Question 1

Pressure to increase current asset buildup often results from

Accepted Answer

rapidly expanding sales.

Question 2

Working capital management is primarily concerned with the management and financing of

Accepted Answer

current assets.

Question 3

A financial executive devotes the most time to

Accepted Answer

Working capital management.

Question 4

The term \"permanent current assets\" implies

Accepted Answer

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

Question 5

The concept of a self-liquidating asset implies that

Accepted Answer

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

Question 6

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

Accepted Answer

reduces the number of suppliers bidding for a company\'s business.

Question 7

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

Accepted Answer

self-liquidating.

Question 8

RFID chips have been used to

Accepted Answer

track livestock. track marathon runner\'s time. track inventory at retailers.

Question 9

One advantage of level production is that

Accepted Answer

manpower and equipment are used efficiently at lower cost.

Question 10

Publishing companies are characterized by

Accepted Answer

seasonal sales.

Question 11

If a firm uses level production with seasonal sales

Accepted Answer

as sales decline inventory will increase.

Question 12

Retail companies like Target and The Limited exhibit sales patterns that are mostly influenced by

Accepted Answer

seasonality.

Question 13

Retail companies like Target and Limited Brands are more likely to have

Accepted Answer

cyclical sales and more volatile earnings per share.

Question 14

The use of cash budgeting procedures:

Accepted Answer

helps the firm plan its current asset levels for a given production plan. makes managing inventory easier under seasonal production. illustrates fluctuating levels of current assets for a given production plan.

Question 15

When actual sales are greater than forecasted sales

Accepted Answer

inventory will decline. production schedules might have to be revised upward. accounts receivable will rise.

Question 16

Assuming level production throughout the year & assuming receivables are collected in two equal installments over the two months subsequent to the sales period developing the cash budget requires the following steps:

Accepted Answer

estimate monthly net cash flow and bank borrowing or repayments

Question 17

Normally permanent current assets should be financed by

Accepted Answer

long-term funds.

Question 18

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

Accepted Answer

Fixed assets and permanent current assets

Question 19

A conservatively financed firm would use long-term financing for permanent current assets and fixed assets and

Accepted Answer

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

Question 20

Generally more use is made of short-term financing because

Accepted Answer

short-term interest rates are generally lower than long-term interest rates. most firms do not have easy access to the capital markets.

Question 21

The term structure of interest rates

Accepted Answer

is an indication of investors\' expectations about inflation and future interest rates. will be downward sloping if short-term interest rates are higher than long-term rates. will be upward sloping under normal conditions.

Question 22

The term structure of interest rates

Accepted Answer

changes daily to reflect current competitive conditions in the money and capital markets.

Question 23

The term structure of interest rates is influenced by

Accepted Answer

inflation. money supply. Federal Reserve activities.

Question 24

The term structure of interest rates or the yield curve

Accepted Answer

shows the yield to maturity for securities of equal risk over time.

Question 25

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

Accepted Answer

the liquidity premium theory.

Question 26

The term structure of interest rates

Accepted Answer

is often referred to as the yield curve. depicts the relative level of short and long-term interest rates. is usually constructed with U.S. government securities of varying maturities.

Question 27

Yield curves change daily to reflect

Accepted Answer

changing conditions in the money and capital markets. new inflation expectations. changing conditions in the overall economy.

Question 28

U.S. government securities are used to construct yield curves because

Accepted Answer

they are free of default risk. the large number of maturities form a continuous curve.

Question 29

Some analysts believe that the term structure of interest rates is determined by the behavior of various types of financial institutions. This theory is called the

Accepted Answer

market segmentation theory.

Question 30

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

Accepted Answer

expectations hypothesis.

Question 31

A \"normal\" term structure of interest rates would depict

Accepted Answer

long-term rates higher than short-term rates.

Question 32

A firm will usually increase the ratio of short-term debt to long-term debt when

Accepted Answer

the term structure is inverted and expected to shift down.

Question 33

Which of the following yield curves would be characteristic during a period of high economic growth?

Accepted Answer

upward sloping

Question 34

An inverted yield curve would suggest that

Accepted Answer

interest rates are expected to fall.

Question 35

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

Accepted Answer

financial manager generally borrows short-term.

Question 36

During tight money periods

Accepted Answer

short-term rates are higher than long-term rates.

Question 37

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

Accepted Answer

Expected value

Question 38

Which of the following is a reason for diminishing liquidity in modern corporations?

Accepted Answer

Just-in-time inventory programs. Better utilization of cash via computers. Increased use of point-of-sale terminals.

Question 39

An aggressive risk-oriented firm will likely

Accepted Answer

borrow short-term and carry low levels of liquidity.

Question 40

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

Accepted Answer

Inventory is highly perishable

Question 41

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

Accepted Answer

carrying highly liquid assets.

Question 42

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

Accepted Answer

Liquid assets and heavy long-term borrowing

Question 43

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

Accepted Answer

Illiquid assets and heavy short-term borrowing

Question 44

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

Accepted Answer

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

Question 45

When the yield curve is upward sloping

Accepted Answer

generally a financial manager should:, utilize long-term financing

Question 46

When the yield curve is downward sloping generally a financial manager should

Accepted Answer

utilize short-term financing

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