question

As for the preparation of cash budgets, capital expenditures are

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Included as uses of cash and make the budget lumpy

question

Managers who "stretch their payables" are attempting to

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Obtain a longer period of short term financing

question

A firm that follows a "relaxed strategy" toward the total capital requirement will be a

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Short term lender

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What is the break even probability of collection when the present value of revenues from sale is 100,000 and the present value cost is 87,000

answer

.87 P= cost/revenue

question

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

answer

The cost of borrowing is high relative to interest rate on marketable securities

question

If the marginal reduction in order costs exceeds the marginal carrying cost of inventory, then

answer

The firm should increase its order size

question

Which of the following conditions would make a lock box system potentially more attractive to a firm

answer

Payment size is higher

question

Which of the following would not be included in inventory carrying cost

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Cost of inventory

question

A primary purpose of restricting the investment of idle cash balances to money market instrument is to

answer

Carry a minimal amount of interest rate risk

question

What happens to the implied interest rate on trade credit as the time interval between the discount period and payment period is decreased

answer

The rate increases

question

Which of the following would not be included among the costs of carrying inventory

answer

Raw materials cost

question

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

answer

Increase in accounts payable

question

The goal of managing working capital, such as inventory, should be to minimise the

answer

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

answer

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

question

Which of the following would not be included in the 5 C's of credit

answer

Charges

question

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:

answer

Cash conversion cycle will decrease

question

Higher z scores from multiple discriminate analysis indicate

answer

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

answer

61 days after the sale

question

When a firm is said to have no space capacity it

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Must increase fixed assets to increase sales

question

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

answer

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

answer

Cash conversion cycle

question

When financial managers take action to minimise the carrying costs of current assets they,

answer

May increase costs due to shortages

question

Trade credit is created when

answer

Companies purchase goods on credit

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Which of the following is not typically a characteristic of commercial paper borrowing

answer

The loans are secured

question

The longer the firms account payables period, the

answer

Less the firm must invest in working capital

question

Managers are alerted to projected cash shortages by way of the

answer

Cash budget

question

A firm that wants to increase its sustainable growth rate can do so by ___ the ____ ratio or by ____ the ___ or both

answer

Increasing Plowback Increasing ROE

question

Which of the following assumptions is made when declaring that the break even probability of collection is lower for customers with repeat orders

answer

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,

answer

Is ignoring the principle of matched maturities

question

What happens to a firm whose uses of cash exceed its sources of cash during an accounting period

answer

It experiences a decrease in cash balance

question

A line of credit would be considered

answer

An agreement to borrow up to a specific total amount on demand from a bank

question

Which of the following financial ratios is not used to develop altmans z score from multiple discriminate analysis

answer

Interest expense/ total assets

question

The purpose of credit analysis is to

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Decide whether or not to grant credit to a customer

question

The five C's of credit refer to the

answer

Attributes that help determine credit worthiness 1. Character 2. Capacity 3. Capital 4. Collateral 5. Condition

question

Outputs from a financial plan would include such items as

answer

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

question

The implications of forecasts from a financial plan are determined by the

answer

Planning model

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Pro forma refers to

answer

The projected financial statements

question

A line of credit would be considered

answer

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

answer

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

question

The firms current financial statements would be included in

answer

The inputs of a financial plan

Financial Management II

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