FIN 534 Week 10 Quiz 9     (15 questions with answers) 99,99 % Scored                      PLEASE DOWNLOAD HEREFinance 534...
One cannot tell if a firm has a conservative, aggressive, or moderate currentasset financing policy without an examination...
Sell common stock to retire long-term bonds.Sell an issue of long-term bonds and use the proceeds to buy back some of itsc...
2 pointsQuestion 7Which of the following is NOT a situation that might lead a firm to increase itsholdings of short-term m...
If a firm sells on terms of net 90, and if its sales are highly seasonal, with 80% ofits sales in September, then its DSO ...
Under normal conditions, a firms expected ROE would probably be higher if itfinanced with short-term rather than with long...
A cash dividend is declared and paid.Merchandise is sold at a profit, but the sale is on credit.Long-term bonds are retire...
used primarily by firms where currency is used frequently in transactions, such asfast food restaurants, and less frequent...
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Fin 534 week 10 quiz 9 (15 questions with answers) 99,99 % scored

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Fin 534 week 10 quiz 9 (15 questions with answers) 99,99 % scored

  1. 1. FIN 534 Week 10 Quiz 9 (15 questions with answers) 99,99 % Scored PLEASE DOWNLOAD HEREFinance 534 week 10 quiz 9Question 1Which of the following statements is NOT CORRECT?AnswerCommercial paper can be issued by virtually any firm so long as it is willing to paythe going interest rate.Accruals are "free" in the sense that no explicit interest is paid on these funds.A conservative approach to working capital management will result in most if notall permanent current operating assets being financed with long-term capital.The risk to a firm that borrows with short-term credit is usually greater than if itborrowed using long-term debt. This added risk stems from the greater variabilityof interest costs on short-term debt and possible difficulties with rolling over short-term debt.Bank loans generally carry a higher interest rate than commercial paper.2 pointsQuestion 2Which of the following statements is CORRECT?AnswerAccruals are an expensive but commonly used way to finance working capital.A conservative financing policy is one where the firm finances part of its fixedassets with short-term capital and all of its net working capital with short-termfunds.If a company receives trade credit under terms of 2/10 net 30, this implies that thecompany has 10 days of free trade credit.
  2. 2. One cannot tell if a firm has a conservative, aggressive, or moderate currentasset financing policy without an examination of its cash budget.If a firm has a relatively aggressive current asset financing policy vis-à-vis otherfirms in its industry, then its current ratio will probably be relatively high.2 pointsQuestion 3Which of the following statements is CORRECT?AnswerShorter-term cash budgets, in general, are used primarily for planning purposes,while longer-term budgets are used for actual cash control.The cash budget and the capital budget are developed separately, and althoughthey are both important to the firm, one does not affect the other.Since depreciation is a non-cash charge, it neither appears on nor has any effecton the cash budget.The target cash balance should be set such that it need not be adjusted forseasonal patterns and unanticipated fluctuations in receipts, although it should bechanged to reflect long-term changes in the firms operations.The typical cash budget reflects interest paid on loans as well as income from theinvestment of surplus cash. These numbers, as well as other items on the cashbudget, are expected values; hence, actual results might vary from the budgetedamounts.2 pointsQuestion 4Helena Furnishings wants to reduce its cash conversion cycle. Which of thefollowing actions should it take?AnswerIncrease average inventory without increasing sales.Take steps to reduce the DSO.Start paying its bills sooner, which would reduce the average accounts payablebut not affect sales.
  3. 3. Sell common stock to retire long-term bonds.Sell an issue of long-term bonds and use the proceeds to buy back some of itscommon stock.2 pointsQuestion 5Which of the following actions would be likely to shorten the cash conversioncycle?AnswerAdopt a new manufacturing process that speeds up the conversion of rawmaterials to finished goods from 20 days to 10 days.Change the credit terms offered to customers from 3/10 net 30 to 1/10 net 50.Begin to take discounts on inventory purchases; we buy on terms of 2/10 net 30.Adopt a new manufacturing process that saves some labor costs but slows downthe conversion of raw materials to finished goods from 10 days to 20 days.Change the credit terms offered to customers from 2/10 net 30 to 1/10 net 60.2 pointsQuestion 6Which of the following statements is CORRECT?AnswerTrade credit is provided only to relatively large, strong firms.Commercial paper is a form of short-term financing that is primarily used by large,strong, financially stable companies.Short-term debt is favored by firms because, while it is generally more expensivethan long-term debt, it exposes the borrowing firm to less risk than long-termdebt.Commercial paper can be issued by virtually any firm so long as it is willing to paythe going interest rate.Commercial paper is typically offered at a long-term maturity of at least five years.
  4. 4. 2 pointsQuestion 7Which of the following is NOT a situation that might lead a firm to increase itsholdings of short-term marketable securities?AnswerThe firm must make a known future payment, such as paying for a new plant thatis under construction.The firm is going from its peak sales season to its slack season, so its receivablesand inventories will experience a seasonal decline.The firm is going from its slack season to its peak sales season, so its receivablesand inventories will experience seasonal increases.The firm has just sold long-term securities and has not yet invested the proceedsin operating assets.The firm just won a product liability suit one of its customers had brought againstit.2 pointsQuestion 8Which of the following statements is CORRECT?AnswerDepreciation is included in the estimate of cash flows (Cash income +Depreciation), hence depreciation is set forth on a separate line in the cashbudget.If cash inflows from collections occur in equal daily amounts but most paymentsmust be made on the 10th of each month, then a regular monthly cash budget willbe misleading. The problem can be corrected by using a daily cash budget.Sound working capital policy is designed to maximize the time between cashexpenditures on materials and the collection of cash on sales.If a firm wants to generate more cash flow from operations in the next month ortwo, it could change its credit policy from 2/10 net 30 to net 60.
  5. 5. If a firm sells on terms of net 90, and if its sales are highly seasonal, with 80% ofits sales in September, then its DSO as it is typically calculated (with sales per forpast 12 months/365) would probably be lower in October than in August.2 pointsQuestion 9Which of the following items should a company report directly in its monthly cashbudget?AnswerIts monthly depreciation expense.Cash proceeds from selling one of its divisions.Accrued interest on zero coupon bonds that it issued.New shares issued in a stock split.New shares issued in a stock dividend.2 pointsQuestion 10Which of the following is NOT directly reflected in the cash budget of a firm that isin the zero tax bracket?AnswerPayments lags.Depreciation.Cumulative cash.Repurchases of common stock.Payment for plant construction.2 pointsQuestion 11Which of the following statements is CORRECT?Answer
  6. 6. Under normal conditions, a firms expected ROE would probably be higher if itfinanced with short-term rather than with long-term debt, but using short-termdebt would probably increase the firms risk.Conservative firms generally use no short-term debt and thus have zero currentliabilities.A short-term loan can usually be obtained more quickly than a long-term loan, butthe cost of short-term debt is normally higher than that of long-term debt.If a firm that can borrow from its bank at a 6% interest rate buys materials onterms of 2/10 net 30, and if it must pay by Day 30 or else be cut off, then wewould expect to see zero accounts payable on its balance sheet.If one of your firms customers is "stretching" its accounts payable, this may be anuisance but it will not have an adverse financial impact on your firm if thecustomer periodically pays off its entire balance.2 pointsQuestion 12Other things held constant, which of the following would tend to reduce the cashconversion cycle?AnswerCarry a constant amount of receivables as sales decline.Place larger orders for raw materials to take advantage of price breaks.Take all discounts that are offered.Continue to take all discounts that are offered and pay on the net date.Offer longer payment terms to customers.2 pointsQuestion 13Other things held constant, which of the following will cause an increase in networking capital?AnswerCash is used to buy marketable securities.
  7. 7. A cash dividend is declared and paid.Merchandise is sold at a profit, but the sale is on credit.Long-term bonds are retired with the proceeds of a preferred stock issue.Missing inventory is written off against retained earnings.2 pointsQuestion 14Which of the following statements is CORRECT?AnswerOther things held constant, the higher a firms days sales outstanding (DSO), thebetter its credit department.If a firm that sells on terms of net 30 changes its policy to 2/10 net 30, and if nochange in sales volume occurs, then the firms DSO will probably increase.If a firm sells on terms of 2/10 net 30, and its DSO is 30 days, then the firmprobably has some past-due accounts.If a firm sells on terms of net 60, and if its sales are highly seasonal, with a sharppeak in December, then its DSO as it is typically calculated (with sales per forpast 12 months/365) would probably be lower in January than in July.If a firm changed the credit terms offered to its customers from 2/10 net 30 to 2/10net 60, then its sales should increase, and this should lead to an increase in salesper day, and that should lead to a decrease in the DSO.2 pointsQuestion 15A lockbox plan isAnswerused to protect cash, i.e., to keep it from being stolen.used to identify inventory safety stocks.used to slow down the collection of checks our firm writes.used to speed up the collection of checks received.
  8. 8. used primarily by firms where currency is used frequently in transactions, such asfast food restaurants, and less frequently by firms that receive payments aschecks.

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