Principles of Finance, 6e
Besley/Brigham
Chapter 15
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TOPICS:
Working Capital Decisions
83. When the current ratio is ____ than one and current liabilities ____ by the same dollar amount as current assets, the
current ratio ____.
a.
less; decrease; increases
b.
greater; increase; increases
c.
greater; increase; decreases
d.
less; increase; decreases
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Current Ratio
84. The cash conversion cycle is the length of time from
a.
the payment of accrued wages to manufacture a product until the sale of that product.
b.
the payment of accrued wages to manufacture a product until the collection of accounts receivable associated
with the sale of that product.
c.
the payment for the purchase of raw materials to manufacture a product until the sale of that product.
d.
the payment for the purchase of raw materials to manufacture a product until the collection of accounts
receivable associated with the sale of that product.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Cash Conversion Cycle
85. The ____ is the average length of time required to convert materials into finished goods and then to sell those goods.
a.
b.
c.
d.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
Principles of Finance, 6e
Besley/Brigham
Chapter 15
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95. An increase in a current asset account must be accompanied by a corresponding increase in a liability account.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Working Capital
96. Long-term debt which is coming due in the next accounting period is defined as a current liability but is not
considered a working capital decision variable.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Working Capital
97. Although short-term interest rates have historically averaged less than long-term rates, the heavy use of short-term
debt is considered to be an aggressive working capital strategy because of the inherent risks of using short-term financing.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Working Capital Policy
98. Determination of a firm’s investment in current assets and how that investment is financed are elements of working
capital policy.
a.
True
b.
False
ANSWER:
True
POINTS:
1
Principles of Finance, 6e
Besley/Brigham
Chapter 15
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102. A conservative approach to working capital will result in all permanent assets being financed using long-term
securities.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Conservative Approach
103. Accruals represent a source of “free” financing in the sense that no explicit interest is paid on these funds.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Accruals
104. Accruals represent a spontaneous source of funding but, unfortunately, due to economic forces, firms have little
control over the level of these accounts.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Accruals
105. If a firm is offered credit terms of 2/10, net 30, it is in the firm’s financial interest to pay as early during the discount
period as possible.
a.
True
b.
False
ANSWER:
False
Principles of Finance, 6e
Besley/Brigham
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ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Short-Term Financing
113. Short-term loans generally are obtained faster than long-term loans because when lenders consider long-term loans
they insist on a more thorough evaluation of the borrower‘s financial health and because the loan agreement is more
complex.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Short-Term Financing
114. A line of credit and a revolving credit agreement are similar except that a line of credit creates a legal obligation for
the bank.
a.
True
b.
False
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Bank Loans
115. A promissory note is the document signed when a bank loan is executed and it specifies financial aspects of the loan,
and items such as collateral and other terms and conditions.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Principles of Finance, 6e
Besley/Brigham
Chapter 15
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a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Factoring Accounts Receivable
120. When a firm factors its accounts receivable, the factor normally performs the functions of risk bearing, credit
checking, and lending.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Factoring Accounts Receivable
121. The pledging of receivables differs from factoring in that, under pledging, the lender normally has recourse against
the borrower.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Receivables Financing
122. Cash is often referred to as a “non-earning” asset. Thus, one goal of cash management is to minimize the amount of
cash necessary to conduct business.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
Principles of Finance, 6e
Besley/Brigham
Chapter 15
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126. Lockbox arrangements are one way for a firm to speed up the receipt of payments from customers.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Lockbox
127. A zero balance account is used by firms as an effective tool of cash management to reduce the amount of idle cash a
firm might otherwise keep.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Zero Balance Account
128. The average accounts receivables balance is determined jointly by the volume of credit sales and the days sales
outstanding.
a.
True
b.
False
ANSWER:
True
POINTS:
1
DIFFICULTY:
Easy
ACCREDITING STANDARDS:
Blooms Taxonomy-5 – Knowledge
Business Program-6 – Reflective Thinking
DISC-FIN-05 – Financial Analysis and Cash Flows
Time Estimate-a – 5 min.
TOPICS:
Receivables Balance
129. The average accounts receivables balance is determined jointly by the volume of credit sales and the days sales
outstanding.
a.
True
b.
False
ANSWER:
True
POINTS:
1