In the cash conversion cycle finished goods normally becomes (next step)?

Multiple Choice

• Cash

• Raw materials

• Accounts receivable

• Work in progress

The main objective of working capital management for a firm is to:

Multiple Choice

• minimize its current assets.

• maximize the value of the firm.

• minimize interest expenses of the firm.

• maximize its current liabilities.

• minimize its inventory.

A well-established corporation with a high credit rating needs to borrow money for the next three months. It will likely get the best interest rate by:

Multiple Choice

• getting an unsecured revolving line of credit.

• factoring its receivables.

• issuing commercial papers.

• obtaining a loan secured by its inventory.

Which of the following transactions will increase a firm's cash balance?

Multiple Choice

• The firm sells some of its marketable securities

• The firm collects on its receivables and purchases marketable securities

• The firm pays a previously declared cash dividend

• The firm sells short-term bonds and uses the proceeds to purchase raw materials

• The firm sells long-term bonds and uses the proceeds to repurchase stock

The operating cycle is the length of time from:

Multiple Choice

• the purchase of raw materials to the collection of cash from customers.

• the firm's payment for materials and the date that it gets paid by customers.

• the purchase of raw materials to the payment for raw materials.

• the payment of raw materials to the sale of finished goods.

• the purchase of raw materials to the delivery of the finished product.

Musselman Kennels had sales for the months of January through April of $150, $100, $120, and $200, respectively. The firm receives cash payments of 10 percent in the month of sale, 60 percent one month later, and the remaining 30 percent two months after the sale. What will be the cash inflows for April?

Multiple Choice

• $200

• $142

• $117

• $122

• $156

While a firm has repaid a $5 million short-term bank loan, it also has paid out cash dividends of $1 million. What happens to the firm's net working capital?

Multiple Choice

• A decrease of $4 million

• A decrease of $6 million

• No change

• A decrease of $5 million

• A decrease of $1 million

Which of the following transactions will decrease a firm's cash balance?

Multiple Choice

• The firm sells some of its marketable securities

• The firm pays a previously declared cash dividend

• The firm collects on its receivables and purchases marketable securities

• The firm sells long-term bonds and uses the proceeds to repurchase stock

• The firm sells short-term bonds and uses the proceeds to purchase raw materials

Accrual accounts represent a spontaneous source of financing for a business. An example includes:

Multiple Choice

• wages and salaries.

• corporate income taxes.

• None of the answers are correct.

• All of the answers are correct.

• property taxes.

Which short-term financing strategy would be optimal if the bank loan interest rate is lower than the trade credit interest rate?

Multiple Choice

• Stretch payables.

• None of the answers are correct.

• Borrow from bank.

• Either strategy is equally optimal.

• Do both - borrow and stretch.

In the cash conversion cycle cash normally becomes (next step)?

Multiple Choice

• Work in progress

• Accounts receivable

• Finished goods

• Raw materials

A firm needs to sell $500,000 of commercial paper every three months at annual interest rate of 8%. There is a $2,500 administrative cost each issuance. What is the effective cost of this way of financing over a year period?

Multiple Choice

• 10.4%

• 10.0%

• 2.5%

• 8.0%

• 8.5%

Permanent working capital should be funded (financed) using what loan maturity term?

Multiple Choice

• Short term

• Medium term

• A blend of all three terms

• Long term

Which of the following businesses would most likely need to arrange a line of credit?

Multiple Choice

• A fashion dealer making most of the sales only during Christmas seasons

• A grocery retailer in a busy street mall

• A retailer selling ice cream in the desert

• A tool manufacturer having very even and stable sales every month

• All of these businesses are equally likely to arrange a line of credit.

Which of the following would most likely be financed by short-term borrowing?

Multiple Choice

• A new factory

• Buildings

• Machinery

• Inventory

• Permanent investments in net working capital

Which of the following would decrease the cash conversion cycle in financial planning?

Multiple Choice

• Buying fewer materials on credit

• Increasing sales without changing levels of inventory, accounts receivable, and accounts payable

• Increasing accounts receivable

• Increasing inventory levels

• Extending more credit on goods sold

On average, a firm has accounts receivable of $50,000 and total credit sales are $800,000. Receivables are factored by discounting them at 1.5 percent. What effective interest rate is being charged for this asset-based borrowing?

Multiple Choice

• 19.89 percent

• 15.23 percent

• 41.17 percent

• 27.36 percent

• 34.74 percent

A firm using a "restrictive" policy for total capital requirement will possibly be:

Multiple Choice

• a long-term lender.

• a long-term borrower.

• a short-term lender.

• neither a borrower nor a lender.

• a short-term borrower.

What is the most critical reason why increases in long-term permanent assets should be financed with long-term debt?

Multiple Choice

• Short-term interest rates are higher than long-term rates

• Short-term debt may not be renewable at maturity

• Long-term interest rates fluctuate more than short-term rates

• None of the answers are correct.

• Long-term interest rates can be accurately forecast but short-term rates cannot

A $2 million line of credit is granted to a firm. Although an average of only 75 percent of the limit is drawn down, bank imposes a commitment fee of 0.2 percent per annum. The interest on funds used will be 6 percent per year. However, the bank also charges a 0.1 percent upfront fee to open the account. Calculate the annual total loan cost.

Multiple Choice

• $34,000

• $93,000

• $78,000

• $126,000

• $96,000

Calculate the cash conversion cycle for the following firm:

Income statement data:
Sales	$20,000
Cost of goods sold	15,000
Balance sheet data (averages):
Inventory	2,000
Accounts receivable	500
Accounts payable	1,000

Multiple Choice

• 21.3

• 33.5

• 82.1

• 63.9

• 73.0

A firm using a 'relaxed strategy' for total capital requirement will possibly be:

Multiple Choice

• neither a borrower nor a lender.

• a long-term lender.

• a short-term lender.

• a short-term borrower.

• a long-term borrower.

A use of cash can be shown by:

Multiple Choice

• an increase in an asset.

• an increase in a liability.

• a decrease in an asset,

• None of the answers are correct.

• All of the answers are correct.