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Short-Term Financial Management MCQs




Question;1.An heuristic approach to evaluating credit policy alternatives, which involves estimating profit effects of each alternative, is the present value (NPV) statement approachc.discounted cash flow approachd.scenario-based approache.liquidity analysis approach2. In using the net present value (NPV) approach to evaluating credit policy alternatives, all other things equal,a.the alternative with the highest NPV should be selectedb.the alternative with the lowest NPV should be selectedc.the alternative with the NPV closest to zero should be selectedd.the alternative with the present value of cash inflows closest to zero should be selected3. Emily Cheney is evaluating a proposal to extend credit to a group of new customers. The new customers will generate an average of $40,000 per day in new sales (net of bad debt). On average, they will pay in 68 days. The variablecost ratio is 80%, correction expenses are 2% of sales, and the cost of capital is 10%. What is the NPV of one day's sales if Emily grants credit?a.$4,226.81b.$5,190.78c.$6,483.06d.$7,200.004. You are calculating the NPV of one day's sales associated with a given credit policy that does not offer a discount and has an average collection period of 45days. You should discount variable costs over _____ days and credit administration and correction expenses over ______ days.a.0, 0b.0, 45c.45, 45d.45, 05. The annual effective rate of interest for the Calgon Corp. is 12%. If the cash manager typically invests freed-up funds in overnight investments or uses fundsto pay down a credit line on which the company pays daily compounded interest, the appropriate daily opportunity rate for short-term financial decisions wouldbe:a.0.12/365b.(1+ 0.12) / 365c.[(1+ 0.12)1/365 - 1]d.(0.12)1/3656.Traditional but flawed measures used to monitor receivables balances include each of the following except:a.uncollected balance percentagesb.the aging schedulec.accounts receivable turnoverd.days sales outstanding7. Relative to minimizing inventory investment, minimizing bank balances, and slowing payment on payables, surveyed financial executives believed speedingcollection of receivables to be ______________________ as a recommended short-term financial management strategy.a.more importantb.equally importantc.less importantd.of almost no importance8.In addition to the bias introduced when sales are changing, DSO and accounts receivable turnover are sensitive to ________________, making them imperfect measures of changing collection experience (Assume they are calculated correctly based on a necessary information.) high or low the previously calculated figure wasb.the mix of cash and credit salesc.the stringency of the company's collection effortd.the length of the period over which they are calculatedChapter 7:1. A ________________ source of financing provides funds automatically as a company's operations expand.a)seasonalb)cyclicalc)spontaneousd)derivativee)residual2.Which of the following constitute(s) a spontaneous financing source?(I) accounts receivable(II) accounts payable(III) deferred expenses(IV) inventories(V) accrued expensese.f.g.h.i.9.I and III and IVII and IIIIII and IVII and VCredit terms of 2/10, prox net 30 mean that a cash discount of 2% can be taken if payment is made by _________________ or the full invoice must be paid by __________________.a.days after the invoice date, 30 days after the invoice dateb.days after the invoice date, the 30th day of this calendar monthc.the 10th day of the next calendar month, 30 days after the invoice dated.the 10th day of the next calendar month, the 30th day of the next calendar monthe.days after the good are actually received, 30 days after the goods are actually received10. The advantage of consignment to the retailer isa. not ever having to pay for the goodsb. not having to pay for the goods until the 30th day of the following monthc. not having to pay for the goods unless they are soldd. a much larger price mark-up over cost than on items typically sold by the retailer11. A payables manager is debating which guideline to adopt for his payables practices. Regardless of the NPV effect of doing so, a best ethical rule to follow in determining when to pay invoices is toa.stretch payables from all suppliers, not just a fewb.stretch payables only to the extent your customers are stretching your receivablesc.stretch only those payables that you think will not show up as paid late in the company's Dun & Bradstreet reportd.stretch payables only when the company is financially unable to pay them12. A very important cost of paying an invoice late which is difficult to estimate accurately isa) lost supplier goodwillb) interest charges assessed by the supplierc) the cost of foregone interest revenued) the cost of foregone interest expensee) none of the above13. The decision rule a payables manager should follow when considering how best to apply NPV analysis to payables decisions is to _______________, so long aspayment is not made late.a.ignore the NPV and follow usual industry payment practicesb.delay payment for an additional day as long as NPV continues to fallc.delay payment for an additional day as long as NPV continues to increased.always pay within the cash discount period14. Cleveland Megatron, Inc. is short on cash and finds itself in a "net borrowed position." It has $2 million of its $5 million credit line available at present,however. If the annualized cost of credit line borrowing is greater than the annualized cash discount rate, the NPV-maximizing decision is toa.not take the discount, and pay at the end of the credit the annualized cash discount rate to the daily investment rate, and take the discount if the cash discount rate exceeds the investment the annualized cash discount rate to the daily investment rate, and take the discount if the cash discount rate is le than the investment rated.borrow the necessary funds and take the cash discount15. The highest tier of ethical decisions, which entails a greater ethical commitment on the part of the decision-maker, is toa.obey the lawb.consider whether the action would benefit both parties and be prudent, sound, and wisec.consider whether the well-being of affected parties would be enhanced even if it requires a sacrifice by the decision-makerd.obey the law as well as cultural mores16. The most reliable measure of a firm's payment practices isa. days purchases outstanding (DPO)b.payables balance fractionsc.days of cost of goods sold held in inventoryd.payables turnover ratio


Paper#50127 | Written in 18-Jul-2015

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