73) Tinbergen Cans expects sales next year to be $50,000,000. Inventory and accounts receivable
(combined) will increase $8,000,000 to accommodate this sales level. The company has a profit
margin of 6 percent. Its dividend payout is 30 percent of profit. How much external financing
will the firm have to seek? Assume there is no increase in liabilities other than that which will
occur with the external financing.
A) No external financing will be needed.
B) Less than $1,000,000 of external financing is needed.
C) Between $1,000,000 and $5,000,000 of external financing is needed.
D) More than $5,000,000 of external financing is needed.
74) Samuelson will produce 20,000 units in January using level production. If each unit costs
$500 to manufacture, what is the dollar value of ending inventory in January if beginning
inventory is 10,000 units and January sales are 15,000?
A) Less than $5,000,000
B) Between $5,000,000 and $10,000,000
C) Greater than $10,000,000
D) There will be a shortage of inventory.
75) Samuelson has a beginning inventory balance on January 1 of 12,000 units and desires an
ending balance of 20% of the next month’s sales. If sales are expected to be 17,000 for January
and 20,000 for February, what is the ending balance as of January 31?
A) 4,000 units
B) 5,500 units
C) 3,400 units
D) 8,400 units
76) Samuelson has a beginning inventory balance on January 1 of 12,000 units and desires an
ending balance of 20% of the next month’s sales. If sales are expected to be 17,000 for January
and 20,000 for February, what amount of units does Samuelson have to produce during the
month of January?
A) 4,000 units
B) 9,000 units
C) 3,400 units
D) 8,400 units
77) One advantage of level production is that
A) manpower and equipment are used efficiently at lower cost.
B) current assets fluctuate more than with seasonal production.
C) seasonal bulges and sharp declines in current assets occur.
D) None of the options are advantageous.
78) Companies that sell electricity are characterized by
A) fluctuating production to match sales.
B) seasonal sales.
C) low inventories due to computer inventory management.
D) fluctuating production to match sales and seasonal sales.
79) If a firm uses level production with seasonal sales and sales decline further than expected,
A) inventory will increase.
B) inventory will decrease.
C) accounts receivables will increase.
D) inventory and accounts receivables will increase.
80) Retail companies like Target and Macy’s exhibit sales patterns that are most typically
influenced by
A) cyclical economic indicators.
B) competitive prices.
C) seasonality.
D) sales promotions.
81) Retail companies like Target and Macy’s are more likely to have
A) stable sales and earnings per share.
B) cyclical sales but less volatile earnings per share.
C) cyclical sales and more volatile earnings per share.
D) cyclical sales but stable accounts receivable and inventory.
82) The use of cash budgeting procedures
A) helps the firm plan its current asset levels for a given production plan.
B) makes managing inventory easier under seasonal production.
C) illustrates fluctuating levels of current assets for a given production plan.
D) All of the options are correct.
83) In company XYZ, assume that level production happens throughout the year and that
receivables are collected in two equal installments over a two-month period subsequent to the
sales period. If XYZ wants to develop a cash budget, which of the following steps is required?
A) Calculate ending accounts receivable balances.
B) Calculate cost of goods sold.
C) Estimate monthly net cash flow and bank borrowing or repayments.
D) Calculate ending inventory.
84) When actual sales are greater than forecasted sales
A) inventory will decline.
B) production schedules might have to be revised upward.
C) accounts receivable will rise.
D) All of the options are true.
85) When actual sales are greater than production,
A) inventory will decline.
B) production schedules might have to be revised upward.
C) accounts receivable will rise.
D) All of the options are true.
86) Normally, permanent current assets should be financed by
A) long-term funds.
B) short-term funds.
C) borrowed funds.
D) internally generated funds.
87) Ideally, which of the following type of assets should be financed with long-term financing?
A) Fixed assets only
B) Fixed assets and temporary current assets
C) Fixed assets and permanent current assets
D) Temporary and permanent current assets
88) A conservatively financed firm would
A) use long-term financing for all fixed assets and short-term financing for all other assets.
B) finance a portion of permanent assets and short-term assets with short-term debt.
C) use equity to finance fixed assets, use long-term debt to finance permanent assets, and use
short-term debt to finance fluctuating current assets.
D) use long-term financing for three items: permanent current assets, fixed assets, and a portion
of the short-term fluctuating assets. Then use short-term financing for all other short-term assets.
89) Generally, more use is made of short-term financing because
A) short-term interest rates are generally lower than long-term interest rates.
B) most firms do not have basic access to the capital markets.
C) short-term financing is usually more predictable than long-term financing.
D) short-term interest rates are generally lower than long-term interest rates and most firms do
not have basic access to the capital markets.
90) The term structure of interest rates
A) is an indication of investors’ expectations about inflation and future interest rates.
B) will be downward sloping if short-term interest rates are higher than long-term rates.
C) will be upward sloping under normal conditions.
D) All of the options are true.
91) The term structure of interest rates
A) changes daily to reflect current competitive conditions in the money and capital markets.
B) plots returns for securities of different risk.
C) shows the relative interest rate spread between bonds with different risk ratings such as AAA,
AA, A, BBB, and so on.
D) depicts interest rates for T-bills over the last year.
92) Which of the following statements regarding yield curves is true?
A) Yields on corporate debt securities will move in the same direction as government securities.
B) Yields on corporate debt securities are considered a greater financial risk and will have higher
interest rates.
C) Yield curves for corporate securities change daily to reflect current competitive conditions.
D) All of the options above are correct.
93) The term structure of interest rates is influenced by
A) inflation.
B) money supply.
C) Federal Reserve activities.
D) All of the options are correct.
94) Financial managers can accurately predict future interest rates beyond a few months by
A) calculating the anticipated inflation rate.
B) gauging the Fed’s decision regarding the target federal funds rate.
C) measuring investor sentiment and consumer confidence indices.
D) None of the options are correct.
95) The belief that investors require a higher return to entice them into holding long-term
securities is the viewpoint of the
A) expectations hypothesis.
B) market segmentation theory.
C) liquidity premium theory.
D) market credit crunch theory.
96) The term structure of interest rates
A) is often referred to as the yield curve.
B) depicts the relative level of short- and long-term interest rates.
C) is usually constructed with U.S. government securities of varying maturities.
D) All of the options are true.
97) Yield curves change daily to reflect
A) changing conditions in the money and capital markets.
B) new inflation expectations.
C) changing conditions in the overall economy.
D) All of the options are correct.
98) U.S. government securities are used to construct yield curves because
A) they are free of default risk.
B) the large number of maturities form a continuous curve.
C) they are free of default risk and the large number of maturities form a continuous curve.
D) None of the options are correct.
99) As the economy moves through a business cycle, which of the following “term structure of
interest rates” theories dominates the shape of the yield curve.
A) The expectations hypothesis.
B) The market segmentation theory.
C) The liquidity premium theory.
D) None of these theories dominate the shape of the yield curve.
100) Some analysts believe that the term structure of interest rates is determined by the behavior
of various types of financial institutions. This theory is called the
A) expectations hypothesis.
B) market segmentation theory.
C) liquidity premium theory.
D) theory of industry supply and demand for bonds.
101) The theory of the term structure of interest rates, which suggests that long-term rates are
determined by the average of short-term rates expected over the time that a long-term bond is
outstanding, is the
A) expectations hypothesis.
B) segmentation theory.
C) liquidity premium theory.
D) market average rate theory.
102) A “normal” term structure of interest rates would depict
A) short-term rates are higher than long-term rates.
B) long-term rates are higher than short-term rates.
C) no general relationship between short- and long-term rates.
D) intermediate rates (one to five years) are lower than both the short-term and long-term rates.
103) A firm will usually increase the ratio of short-term debt to long-term debt when
A) short-term debt has a lower cost than long-term equity.
B) the term structure is inverted and expected to shift down.
C) the term structure is upward sloping and expected to shift up.
D) the firm is undertaking a large capital budgeting project.