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Question 1

One type of investment that would not be suitable for marketable securities would be:

[removed]		bankers’ acceptances
[removed]		short-term notes of U.S. government agencies
[removed]		negotiable CD’s
[removed]		mortgages

Question 2

The objective of managing current assets and liabilities is to

[removed]		achieve as low a level of current assets as possible.
[removed]		achieve as low a level of current liabilities as possible.
[removed]		achieve a balance between profitability and risk that contributes to the firm’s value.
[removed]		achieve as high a level of current liabilities as possible.

Question 3

The goal of a company’s cash management policy is to

[removed]		increase the cash conversion cycle.
[removed]		increase the payment period.
[removed]		minimize the cash requirement.
[removed]		maximize cash outflows.

Question 4

Working capital does not include:

[removed]		cash
[removed]		accounts receivable
[removed]		marketable securities
[removed]		property, plant, and equipment

Question 5

Calculation of a firm’s average collection period is the same as calculating the:

[removed]		accounts receivable cycle
[removed]		inventory cycle
[removed]		accounts payable cycle
[removed]		short-term operating cycle

Question 6

A negative cash conversion cycle indicates that the

[removed]		operating cycle exceeds the average payment period.
[removed]		average payment period exceeds the operating cycle.
[removed]		firm is shortening its average payment period and lengthening its average collection period.
[removed]		lengthening its average collection period and lengthening its inventory period.

Question 7

The time between when a payee sends payment and the funds are credited to the payer’s bank account is called the:

[removed]		collection float
[removed]		disbursement float
[removed]		total float
[removed]		transmittal float

Question 8

Sources of short-term financing such as accounts payable, notes payable, and accruals should be used to finance:

[removed]		all current assets
[removed]		all fixed assets
[removed]		a portion of the current assets needed to support nonseasonal sales levels plus all of the seasonal build-up in current assets
[removed]		a portion of the fixed assets plus all of the seasonal build-up in current assets

Question 9

Holding all other factors constant, if a firm increases its current liabilities relative to total assets,

[removed]		it increases return and reduces risk.
[removed]		it increases return and increases risk.
[removed]		it reduces return and reduces risk.
[removed]		it reduces return and increases risk.

Question 10

If a firm purchases materials on credit and thus has accounts payable, its cash conversion cycle will be:

[removed]		longer than its operating cycle
[removed]		the same length as its operating cycle
[removed]		shorter than its operating cycle
[removed]		the same length as its sales turnover cycle

Question 11

Firms who wish to obtain short-term secured loans generally have two major current assets available as collateral in the form of:

[removed]		cash and marketable securities
[removed]		receivables and inventory
[removed]		receivables and factoring
[removed]		inventory and floor planning

Question 12

Net working capital is defined as:

[removed]		current assets plus current liabilities
[removed]		current assets less fixed assets
[removed]		current assets less current liabilities
[removed]		current liabilities plus long-term liabilities

Question 13

Commercial finance companies obtain loanable funds:

[removed]		to a lesser extent than commercial banks through equity capital
[removed]		through both long- and short-term borrowing
[removed]		from the Small Business Administration
[removed]		primarily from the sale of preferred stock

Question 14

The prime rate offered by commercial banks is their _____________ rate to their ______________ quality business customers.

[removed]		highest, highest
[removed]		lowest, lowest
[removed]		lowest, highest
[removed]		highest, lowest

Question 15

The most important reason for directly issuing or using commercial paper dealers is:

[removed]		the cost of borrowing is generally less than regular bank rates
[removed]		it’s a profitable alternative to the purchase of Treasury bills
[removed]		the avoidance of compensating balances
[removed]		the convenience and profitability

Question 16

The bank line of credit is:

[removed]		the type of business activity on which a particular bank concentrates its lending
[removed]		the maximum amount of credit extended to a business customer during a period of one year
[removed]		the average of loans made to a business customer during a year
[removed]		the loan limit that a bank has established for a business customer

Question 17

Permanent current assets are:

[removed]		accounts receivable that have become bad debts
[removed]		inventories that have become obsolete
[removed]		the level of current assets equal to fixed assets
[removed]		the level of current assets needed to support sales

Question 18

If a firm actually sells its accounts receivable, the process is known as:

[removed]		wholesale financing
[removed]		floor planning
[removed]		field crediting
[removed]		factoring

Question 19

The purchaser may deduct 2% from the purchase price if payment is made within 10 days; but if not paid within 10 days, the net amount of the purchase is due within 30 days. The sale is made on what terms?

[removed]		10/30, net/2
[removed]		2/10, net/30
[removed]		2/30, net/10
[removed]		10/2, net/30

Question 20

A __________________ is a claim against a customer’s inventory when the individual items are indistinguishable.

[removed]		floor plan receipt
[removed]		trust receipt
[removed]		warehouse receipt
[removed]		blanket inventory lien

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