1. All else equal, a business would like to ______ the length of its cash conversion cycle.

a. shorten b. keep constant c. lengthen

2. Helena Furnishings wants to improve its cash conversion cycle. Which of the following steps would help it accomplish that goal, assuming sales stay constant?

a. It increases its average inventory level.

b. It tightens its credit policy, and this reduces the DSO.

c. It starts paying its bills faster, thus reducing its average accounts payable.

d. It loosens its credit policy, and this increases the DSO.

3. Which of the following working capital management policies would be the least risky?

a. Holding a large level of current assets and large amount of short-term financing

b. Holding a small level of current assets and large amount of short-term financing

c. Holding a large level of current assets and small amount of short-term financing

d. Holding a small level of current assets and a large amount of short-term financing

4. A firm has the following Aging Schedule: 0-30 days: $700,000. 31-60 days: $200,000. Over 60 days: $100,000. If bills are due in 30 days, what percent of accounts are late?

a. 10%

b. 15%

c. 20%

d. 25%

e. 30%

5. A firm has an ICP of 20 days, an ACP of 40 days, and a PDP of 30 days. What is the length of its CCC?

a. 20 days b. 30 days c. 40 days d. 50 days

6. The primary benefit of improving a firms CCC is that it would ____ its working capital needs

a. Increase b. decrease

7. A company's inventory costs are too high, and it notices that its fixed cost per order is higher than its holding cost. Based on the approach we modeled in class, which should the firm do to its order size?

a. Increase order size

b. Decrease order size

8. Compared to short-term financing, longer-term financing is usually

a. costlier, but more stable.

b. cheaper, but less stable.

9. Which of the following would never be a reason to justify a merger?

a. Cost synergies.

b. Increased pricing power.

c. Attempt to stabilize earnings by diversifying.

d. The value of the combined company would be less than the sum of the values of the standalone companies.

e. Tax considerations from a target companys accumulated losses.

10. A primary reason that firms would issue debt packaged with hybrid financing is to issue that debt at

_______ coupon rates

a. lower b. higher c. neither a or b

11. A security that entitles its owner the right to purchase newly issued stock, at a given price, up to a given future date, is called a:

a. Convertible b. Warrant c. Preferred Security d. Option

12. Which of the following statements concerning mergers is correct?

a. A vertical merger is a merger of firms in the same general industry, but for which no customer or supplier relationship exists.

b. A horizontal merger is a combination of two firms that produce the same type of good or service.

c. A congeneric merger is a merger of companies in totally different industries.

d. Conglomerate mergers tend to offer the greatest synergistic benefits.

13. Which of the following empirical findings regarding mergers is correct?

a. The acquiring company always benefits due to realized synergies

b. Mergers of companies in unrelated lines of business are the most successful.

c. The target company usually benefits because the acquirer will pay a premium for the target companys shares.

14. The stock of a potential target company trades for $12/share with an EPS of $1/share. You run a Comparables Analysis and determine that a reasonable P/E ratio for the target is 15. Based only on that info, what would you conclude?

a. The Target should be valued at about $15/share; it would be a potential candidate for a merger.

b. The Target should be valued at about $15/share; it would not be a potential candidate for a merger.

15. A security that allows its holder the right to exchange the security for another type of security is called a:

a. Convertible b. Warrant c. Preferred Security d. Option