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Finance Multiple Choice Questions with A+ Answers




Question;1. A credit policy includes each of the following except:A. credit standardsB. the company's approach to credit investigation and correctionsC.whether a "just in time"system will be usedD. credit terms2. Cash application should be done as quickly as possible by a seller becauseA. it may prevent the bankruptcy of a customerB. it involves shipping to the most profitable customer accounts C. it enables customers to order more merchandise D. it usually results in the seller being given a higher Dun & Bradstreet ratingE. none of the above3. The PRIMARY reason given by those companies that impose credit limits is:A. to control risk exposureB. because of customer's financial positionC. because of experience with customerD. to improve the supplier's perceived status by signaling selectivity4. The number of days inventory held method and the balance fraction methodA. Provide the same conclusion with regard to inventory usageB. Provide conflicting conclusions with regard to inventory usageC. Provide the same conclusion with regard to inventory purchasesD. Provide conflicting conclusions with regard to inventory purchases5. Which of the following is the order of evolution for resource requirements planning systems?A. ERP, MRP, MRP I, MRP IIB. MRP I, MRP II, MRP, ERPC. ERP, MRP I, MRP II, MRPD. MRP, MRP I, MRP II,ERP6. The general manager of a steel mill is pretty sure that the demand for and price of steel will be increasing sharply within the next six months due to a sudden boom in the housing market. If he increases current production and inventories corresponding to his belief, his action would be indicative of the _____________ motive for holding inventory.A. SpeculativeB. PrecautionaryC. transactionD. just-in-time7. The move from an aggressive financing strategy to a moderate financing strategy should __________ a company's liquidity by increasing the use of ________-term funds.A. Increase, longB. Increase, shortC. Decrease, longD. Decrease, short8. Security A is a fully taxable security that earns 5% annually. Security B is a tax-exempt municipal security. If a short-term investment manager uses a tax rate of 33%, what yield must security B earn such that the investment manager would be indifferent between securities A and B?A. 2.5%B. 3.35%C. 4.67%D. 7.46%9. The ABC Company paid total interest of $2,000 on its line of credit borrowings for the year. ABC paid a $100 commitment fee on an average borrowing of $20,000 for the year. What is ABC's annual effective rate of interest?A. 9.95%B.10.00%C.10.50%D.12.71%10. The effective cost of commercial paper is 6%, and the effective cost of a bank credit line is also 6%. All other considerations aside, the treasurer should:A. finance with the commercial paperB. finance with the bank credit lineC. be indifferent to the commercial paper or the credit lineD. wait for interest rates to change before making a decision11. The coupon-equivalent yield is _______ than the discount yield of a 91-day Treasury bill with the gap ______ at higher interest rates.A. Lower, wideningB. Greater, narrowingC. Greater, wideningD. Lower, narrowing12. The financial motive for extending trade credit posits that credit sellers:A. have a non-price marketing advantageB. charge a higher selling priceC. charge higher service charges applied to credit customersD. have lower operating costs13. A credit analyst is going over a Dun & Bradstreet report on a potential new customer. The credit history shows that the company paid two of its many suppliers late within the last six months. The least likely conclusion to be drawn is:A. that the company would be a poor credit risk.B. that the company is a good credit risk.C. that the company may have disputes with its supplier(s).D. that the company is experiencing a cash crisis14. The most liquid security, and the one that has the least default risk in the world, is the:A. 91-day Treasury billB. 3-month CDC. loan participationsD. commercial paper15. Supply chain management systems are as:A. just-in-time inventory management systemsB. distributionC. logisticsD. ?a? and ?b?E. ?b? and ?c?16. The major motives for trade credit extension include all of the following except:A. pricing motiveB. operating motiveC. contracting cost motiveD. production motive17. Borque Manufacturing forecasts that its production will require 500,000 tons of bauxite over its planning period. Demand for Torque's products is stable over time. Ordering costs amount to an average of $20.00 per order. Holding costs are estimated at $1.25per ton of bauxite. EOQ for Torque isA. 2,200 tonsB. 6,000,000 tonsC. 4,000 tonsD. 5.6tons18. The aggressive financing strategy:A. Is basically a maturity matching strategyB. Heavily relies on short-term fundsC. Uses only long-term fundsD. ?a? and ?b?E. ?a? and ?c?.19. Which of the following are advantages that credit sellers have over banksA. Information advantageB. Control advantageC. Salvage value advantageD. ?a? and ?b?E. all of the above20. Mortgage backed government agency securities are NOT suited to the short-term investor because theyA. have high interest rate riskB. have uneven cash flowsC. do not permit prepayment of the mortgages backing themD. all the above are correctE. ?a? and ?b?21. The manufacturer of bicycles has just implemented a new sales forecasting model which is much more accurate than the "guesstimates" used in the past. The company should consequentlyA. reduce finished goods inventoriesB. increase finished goods inventoriesC. totally eliminate finished goods inventoriesD. not change its finished goods inventories22. An automobile manufacturer has just decided to outsource windshields instead of making them itself. Using an outside supplier under the just-in-time approach will have what immediate effect on the manufacturer's inventory management?A. reduce finished goods inventoriesB. reduce raw material inventoriesC. reduce work in process inventoriesD. both a and bE. both b and c23. The primary determinants of credit limits include the following:A. Customer?s requirements for the firm?s productsB. Customer?s recent payment historyC. Customer?s ability to pay its debtsD. ?b? and ?c?E. all of the above24. "Estimated Financial Strength" in the Dun & Bradstreet ratings system refers toA. net worthB. total assetsC. total debtD. total debt less cash and marketable securitiesE. none of the above25. The valuation approach to making short-term financial decisions uses discounting to assess shareholder wealth effects. Using a cash flow timeline to assess various inventory purchase quantities is premised on an objective which should lead to enhanced shareholder wealth, which isA. maximizing return on inventory investmentB. minimizing the sum of inventory holding and ordering costsC. minimizing the present value cost of inventory-related cash flowsD. maximizing the gross margin return on inventory investmentE. none of the above26. The minimum level of ongoing inventory and receivables is what is referred to as ______________ current assets.A. transitoryB. modifiableC. discretionaryD. permanent27. Which of the following is not one of the advantages of money market mutual funds?A. enhanced liquidityB. greater flexibilityC. higher yieldsD. exemption from state and local income taxes28. MNO, Inc. paid a total interest of $3,000 on its line of credit borrowings for the year. MNO?s average annual borrowings are $30,000. The bank retains $6,000 as a compensating balance. What is the MNO's annual effective rate of interest?A. 8.33%B. 10.00%C. 12.50%D. 30.00%29. A company may wish to add a safety stock if it faces uncertain demand. The inventory analyst should modify the following in light of the safety stock:A. recompute the average inventory by adding the safety stock amount to the present average inventory balanceB. recompute the reorder point by adding the safety stock to the present reorder pointC. recompute EOQ by adding the safety stock to period demand to arrive at a new usage rateD. both a and bE. both b and c30. An investor trying to gain an understanding of what determines commercial paper rates should focus on:A. only the commercial paper marketB. the T-bill marketC. the CD ratesD. all of the above31. Resiliency in a secondary market refers toA. The existence of many large buyers of the instrumentB. the entrance of many new orders when the price is in temporary imbalanceC. the ability of the market to absorb a large quantity of a security without a major change in the D. instrument's priceE. none of the above32. Restrictive assumptions used to develop and use the basic EOQ model include all of the following except:A. a non-constant order cost per orderB. a constant cost of holding each unit of inventoryC. a very accurate inventory demand forecastD. a constant rate of inventory usage33. Credit analyst John Adams is considering a $1,000 order from a new customer. The cost of filling the order is $950. John estimates collection costs are $20. The customer will pay in 60 days. If the appropriate cost of capital is 18%, what is the NPV of extending credit to the new customer?A. $30.00B. $26.87C. $4.31D. $1.8434. The _______ is the rate charged depository institutions when they borrow reserves from the Fed, the _______ is the rate charged on reserve borrowings transacted between banks.A. Discount rate, Fed funds rateB. Fed funds rate, Discount rateC. LIBOR, Fed funds rateD. Fed funds rate, LIBOR35. Implementing a supply chain management system necessitates eliminating delays, waste and bottlenecks inA. the ordering processB. the production processC. the storage of finished goodsD. a and bE. a, b, and c36. Departments of local credit associations that provide information in the form of "Business Credit Reports"and other reports are calledA. credit reporting agenciesB. credit analysis agenciesC. credit information exchange bureausD. credit interchange bureausE. none of the above37. Rule-based computerized applications of artificial intelligence to credit decision making are known as:A. expert systemsB. just in time systemsC. portfolio analysis systemsD. credit extension systems38. The money market is mainly a (an) ___________ market.A. WholesaleB. retailC. brokeredD. offshore39. The conservative financing strategy:A. Is basically a maturity matching strategyB. Uses only long-term fundsC. Uses only short-term fundsD. Uses a mix of short-term and long-term funds40. Recent evidence shows that credit professionals work withA. Marketing and sales personnelB. Other finance personnelC. Production personnelD. ?a? and ?b?E. ?b? and ?c?41. The Brooks Company paid total interest of $3,000 on its line of credit borrowings for the year. Also, Brooks paid a $50 commitment fee and borrowed on average $30,000 for the year. Of the $30,000 average borrowings, $6,000 remained in the bank as a compensating balance. What is the Brook's annual effective rate of interest?A.10.17% B. 11.26% C. 12.50% D. 12.71% E. 13.22%42. Which of the following is NOT one of the primary ways a company can reduce its inventory investment?A. expand salesB. forecast sales more accuratelyC. find more reliable suppliersD. eliminate bottlenecks in the production process43. Focusing on the present value of total inventory-related cash flows instead of the amount of inventory investment indicates the managers' emphasis should be onA. all inventory-related expensesB. the inventory turnover ratioC. the economic order quantityD. none of the above44. A company's marketing manager is worried about ____________ stock-outs while production manger is concerned with _____________ stock-outs.A. raw material, work-in-processB. work-in-process, raw materialC. work-in-process, finished goodsD. finished goods, raw material and work-in-process45. According to the assumptions upon which the EOQ model is based, total inventory costs _______________ with increases in the number of units ordered in each order.A. first increases, then decreasesB. first decreases, then increasesC. increases, but at a slowing rateD. decreases, but at a slowing rate46. Which of the following is NOT correct? Euro CP is not subject to several Securities and Exchange requirementsEuro CP issues generally do not require a back-up credit facilityEuro CP issues do not require name recognition as the rating agencies provide assessment of the default riskEuro CP issues typically have longer maturities than domestic CP47. A company is experiencing rapid build-up in its inventories and receivables. Likely cause(s) for this is (are): I. Sales are declining significantly II. Inefficient inventory and receivable management III. It has moved to just-in-time inventory management and shortened its credit period IV. Sales are growing rapidlyA. I and IIB. II and IVC. I and IIID. III and IV48. The differences between interest rates on US domestic Certificates of Deposit, Treasury bills, Commercial Paper, Eurodollar Certificates of Deposit, and Fed fundsA. tend to persist when rates are rising, but not when rates are fallingB. tend to persist when rates are falling, but not when rates are risingC. are not persistent when rate are rising or falling- hence, these instruments are not close substitutes for the short-term investments managerD. are persistent when rates are rising or falling - hence, these instruments are close substitutes for the short-term investments manager49. Typically, moving from a conservative to a moderate or aggressive financing strategy will result in __________ profitability and in _________ solvency for the company. A. Lesser, greaterB. greater, lesserC. lesser, lesserD. greater, greater50. Inventory management is often viewed as the need to keep enough product on hand to avoid stock-outs, however the financial manager is concerned about:A. having a larger assortment than any of the competitorsB. earning a reasonable rate of return on invested capitalC. ordering the largest quantities possible to maximize quantity discountsD. maximizing the inventory


Paper#50299 | Written in 18-Jul-2015

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