Chapter 19 Test bank – Static Key
1.
When financial managers are asked the key reason for choosing short-term rather than long-term debt, they often say that
they try to match the maturities of the firm‘s assets and liabilities.
2.
Biotech firms require large amounts of cash if their drugs succeed in gaining regulatory approval. Therefore, these firms
often have substantial cash holdings to fund their possible investment needs.
3.
Unlike long-term planners short-term planners are concerned only with the most likely outcomes.
4.
Companies with unusually high cash reserves often hold the cash in tax havens.
5.
A company that sells goods to a customer on credit will see no immediate change in its cash position.
6.
A company that pays $5,000 previously owed to one of its suppliers will see a $5,000 decrease in cash.
7.
Most firms have a permanent investment in working capital.
8.
A company that borrows $1 million short term and invests the proceeds in inventory will see its cash position unchanged.
9.
Firms with a permanent investment in working capital finance that investment with short–term debt.
10.
The term “tax inversion” refers to the negative tax shield that is created when a firm invests in securities.
11.
Evidence suggests that investors place a particularly high value on liquidity in the case of companies with growth
opportunities.
12.
A company that sells $5 million of marketable securities will see a $5 million increase in cash.
13.
The largest inflows of cash usually come from payments by the firm’s customers.
14.
Unless customers pay cash on delivery, cash flow comes from collections on receivables.
15.
The primary aim of cash budgeting models is to obtain better forecasts of earnings.
16.
If a firm reduces its accounts payable period, other things equal, it increases its cash holdings.
17.
Firms with surplus cash can use it to increase dividends or buy back securities.
18.
Short-term financing plans are usually developed by trial and error.
19.
A reduction in inventory levels would be a source of cash.
20.
Cash holdings decline when a firm buys raw materials on credit.
21.
If a firm’s customers on average take two weeks to pay their bills, then about half of each month’s bills will not be paid until
22.
A firm that sells marketable securities will see an increase in its working capital but no change in its holdings of cash.
23.
Many high tech firms hold large amounts of marketable securities.
24.
Holdings of marketable securities are at worst zero-NPV investments for taxpaying firms.
25.
An increase in current liabilities is a source of cash for the firm.
26.
The short-term financial plan sets out a strategy for investing any cash surpluses or financing any deficit.
27.
For firms facing financial distress a dollar of cash within the firm is often worth less than a dollar to shareholders.
28.
Managers with a large surplus of cash are often tempted to run a less tight ship.
29.
If the firm repurchases its own stock, its cash holdings are unaffected.
30.
Investments in marketable securities are generally a positive NPV investment for tax-paying firms.
31.
An increase in long-term assets is a source of cash for the firm.
32.
An increase in accounts payable is a source of cash.
33.
A company stretches payables whenever it offers more generous payment terms to its customers.
34.
Firms with large holdings of current assets generally enjoy greater liquidity.
35.
Inventory is generally more liquid than receivables.
36.
A company that matches maturities will generally try to finance its receivables with long-term debt.
37.
The planning horizon for cash budgeting is usually at least five years.
38.
Which of the following statements is not true of short-term financial planning?
39.
Which of these events reduces cash holdings?
40.
Which of these assets is likely to be the least liquid?
41.
Brad Corp expects to make sales of $80 million in January. In February forecast sales are $90 million, and in March they are
$60 million. On average 50% of sales are paid for in the current month, 30% are paid for in the next month, and the
remainder in the following month. What is the expected cash flow from operations in March?
42.
Which of the following transactions would not be a source of cash:
43.
A firm purchases $32 million of materials from suppliers in January, $28 million in February and $25 million in March.
Forty percent are supplied cash on delivery. The remainder needs to be paid for in the following month. What is the cash
outflow in February?
44.
Splitterfield Foods forecasts the following sales and expenses:
June
July
August
Sales ($ millions)
120
150
160
Purchases of raw
materials ($ millions)
70
80
85
Other expenses ($
millions)
30
38
40
Seventy percent of sales are paid for in the same month and the remainder with a delay of one month. All raw materials are
paid for with a delay of one month, other expenses are paid with no delay. What is the expected cash flow from operations in
July?
45.
A toy store does not pay for its purchases of toys from manufacturers until one month later. Suppose that in October it starts
to stock up in anticipation of a surge in toy sales in December, when is it most likely to have a negative operating cash flow?
46.
Which one of the following statements best describes the total capital requirement for most profitable firms?
47.
When a firm finances long-term assets with short-term sources of funding, it:
48.
The principle of matched maturities in finance refers to:
49.
Which one of the following is more likely for a firm practicing the relaxed strategy of long-versus short-term borrowing at
the height of sales demand?
50.
When internally generated cash is temporarily insufficient to meet a firm’s cash need, the firm following a middle–of-the-
road policy for long- versus short-term financing will:
51.
A firm’s permanent working capital refers to the: