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Question;[i]. If;a firm fails to take trade credit discounts it may cost the firm money, but;generally such a policy has a negligible effect on the firm's income statement;and no effect on the firm's balance sheet.;a. True;b. False;[ii]. If;a firm is involuntarily "stretching" its accounts payable then this;is one sign that it is undercapitalized, that is, that it needs more working;capital for operations.;a. True;b. False;[iii]. A;firm that "stretches" its accounts payable rather than paying on net;terms is actually increasing its calculated cost of credit given that it;already does not take discounts when offered, other things held constant.;a. True;b. False;[iv]. If;one of your firm's customers is "stretching" its accounts payable;this may be a nuisance but does not represent a real financial cost to your;firm as long as the firm periodically pays off its entire balance.;a. True;b. False;[v]. Uncertainty;about the exact lives of assets prevents precise maturity matching in an ex;post (i.e., after the fact) sense even though it is possible to maturity match;on an expected basis.;a. True;b. False;[vi]. The;maturity matching or "self-liquidating" approach involves the;financing of permanent net operating working capital with combinations of;long-term capital and short-term capital depending on the level of interest;rates. When short-term rates are high, short-term assets will be financed with;long-term debt to reduce cost and risk.;a. True;b. False;[vii]. A;firm adopting an aggressive working capital financing approach is more;sensitive to unexpected changes in the term structure of interest rates than is;a firm with a conservative financing policy.;a. True;b. False;[viii]. A;firm that employs an aggressive working capital financing policy stands to;increase profitability when the yield curve changes from upward sloping to;downward sloping.;a. True;b. False;[ix]. The;risk to the firm of borrowing using short-term credit is usually greater than;with long-term debt. Added risk stems;from greater variability of interest costs on short-term debt. Even if its long-term prospects are good, the;firm's lender may not renew a short-term loan if the firm is even only;temporarily unable to repay it.;a. True;b. False;[x]. Long-term;loan agreements always contain provisions, or covenants, which constrain the;firm's future actions. Short-term credit;agreements are just as restrictive in order to protect the interests of the;lender.;a. True;b. False;[xi]. A;firm constructing a new manufacturing plant and financing it with short-term;loans that are scheduled to be converted to first mortgage bonds when the plant;is completed, would want to separate the construction loan from other current;liabilities associated with working capital management.;a. True;b. False;[xii]. The;prime rate charged by big money center banks can vary greatly (for example, as;much as 2 to 4 percentage points) across banks due to banks' ability to;differentiate themselves and because particular banks develop particular;clienteles, such as mainly making loans to small firms.;a. True;b. False;[xiii]. A;revolving credit agreement is a formal line of credit usually used by large;firms. The firm will pay a fee on the;unused balance of the committed funds to compensate the bank for the commitment;to extend those funds.;a. True;b. False;f: M

 

Paper#48887 | Written in 18-Jul-2015

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