Virtually all accruals are best guess estimates of obligations arising from merchandise
purchases for which vendor invoices have not yet been received.
The three broad issues involved in receivables policy are (1) which customers should
receive credit and how much, (2) what terms of sale (due dates and discounts) should be
extended to customers, and (3) how should customers who don’t pay on time be
handled.
In strategic mergers, success is based on making money through the operation of
financial markets rather than through the operation of the underlying business.
The exchange rate is part of the cost of product paid by an importing firm.
In large companies, business plans are developed at decentralized divisions and
consolidated upward. Division plans are generally not reviewed and discussed by
corporate management.
The financial managers have little control over the level of current assets associated
with a given volume of sales.
The lower the interest rate, the less money you have to put in the bank today have a
given amount at some point in the future.
The cash flow projected in a perpetuity is defined as a:
A.present value of a single sum.
B.future value of a single sum.
C.present value of an annuity.
D.future value of an annuity.
A firm’s degree of financial leverage is 1.5 and the degree of operating leverage is 2.0.
What is their degree of total leverage?
A.9.0
B.3.0
C.4.5
D.None of the above
There is more risk associated with short-term debt than long-term debt because of:
A.uncertainty arising from interest rate fluctuations.
B.the risk of being unable to refund the debt.
C.relatively high cost of short-term debt.
D.a and b
Assuming a 6% annual discount rate, what is the value of receiving $100.00 annually
perpetually beginning next year?
A.$2,137.50
B.$1,000.00
C.$1,666.67
D.$1,333.33
More aggressive collection procedures should:
A.increase credit sales.
B.decrease accounts receivable.
C.increase ACP.
D.All of the above
E.None of the above
Forming working capital policy involves a series of:
A.profit-risk tradeoffs.
B.financial choices.
C.capital budgeting decisions.
D.None of the above
Which of the following describe commercial paper instruments?
A.They always mature within six months.
B.They typically have rates below the prime rate.
C.They typically require compensating balances.
D.a and b
Which of the following is not a drawback of the simulation approach?
A.The probability distributions of the cash flows are subjective estimates.
B.It can be very difficult to access and use a simulation program.
C.Cash flows in successive periods tend not to be independent.
D.There are no clear guidelines on how to interpret the results.
Which of the following is a component of a firm’s gross working capital?
A.Cash
B.Accounts payable
C.Fixed assets
D.a and b
E.All of the above
Which of the following is not a direct result of a stock dividend?
A.the number of shares outstanding is increased
B.the market price of each outstanding share is increased
C.the amounts shown in the firm’s capital accounts are redistributed
D.a and b
Investors can _____their income stream by selling off shares of a growing stock that
doesn’t pay dividends.
A.estimate
B.maximize
C.tailor
D.enhance
Williamson Trucking has current sales of $10,000 and a cost of goods sold of $4,300.
Williamson has projected sales to increase 50% and expects the new cost ratio to
decrease by 2% due to increased efficiency. Assuming that Williamson wants to
maintain an inventory turnover of 5.0, calculate their projected level of inventory.
(round to the nearest $)
A.$1,230
B.$1,920
C.$2,180
D.$2,340
A(n) ____ is a graphic representation of a business project in which events have
multiple outcomes, each of which is assigned a probability.
A.probability distribution
B.decision tree
C.NPV profile
D.real option
The following items are components of a traditional balance sheet. How much are the
total assets of the firm?
A.$87,000
B.$65,000
C.$59,000
D.$93,000
A loan backed by an asset the lender can sell to pay off the loan if the borrower defaults
is called _____.
A.amortized
B.collateralized
C.guaranteed
D.riskless
The process of finding present values is frequently called:
A.annualizing.
B.compounding.
C.discounting.
D.leasing.
Hazeltine Corp has a callable bond outstanding. The call provision guarantees that the
bond won’t be called in the first ten years of its life, and if it is called thereafter the
bondholder will be compensated with an extra two year’s interest at the 14% coupon
rate. The bond is now four years into its 25 year life. The market interest rate is now
7%, so it is likely that the bond will be called as soon as the contract allows. What
should the bond sell for today?
A.$1,523.53
B.$1,428.39
C.$1,338.23
D.$2,199.96
As a financial person you would be concerned because marketing analyses frequently:
I. Overstate NPV by using the wrong interest rate.
II. Are biased in favor of the projects they propose and estimate unrealistic cash flows.
III. Choose projects in areas that the firm knows nothing about.
A.I, II, and III
B.II and III
C.I and III
D.I and II