Working Capital Management

MULTIPLE CHOICE QUESTIONS

QUESTION 8 The appropriate collateral for a secured short-term loan is 1) fixed assets. 2) work-in-progress inventory. 3) raw materials, inventory and receivables. 4) ordinary stock in privately held corporations.

QUESTION 9 The interest rate charged on secured short-term loans to a corporation is generally higher than that charged on unsecured short-term loans because 1) the risk of default is lower on secured loans. 2) secured loans are less risky than unsecured loans. 3) it is costly to negotiate and administer secured loans. 4) lenders of secured loans must pay more for their funds.

QUESTION 10 Economic Order Quantity (EOQ), is the order quantity that over the planning horizon. 1) minimizes total ordering costs 2) minimizes total carrying costs 3) minimizes total inventory costs 4) is required as safety stock

QUESTION 11 The credit policy of Home Living Stores is 2/10 net 30. At present 25% of customers take advantage of the discount, 55% pay within the net period, and the remainder pay within 42 days of invoice. What will the effect on receivables be if all customers take the discount? 1) cannot be determined 2) lower than the present level 3) higher than the present level 4) no change from the present level