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finance homework mcq




Question;[i]. Helena;Furnishings wants to sharply reduce its cash conversion cycle. Which of the;following steps would reduce its cash conversion cycle?;a. The;company increases its average inventory without increasing its sales.;b. The;company reduces its DSO.;c. The;company starts paying its bills sooner, which reduces its average accounts;payable without reducing its sales.;d. Statements;a and b are correct.;e. All;of the statements above are correct.;[ii]. Other;things held constant, which of the following will cause an increase in working;capital?;a. Cash;is used to buy marketable securities.;b. A;cash dividend is declared and paid.;c. Merchandise;is sold at a profit, but the sale is on credit.;d. Long-term;bonds are retired with the proceeds of a preferred stock issue.;e. Missing;inventory is written off against retained earnings.;[iii]. Which;of the following is typically part of the cash budget?;a. Payments;lag.;b. Payment;for plant construction.;c. Cumulative;cash.;d. Statements;a and c are correct.;e. All;of the statements above are correct.;[iv]. Which;of the following statements concerning the cash budget is correct?;a. Depreciation;expense is not explicitly included, but depreciation effects are implicitly;included in estimated tax payments.;b. Cash;budgets do not include financial expenses such as interest and dividend;payments.;c. Cash budgets do not include;cash inflows from long-term sources such as bond issues.;d. Statements;a and b are correct.;e. Statements;a and c are correct.;[v]. Which;of the following items should a company explicitly;include in its monthly cash budget?;a.;Its;monthly depreciation expense.;b.;Its;cash proceeds from selling one of its divisions.;c.;Interest;paid on its bank loans.;d.;Statements;b and c are correct.;e.;All of;the statements above are correct.;[vi]. Which;of the following statements is most correct?;a. A;cash management system which minimizes;collections float and maximizes;disbursement float is better than one with higher collections float and;lower disbursement float.;b. A;cash management system which maximizes;collections float and minimizes;disbursement float is better than one with lower collections float and;higher disbursement float.;c. The;use of a lockbox is designed;to minimize cash theft losses. If the;cost of the lockbox is less than theft losses saved, then the lockbox should be;installed.;d. Other;things held constant, a firm will need an identical line of credit if it can;arrange to pay its bills by the 5th of each month than if its bills come due;uniformly during the month.;e. The;statements above are all false.;[vii]. Which;of the following statements is most correct?;a. A;good cash management system would minimize disbursement float and maximize;collections float.;b. If;a firm begins to use a well-designed lockbox system, this will reduce its;customers' net float.;c. In;the early 1980's, the prime interest rate hit a high of 21 percent. In 1995 the prime rate was considerably;lower. That sharp interest rate decline;has increased firms' concerns about the efficiency of their cash management;programs.;d. If;a firm can get its customers to permit it to pay by wire transfers rather than;having to write checks, this will increase its net float and thus reduce its;required cash balances.;e. A;firm which has such an efficient cash management system that it has positive;net float can have a negative checkbook balance at most times and still not have;its checks bounce.;[viii]. A;lockbox plan is;a. A;method for safe-keeping of marketable securities.;b. Used;to identify inventory safety stocks.;c. A;system for slowing down the collection of checks written by a firm.;d. A system;for speeding up a firm's collections of checks received.;e. Not;described by any of the statements above.;[ix]. Which;of the following might be attributed to efficient inventory management?;a. High;inventory turnover ratio.;b. Low;incidence of production schedule disruptions.;c. High;total assets turnover.;d. Statements;a and c are correct.;e. All;of the statements above are correct.;[x]. Analyzing;days sales outstanding (DSO) and the aging schedule are two common methods for;monitoring receivables. However, they;can provide erroneous signals to credit managers when;a. Customers?;payments patterns are changing.;b. Sales;fluctuate seasonally.;c. Some;customers take the discount and others do not.;d. Sales;are relatively constant, either seasonally or cyclically.;e. None;of the statements above is correct.;[xi]. Which;of the following is not commonly;regarded as being a credit policy variable?;a. Credit;period.;b. Collection;policy.;c. Credit;standards.;d. Cash;discounts.;e. All;of the statements above are credit policy variables.;[xii]. If;easing a firm?s credit policy lengthens the collection period and results in a;worsening of the aging schedule, then why do firms take such actions?;a. It;normally stimulates sales.;b. To;meet competitive pressures.;c. To;increase the firm?s deferral period for payables.;d. Statements;a and b are correct.;e. All;of the statements above are correct.;[xiii]. Firms;generally choose to finance temporary net operating working capital with;short-term debt because;a. Matching;the maturities of assets and liabilities reduces risk.;b. Short-term;interest rates have traditionally been more stable than long-term interest;rates.;c. A;firm that borrows heavily long-term is more apt to be unable to repay the debt;than a firm that borrows heavily short-term.;d. The;yield curve has traditionally been downward sloping.;e. Sales;remain constant over the year, and financing requirements also remain constant.;[xiv]. Which;of the following statements is most correct?;a. Trade;credit is provided to a business only when purchases are made.;b. Commercial;paper is a form of short-term financing that is primarily used by large;financially stable companies.;c. Short-term;debt, while often cheaper than long-term debt, exposes a firm to the potential;problems associated with rolling over loans.;d. Statements;b and c are correct.;e. All;of the statements above are correct.;[xv]. Which;of the following statements is incorrect?;a. Commercial;paper can be issued by virtually any firm so long as it is willing to pay the;going interest rate.;b. Accruals;are ?free? in the sense that no explicit interest is paid on these funds.;c. A;conservative approach to working capital will result in all permanent assets;being financed using long-term securities.;d. The;risk to the firm of borrowing with short-term credit is usually greater than;with long-term debt. Added risk can stem;from greater variability of interest costs on short-term debt.;e. Bank;loans have a lower interest rate than commercial paper.;[xvi]. Which;of the following is not a situation;that might lead a firm to hold marketable securities?;a. The;firm has purchased a fixed asset that will require a large write-off of;depreciable expense.;b. The;firm must meet a known financial commitment, such as financing an ongoing;construction project.;c. The;firm must finance seasonal operations.;d. The;firm has just sold long-term securities and has not yet invested the proceeds;in earning assets.;e. None;of the statements above is correct. (All;of the situations might lead the firm to hold marketable securities.);[xvii]. Which;of the following statements concerning commercial paper is incorrect?;a. Commercial;paper is generally written for terms less than 270 days.;b. Commercial;paper generally carries an interest rate below;the prime rate.;c. Commercial;paper is sold to money market mutual funds, as well as to other financial;institutions and nonfinancial corporations.;d. Commercial;paper can be issued by virtually any firm so long as it is willing to pay the;going interest rate.;e. Commercial;paper is a type of unsecured promissory note issued by large, strong firms.;Medium;[xviii]. Ignoring;cost and other effects on the firm, which of the following measures would tend;to reduce the cash conversion cycle?;a. Maintain;the level of receivables as sales decrease.;b. Buy;more raw materials to take advantage of price breaks.;c. Take;discounts when offered.;d. Forgo;discounts that are currently being taken.;e. Offer;a longer deferral period to customers.;[xix]. Which;of the following actions are likely to reduce the length of a company?s cash;conversion cycle?;a. Adopting a new inventory system that reduces;the inventory conversion period.;b. Reducing the average days sales outstanding;(DSO) on its accounts receivable.;c. Reducing;the amount of time the company takes to pay its suppliers.;d. Statements;a and b are correct.;e. All;of the statements above are correct.;[xx]. Which;of the following statements is incorrect;about working capital policy?;a. A;company may hold a relatively large amount of cash if it anticipates uncertain;sales levels in the coming year.;b. Credit;policy has an impact on working capital since it has the potential to influence;sales levels and the speed with which cash is collected.;c. The;cash budget is useful in determining future financing needs.;d. Holding;minimal levels of inventory can reduce inventory carrying costs and cannot lead;to any adverse effects on profitability.;e. Managing;working capital levels is important to the financial staff since it influences;financing decisions and overall profitability of the firm.;[xxi]. Which;of the following statements is most correct?;a. The;cash balances of most firms consist of transactions, compensating, and;precautionary balances. The total desired cash balance can be determined by;calculating the amount needed for each purpose and then summing them together.;b. The;easier a firm?s access to borrowed funds, the higher its precautionary balances;will be in order to protect against sudden increases in interest rates.;c. For;some firms holding highly liquid marketable securities is a substitute for;holding cash, because the marketable securities accomplish the same objective;as cash.;d. All;companies hold the same amount of funds for a transaction balance.;e. None;of the statements above is correct.;[xxii]. Which;of the following statements is most correct?;a. Compensating;balance requirements apply only to businesses, not to individuals.;b. Compensating;balances are essentially costless to most firms, because those firms would;normally have such funds on hand to meet transactions needs anyway.;c. If;the required compensating balance is larger than the transactions balance the;firm would ordinarily hold, then the effective cost of any loan requiring such;a balance is increased.;d. Banks;are prohibited from earning interest on the funds they force businesses to keep;as compensating balances.;e. None;of the statements above is correct.;[xxiii]. Which;of the following statements is most correct?;a. Shorter-term;cash budgets, in general, are used primarily for planning purposes, while;longer-term budgets are used for actual cash control.;b. The;cash budget and the capital budget are planned separately and although they are;both important to the firm, they are independent of each other.;c. Since;depreciation is a non-cash charge, it does not appear on nor have an effect on;the cash budget.;d. The;target cash balance is set optimally such that it need not be adjusted for;seasonal patterns and unanticipated fluctuations in receipts, although it is;changed to reflect long-term changes in the firm?s operations.;e. The;typical actual cash budget will reflect interest on loans and income from;investment of surplus cash. These;numbers are expected values and actual results might vary from budgeted;results.;[xxiv]. A;lockbox plan is most beneficial to firms which;a. Send;payables over a wide geographic area.;b. Have;widely disbursed manufacturing facilities.;c. Have;a large marketable securities account to protect.;d. Hold;inventories at many different sites.;e. Make;collections over a wide geographic area.;[xxv]. Which;of the following statements is most correct?;a. Poor;synchronization of cash flows which results in high cash management costs can;be partially offset by increasing disbursement float and decreasing collections;float.;b. The;size of a firm's net float is primarily a function of its natural cash flow;synchronization and how it clears its checks.;c. Lockbox;systems are used mainly for security purposes as well as to decrease the firm's;net float.;d. If;a firm can speed up its collections and slow down its disbursements, it will be;able to reduce its net float.;e. A;firm practicing good cash management and making use of positive net float will;bring its check book balance as close to zero as possible, but must never;generate a negative book balance.;[xxvi]. Which;of the following statements is most correct?;a. A;firm that makes 90 percent of its sales on credit and 10 percent for cash is growing;at a rate of 10 percent annually. If the firm maintains stable growth it will;also be able to maintain its accounts receivable at its current level, since;the 10 percent cash sales can be used to manage the 10 percent growth rate.;b. In;managing a firm?s accounts receivable it is possible to increase credit sales;per day yet still keep accounts receivable fairly steady if the firm can;shorten the length of its collection period.;c. If;a firm has a large percentage of accounts over 30 days old, it is a sign that;the firm?s receivables management needs to be reviewed and improved.;d. Since;receivables and payables both result from sales transactions, a firm with a;high receivables-to-sales ratio should also have a high payables-to-sales;ratio.;e. None;of the statements above is correct.;[xxvii]. Which;of the following statements is most correct?;a. If;a firm?s volume of credit sales declines then its DSO will also decline.;b. If;a firm changes its credit terms from 1/20, net 40 days, to 2/10, net 60 days;the impact on sales can?t be determined because the increase in the discount is;offset by the longer net terms, which tends to reduce sales.;c. The;DSO of a firm with seasonal sales can vary.;While the sales per day figure is usually based on the total annual;sales, the accounts receivable balance will be high or low depending on the;season.;d. An;aging schedule is used to determine what portion of customers pay cash and what;portion buy on credit.;e. Aging;schedules can be constructed from the summary data provided in the firm?s;financial statements.


Paper#48801 | Written in 18-Jul-2015

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