customer during a period of one year

[removed]

 

the average of loans made to a business customer during a year

[removed]

 

the loan limit that a bank has established for a business customer

  

Question 17

  1.  Permanent current assets are:

 

[removed]

 

accounts receivable that have become bad debts

[removed]

 

inventories that have become obsolete

[removed]

 

the level of current assets equal to fixed assets

[removed]

 

the level of current assets needed to support sales

  

Question 18

  1.  If a firm actually sells its accounts receivable, the process is known as:

 

[removed]

 

wholesale financing

[removed]

 

floor planning

[removed]

 

field crediting

[removed]

 

factoring

  

Question 19

  1.  The purchaser may deduct 2% from the purchase price if payment is made within 10 days; but if not paid within 10 days, the net amount of the purchase is due within 30 days. The sale is made on what terms?

 

[removed]

 

10/30, net/2

[removed]

 

2/10, net/30

[removed]

 

2/30, net/10

[removed]

 

10/2, net/30

  

Question 20

  1.  A __________________ is a claim against a customer’s inventory when the individual items are indistinguishable.

 

[removed]

 

floor plan receipt

[removed]

 

trust receipt

[removed]

 

warehouse receipt

[removed]

 

blanket inventory lien