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Principles of Finance, 6e
Besley/Brigham
Chapter 15
Cengage Learning Testing, Powered by Cognero
Page 41
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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.
payables deferral period
b.
receivables collection period
c.
cash conversion period
d.
inventory conversion period
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
Cengage Learning Testing, Powered by Cognero
Page 45
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
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
Cengage Learning Testing, Powered by Cognero
Page 47
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
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
Chapter 15
Cengage Learning Testing, Powered by Cognero
Page 50
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
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
Cengage Learning Testing, Powered by Cognero
Page 52
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
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
Cengage Learning Testing, Powered by Cognero
Page 54
© 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
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
