Working Capital Policy And Short-term Financing

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Question 1
Free
Multiple Choice

The length of the operating cycle is equal to the length of the

Choose correct answer/s
A

inventory conversion period

B

receivables conversion period

C

cash conversion period

D

a plus b

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Question 2
Free
Multiple Choice

The length of the operating cycle for a firm is equal to the length of the

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A

payables deferral period

B

cash conversion cycle

C

receivables conversion period

D

a plus b

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Question 3
Free
Multiple Choice

The ____ shows the time interval over which additional non-spontaneous sources of working capital financing must be obtained to carry out the firm's activities.

Choose correct answer/s
A

inventory conversion period

B

cash conversion cycle

C

payables deferral period

D

receivables conversion period

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Question 4
Free
Multiple Choice

Net working capital represents:

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A

the amount of current assets financed by noncurrent sources of funds.

B

the difference between current assets and long-term liabilities

C

the difference between current assets and fixed assets

D

a and b

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Question 5
Free
Multiple Choice

Of the accounts listed, the account(s) that is (are) NOT part of a firm's working capital is:

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A

plant and equipment

B

marketable securities

C

cash

D

a and c

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Question 6
Multiple Choice

Which of the following factors does not directly affect the firm's level of investment in working capital?

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A
the firm's inventory and credit policies
B
the age of the firm's plant and equipment
C
the firm's sales level
D
the length of the firm's operating cycle
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Question 7
Multiple Choice

Under a conservative approach to working capital management, a firm tends to hold a relatively ____ proportion of its total assets in the form of current assets.

Choose correct answer/s
A
small
B
constant
C
stable
D
large
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Question 8
Multiple Choice

The rate of return on fixed assets is normally assumed to be ____ the rate of return on current assets (especially cash and marketable securities).

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A
less than
B
greater than
C
equal to
D
none of the above
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Question 9
Multiple Choice

All other things being equal, a policy of holding a relatively ____ proportion of the firm's total assets in the form of current assets will tend to result in a ____ expected profitability or rate of return on the total assets of the firm.

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A
large, higher
B
small, higher
C
constant, higher
D
constant, lower
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Question 10
Multiple Choice

All other things being equal, a policy of holding a relatively ____ proportion of the firm's total assets in the form of current assets will tend to result in a ____ risk of the firm encountering financial difficulties.

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A
large, higher
B
small, higher
C
constant, higher
D
constant, lower
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Question 11
Multiple Choice

The relationship between the maturity of debt and its associated cost (interest rate) is referred to as the

Choose correct answer/s
A
term structure of interest rates
B
investment opportunity curve
C
risk-return tradeoff function
D
a and b
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Question 12
Multiple Choice

Historically, the yield curve has generally been ____ , which indicates that long-term interest rates usually have been ____ short-term interest rates.

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A
upward sloping, lower than
B
downward sloping, higher than
C
upward sloping, higher than
D
level, about equal to
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Question 13
Multiple Choice

Lenders normally feel that the relative risk associated with short-term debt is ____ the risk associated with long-term debt.

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A
lower than
B
equal to
C
higher than
D
none of the above
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Question 14
Multiple Choice

Borrowers (e.g., business firms) feel that there is more risk associated with short-term debt (as compared with long-term debt) because of the

Choose correct answer/s
A
uncertainty arising from interest rate fluctuations
B
risk of being unable to refund the debt
C
relatively high cost of short-term debt
D
a and b
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Question 15
Multiple Choice

All other things being equal, a policy of financing its assets with a relatively ____ proportion of short-term debt will tend to result in ____ expected after-tax earnings for the firm.

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A
large, lower
B
constant, higher
C
constant, lower
D
large, higher
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Question 16
Multiple Choice

All other things being equal, a policy of financing its assets with a relatively ____ proportion of short-term debt will tend to ____ the variability (or risk) of the after-tax earnings of the firm.

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A
large, decrease
B
small, increase
C
constant, lower
D
large, increase
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Question 17
Multiple Choice

Which of the following working capital financing policies subjects the firm to the greatest risk?

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A
financing fluctuating current assets with long-term debt
B
financing permanent current assets with long-term debt
C
financing permanent current assets with short-term debt
D
financing fluctuating current assets with short-term debt
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Question 18
Multiple Choice

With the matching approach to meeting the financing needs of the firm, fixed and permanent current assets are financed with

Choose correct answer/s
A
long-term debt
B
short-term debt
C
equity funds
D
a and c
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Question 19
Multiple Choice

When the level of working capital is increased, all of the following are expected to occur except

Choose correct answer/s
A
expected profitability decreases
B
expected profitability increases
C
risk decreases
D
none of the above
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Question 20
Multiple Choice

Which of the following factors affect the firm's level of investment in working capital?

Choose correct answer/s
A
the length of the firm's operating cycle
B
the firm's sales level
C
the firm's inventory and credit policies
D
all of the above
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