Working Capital Policy And Short-term Financing

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Questions Bank

The Role and Objective of Financial Management
The Domestic and International Financial Marketplace
Evaluation of Financial Performance
Financial Planning and Forecasting
The Time Value of Money
Fixed Income Securities: Characteristics and Valuation
Common Stock: Characteristics, Valuation, and Issuance
Analysis of Risk and Return
Capital Budgeting and Cash Flow Analysis
Capital Budgeting: Decision Criteria and Real Option Considerations
Capital Budgeting and Risk
The Cost of Capital
Capital Structure Concepts
Capital Structure Management in Practice
Dividend Policy
Working Capital Policy and Short-term Financing
The Management of Cash and Marketable Securities
Management of Accounts Receivable and Inventories
Lease and Intermediate-term Financing
Financing With Derivatives
Risk Management
International Financial Management
Corporate Restructuring
Appendix: Continuous Compounding and Discounting
Appendix: Mutually Exclusive Investments Having Unequal Lives
Appendix: Breakeven Analysis
Appendix: Bond Refunding Analysis
Appendix: Taxes

All Questions

Question 1

Free

Multiple Choice

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

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inventory conversion period

receivables conversion period

cash conversion period

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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payables deferral period

cash conversion cycle

receivables conversion period

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.

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inventory conversion period

cash conversion cycle

payables deferral period

receivables conversion period

Check answer

Question 4

Free

Multiple Choice

Net working capital represents:

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

the difference between current assets and long-term liabilities

the difference between current assets and fixed assets

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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plant and equipment

marketable securities

cash

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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the firm's inventory and credit policies

the age of the firm's plant and equipment

the firm's sales level

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.

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small

constant

stable

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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less than

greater than

equal to

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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large, higher

small, higher

constant, higher

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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large, higher

small, higher

constant, higher

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

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term structure of interest rates

investment opportunity curve

risk-return tradeoff function

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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upward sloping, lower than

downward sloping, higher than

upward sloping, higher than

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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lower than

equal to

higher than

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

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uncertainty arising from interest rate fluctuations

risk of being unable to refund the debt

relatively high cost of short-term debt

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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large, lower

constant, higher

constant, lower

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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large, decrease

small, increase

constant, lower

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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financing fluctuating current assets with long-term debt

financing permanent current assets with long-term debt

financing permanent current assets with short-term debt

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

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long-term debt

short-term debt

equity funds

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

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expected profitability decreases

expected profitability increases

risk decreases

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

the length of the firm's operating cycle

the firm's sales level

the firm's inventory and credit policies

all of the above

To unlock the question

Working Capital Policy And Short-term Financing

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

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

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.

Net working capital represents:

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

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

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.

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

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.

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.

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

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

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

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

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.

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.

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

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

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

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

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.

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.

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

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.

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.