Financial Management II
44 test answers
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Assuming that the firm can either hold cash paying no interest or invest in marketable securities which of the following might induce the manager to hold higher cash balances
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The cost of borrowing is high relative to interest rate on marketable securities
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If the marginal reduction in order costs exceeds the marginal carrying cost of inventory, then
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The firm should increase its order size
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Which of the following conditions would make a lock box system potentially more attractive to a firm
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Payment size is higher
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Which of the following would not be included in inventory carrying cost
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Cost of inventory
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A primary purpose of restricting the investment of idle cash balances to money market instrument is to
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Carry a minimal amount of interest rate risk
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What happens to the implied interest rate on trade credit as the time interval between the discount period and payment period is decreased
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The rate increases
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Which of the following would not be included among the costs of carrying inventory
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Raw materials cost
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If the statement of sources and uses of cash shows a decrease in cash balance, which of the following changes might have eliminated that decrease
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Increase in accounts payable
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The goal of managing working capital, such as inventory, should be to minimise the
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Aggregates of carrying and shortage costs
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A firm with ___ profit margin should extend credit to customers with a high probability of default
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High
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Which of the following statements is correct concerning the internal growth rate
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It is maximised when the payment ratio equals zero
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Which of the following would not be included in the 5 C's of credit
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Charges
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If a firm decided to speed up its collections from its customers by reducing the receivables period and kept the inventory period and payable period the same, then:
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Cash conversion cycle will decrease
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Higher z scores from multiple discriminate analysis indicate
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Higher degree of solvency
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At what point does a customers unpaid account become delinquent when the terms of sale are 2/10, net 60
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61 days after the sale
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When a firm is said to have no space capacity it
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Must increase fixed assets to increase sales
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A firms internal growth rate of 10% means that
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External capital will not be required unless sales growth exceeds 10%
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Which of the following will not permit a higher internal growth rate, other things equal
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A higher debt-to-asset ratio
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The time interval between paying for raw materials and collecting on sales of finished goods is known as the
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Cash conversion cycle
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When financial managers take action to minimise the carrying costs of current assets they,
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May increase costs due to shortages
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Trade credit is created when
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Companies purchase goods on credit
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Which of the following is not typically a characteristic of commercial paper borrowing
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The loans are secured
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The longer the firms account payables period, the
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Less the firm must invest in working capital
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Managers are alerted to projected cash shortages by way of the
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Cash budget
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A firm that wants to increase its sustainable growth rate can do so by ___ the ____ ratio or by ____ the ___ or both
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Increasing Plowback Increasing ROE
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Which of the following assumptions is made when declaring that the break even probability of collection is lower for customers with repeat orders
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Payment on the first order ensures payments on subsequent orders
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When a firm finances long term assets with short term sources of funding it,
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Is ignoring the principle of matched maturities
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What happens to a firm whose uses of cash exceed its sources of cash during an accounting period
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It experiences a decrease in cash balance
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A line of credit would be considered
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An agreement to borrow up to a specific total amount on demand from a bank
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Which of the following financial ratios is not used to develop altmans z score from multiple discriminate analysis
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Interest expense/ total assets
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The purpose of credit analysis is to
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Decide whether or not to grant credit to a customer
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The five C's of credit refer to the
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Attributes that help determine credit worthiness 1. Character 2. Capacity 3. Capital 4. Collateral 5. Condition
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Outputs from a financial plan would include such items as
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A pro forma statement of sources and uses of cash
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A planners percentage of sales model forecasts that sales will grow by 20% next year. If COGS are proportionate at 70% of sales, the COGS will:
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Increase by 20% in dollar terms
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The implications of forecasts from a financial plan are determined by the
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Planning model
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Pro forma refers to
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The projected financial statements
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A line of credit would be considered
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An agreement to borrow up to a specific total amount on demand from a bank
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The rate at which the assets of a firm can grow without the requirement of external sources of financing is the
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Internal growth rate
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One potential difficulty with expressing plan objectives in the form of specific profit margins is that
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The means for achieving those ends remain ambiguous
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The firms current financial statements would be included in
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The inputs of a financial plan
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