MULTIPLE CHOICE.Choose the one alternative that best completes the statement or answers the question.

1)

Working capital alters a firm's value by affecting its ________.

1)

_______

A)

free cash flow

B)

investment cash flow

C)

operating cash flow

D)

financing cash flow

2)

The cash cycle is the ________ between when a firm pays for its inventory and when it receives cash from the sale of its product.

2)

_______

A)

minimum time

B)

average time

C)

maximum time

D)

delayed time

3)

The difference between a firm's operating cycle and its cash cycle is

3)

_______

A)

its accounts payable days.

B)

its account receivable days.

C)

its inventory days.

D)

there is no difference between the cash and operating cycles.

4)

The cash conversion cycle (CCC)is defined as

4)

_______

A)

Inventory Days + Accounts Receivable Days - Accounts Payable Days.

B)

Inventory Days + Accounts Payable Days - Accounts Receivable Days.

C)

Inventory Days - Accounts Receivable Days - Accounts Payable Days.

D)

Inventory Days + Accounts Receivable Days + Accounts Payable Days.

5)

Any ________ in working capital requirements generates a ________ free cash flow that the firm can distribute immediately to shareholders.

5)

_______

A)

increase; positive

B)

reduction; negative

C)

reduction; positive

D)

increase; negative

6)

If the firm can obtain a bank loan ________ interest rate, it would be ________ borrowing at that rate and using the cash proceeds of the loan to take advantage of the discount offered by the supplier.

6)

_______

A)

at a lower; better off

B)

at a required rate of return; better off

C)

at a required rate of return; worse off

D)

at a higher; better off

7)

The term 2/10 net 30 means?

7)

_______

A)

If the invoice is paid within 2 days a 10% discount can be taken, otherwise the full invoice is due in 30 days.

B)

If the invoice is paid within 2 days a 10% discount can be taken, otherwise a 2% discount can be taken if the invoice is paid in 30 days.

C)

If the invoice is paid within 10 days a 2% discount can be taken, otherwise the full invoice is due in 30 days.

D)

If the invoice is paid within 10 days a 2% discount can be taken. If the invoice is paid between 11 and 29 days a 1% discount can be taken.After 30 days the full invoice is due.

8)

Which one of the following is NOT one of the three steps involved in establishing a credit policy?

8)

_______

A)

Establishing credit payment patterns

B)

Establishing credit terms

C)

Establishing a collection policy

D)

Establishing credit standards

9)

The ________ the discount percentage offered, the ________ the cost of forgoing the discount.

9)

_______

A)

higher; greater

B)

lower; greater

C)

higher; smaller

D)

lower; the more expensive

10)

Stretching the accounts payable means to ________ .

10)

______

A)

reduce the trade credit period

B)

decrease the discount percentage offered

C)

raise the amount of accounts payable

D)

increase the trade credit period