FIN 100 QUESTIONS

Question 1

 

One type of investment that would not be suitable for marketable securities would be:

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bankers’ acceptances

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short-term notes of U.S. government agencies

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negotiable CD’s

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mortgages

 
Question 2

 The objective of managing current assets and liabilities is to

 

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achieve as low a level of current assets as possible.

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achieve as low a level of current liabilities as possible.

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achieve a balance between profitability and risk that contributes to the firm’s value.

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achieve as high a level of current liabilities as possible.

 
Question 3

 The goal of a company’s cash management policy is to

 

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increase the cash conversion cycle.

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increase the payment period.

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minimize the cash requirement.

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maximize cash outflows.

 
Question 4

 Working capital does not include:

 

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cash

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accounts receivable

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marketable securities

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property, plant, and equipment

 
Question 5

 Calculation of a firm’s average collection period is the same as calculating the:

 

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accounts receivable cycle

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inventory cycle

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accounts payable cycle

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short-term operating cycle

  
Question 6

 A negative cash conversion cycle indicates that the

 

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operating cycle exceeds the average payment period.

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average payment period exceeds the operating cycle.

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firm is shortening its average payment period and lengthening its average collection period.

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lengthening its average collection period and lengthening its inventory period.

  
Question 7

 The time between when a payee sends payment and the funds are credited to the payer’s bank account is called the:

 

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collection float

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disbursement float

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total float

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transmittal float

  
Question 8

 Sources of short-term financing such as accounts payable, notes payable, and accruals should be used to finance:

 

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all current assets

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all fixed assets

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a portion of the current assets needed to support nonseasonal sales levels plus all of the seasonal build-up in current assets

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a portion of the fixed assets plus all of the seasonal build-up in current assets

  
Question 9

 Holding all other factors constant, if a firm increases its current liabilities relative to total assets,

 

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it increases return and reduces risk.

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it increases return and increases risk.

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it reduces return and reduces risk.

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it reduces return and increases risk.

  
Question 10

 If a firm purchases materials on credit and thus has accounts payable, its cash conversion cycle will be:

 

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longer than its operating cycle

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the same length as its operating cycle

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shorter than its operating cycle

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the same length as its sales turnover cycle

  
Question 11

 Firms who wish to obtain short-term secured loans generally have two major current assets available as collateral in the form of:

 

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cash and marketable securities

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receivables and inventory

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receivables and factoring

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inventory and floor planning

  
Question 12

 Net working capital is defined as:

 

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current assets plus current liabilities

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current assets less fixed assets

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current assets less current liabilities

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current liabilities plus long-term liabilities

  
Question 13

 Commercial finance companies obtain loanable funds:

 

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to a lesser extent than commercial banks through equity capital

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through both long- and short-term borrowing

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from the Small Business Administration

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primarily from the sale of preferred stock

  
Question 14

 The prime rate offered by commercial banks is their _____________ rate to their ______________ quality business customers.

 

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highest, highest

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lowest, lowest

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lowest, highest

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highest, lowest

  
Question 15

 The most important reason for directly issuing or using commercial paper dealers is:

 

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the cost of borrowing is generally less than regular bank rates

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it’s a profitable alternative to the purchase of Treasury bills

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the avoidance of compensating balances

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the convenience and profitability

  
Question 16

 The bank line of credit is:

 

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the type of business activity on which a particular bank concentrates its lending

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the maximum amount of credit extended to a business customer during a period of one year

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the average of loans made to a business customer during a year

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the loan limit that a bank has established for a business customer

  
Question 17

 Permanent current assets are:

 

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accounts receivable that have become bad debts

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inventories that have become obsolete

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the level of current assets equal to fixed assets

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the level of current assets needed to support sales

  
Question 18

 If a firm actually sells its accounts receivable, the process is known as:

 

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wholesale financing

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floor planning

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field crediting

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factoring

  
Question 19

 The purchaser may deduct 2% from the purchase price if payment is made within 10 days; but if not paid within 10 days, the net amount of the purchase is due within 30 days. The sale is made on what terms?

 

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10/30, net/2

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2/10, net/30

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2/30, net/10

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10/2, net/30

  
Question 20

 A __________________ is a claim against a customer’s inventory when the individual items are indistinguishable.

 

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floor plan receipt

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trust receipt

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warehouse receipt

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blanket inventory lien