6 Which of the following statements is NOT CORRECT? Answer Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate. Accruals are "free" in the sense that no explicit interest is paid on these funds. A conservative approach to working capital management will result in most if not all permanent current operating assets being financed with long-term capital. The risk to a firm that borrows with short-term credit is usually greater than if it borrowed using long-term debt. This added risk stems from the greater variability of interest costs on short-term debt and possible difficulties with rolling over short-term debt. Bank loans generally carry a higher interest rate than commercial paper. .2 points Question 7 Firms generally choose to finance temporary current operating assets with short-term debt because Answer matching the maturities of assets and liabilities reduces risk under some circumstances, and also because short-term debt is often less expensive than long-term capital. short-term interest rates have traditionally been more stable than long-term interest rates. a firm that borrows heavily on a long-term basis is more apt to be unable to repay the debt than a firm that borrows short term. the yield curve is normally downward sloping. short-term debt has a higher cost than equity capital. .2 points Question 8 Which of the following is NOT directly reflected in the cash budget of a firm that is in the zero tax bracket? Answer Payments lags. Depreciation. Cumulative cash. Repurchases of common stock. Payment for plant construction. .2 points Question 9 Other things held constant, which of the following would tend to reduce the cash conversion cycle? Answer Carry a constant amount of receivables as sales decline. Place larger orders for raw materials to take advantage of price breaks. Take all discounts that are offered. Continue to take all discounts that are offered and pay on the net date. Offer longer payment terms to customers. .2 points Question 10 Which of the following statements is CORRECT? Answer Other things held constant, the higher a firm's days sales outstanding (DSO), the better its credit department. If a firm that sells on terms of net 30 changes its policy to 2/10 net 30, and if no change in sales volume occurs, then the firm's DSO will probably increase. If a firm sells on terms of 2/10 net 30, and its DSO is 30 days, then the firm probably has some past-due accounts. If a firm sells on terms of net 60, and if its sales are highly seasonal, with a sharp peak in December, then its DSO as it is typically calculated (with sales per day = Sales for past 12 months/365) would probably be lower in January than in July. If a firm changed the credit terms offered to its customers from 2/10 net 30 to 2/10 net 60, then its sales should increase, and this should lead to an increase in sales per day, and that should lead to a decrease in the DSO