Financial Management II

Flashcard maker : dmytro
As for the preparation of cash budgets, capital expenditures are
Included as uses of cash and make the budget lumpy
Managers who \”stretch their payables\” are attempting to
Obtain a longer period of short term financing
A firm that follows a \”relaxed strategy\” toward the total capital requirement will be a
Short term lender
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
.87
P= cost/revenue
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
The cost of borrowing is high relative to interest rate on marketable securities
If the marginal reduction in order costs exceeds the marginal carrying cost of inventory, then
The firm should increase its order size
Which of the following conditions would make a lock box system potentially more attractive to a firm
Payment size is higher
Which of the following would not be included in inventory carrying cost
Cost of inventory
A primary purpose of restricting the investment of idle cash balances to money market instrument is to
Carry a minimal amount of interest rate risk
What happens to the implied interest rate on trade credit as the time interval between the discount period and payment period is decreased
The rate increases
Which of the following would not be included among the costs of carrying inventory
Raw materials cost
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
Increase in accounts payable
The goal of managing working capital, such as inventory, should be to minimise the
Aggregates of carrying and shortage costs
A firm with ___ profit margin should extend credit to customers with a high probability of default
High
Which of the following statements is correct concerning the internal growth rate
It is maximised when the payment ratio equals zero
Which of the following would not be included in the 5 C’s of credit
Charges
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:
Cash conversion cycle will decrease
Higher z scores from multiple discriminate analysis indicate
Higher degree of solvency
At what point does a customers unpaid account become delinquent when the terms of sale are 2/10, net 60
61 days after the sale
When a firm is said to have no space capacity it
Must increase fixed assets to increase sales
A firms internal growth rate of 10% means that
External capital will not be required unless sales growth exceeds 10%
Which of the following will not permit a higher internal growth rate, other things equal
A higher debt-to-asset ratio
The time interval between paying for raw materials and collecting on sales of finished goods is known as the
Cash conversion cycle
When financial managers take action to minimise the carrying costs of current assets they,
May increase costs due to shortages
Trade credit is created when
Companies purchase goods on credit
Which of the following is not typically a characteristic of commercial paper borrowing
The loans are secured
The longer the firms account payables period, the
Less the firm must invest in working capital
Managers are alerted to projected cash shortages by way of the
Cash budget
A firm that wants to increase its sustainable growth rate can do so by ___ the ____ ratio or by ____ the ___ or both
Increasing
Plowback
Increasing
ROE
Which of the following assumptions is made when declaring that the break even probability of collection is lower for customers with repeat orders
Payment on the first order ensures payments on subsequent orders
When a firm finances long term assets with short term sources of funding it,
Is ignoring the principle of matched maturities
What happens to a firm whose uses of cash exceed its sources of cash during an accounting period
It experiences a decrease in cash balance
A line of credit would be considered
An agreement to borrow up to a specific total amount on demand from a bank
Which of the following financial ratios is not used to develop altmans z score from multiple discriminate analysis
Interest expense/ total assets
The purpose of credit analysis is to
Decide whether or not to grant credit to a customer
The five C’s of credit refer to the
Attributes that help determine credit worthiness
1. Character
2. Capacity
3. Capital
4. Collateral
5. Condition
Outputs from a financial plan would include such items as
A pro forma statement of sources and uses of cash
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:
Increase by 20% in dollar terms
The implications of forecasts from a financial plan are determined by the
Planning model
Pro forma refers to
The projected financial statements
A line of credit would be considered
An agreement to borrow up to a specific total amount on demand from a bank
The rate at which the assets of a firm can grow without the requirement of external sources of financing is the
Internal growth rate
One potential difficulty with expressing plan objectives in the form of specific profit margins is that
The means for achieving those ends remain ambiguous
The firms current financial statements would be included in
The inputs of a financial plan

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