Question 1

Retail companies like Target and Macy's are more likely to have

Accepted Answer

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.

Question 2

Pressure to increase current asset buildup often results from

Accepted Answer

A)   a decline in sales growth.
B)   rapidly expanding sales.
C)   increased demands of short-term creditors.
D)   None of the options are true.

Question 3

Genetech has $4,000,000 in assets. It has decided to finance 30% with long-term financing (9% rate)  and 70% with short-term financing (7%)  rate. Assuming a 40% tax rate, what will its annual after-tax interest costs be?

Accepted Answer

A)   $78,000
B)   $126,000
C)   $182,400
D)   $304,000

Question 4

In periods of tight money, long-term rates are typically higher than short-term rates.

Accepted Answer

A) True 
 B)False

Question 5

Retail companies like Target and Macy's exhibit sales patterns that are most typically influenced by

Accepted Answer

A)   cyclical economic indicators.
B)   competitive prices.
C)   seasonality.
D)   sales promotions.

Question 6

A successful financial manager is very interested in the term structure of interest rates but is not concerned with the relative volatility or historical level of interest rates.

Accepted Answer

A) True 
 B)False

Question 7

A "risky" financial plan will use long-term financing for fixed assets, permanent current assets, and a portion of temporary current assets.

Accepted Answer

A) True 
 B)False

Question 8

A firm will usually increase the ratio of short-term debt to long-term debt when

Accepted Answer

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.

Question 9

The aggressive financing plan involves utilizing long-term financing for permanent and temporary current assets.

Accepted Answer

A) True 
 B)False

Question 10

Generally, a downward sloping yield curve indicates aforthcoming economic boom.

Accepted Answer

A) True 
 B)False

Question 11

Normally, permanent current assets should be financed by

Accepted Answer

A)   long-term funds.
B)   short-term funds.
C)   borrowed funds.
D)   internally generated funds.

Question 12

When using level production, inventory will peak in the month where unit sales trend above the planned production level.

Accepted Answer

A) True 
 B)False

Question 13

When the yield curve is downward sloping, generally a financial manager should

Accepted Answer

A)   expect an economic boom.
B)   utilize long-term financing.
C)   increase investment and the level of financing overall.
D)   utilize short-term financing.

Question 14

Which of the following combinations of asset structures and financing patterns is likely to create the most volatile earnings?

Accepted Answer

A)   Illiquid assets and heavy short-term borrowing
B)   Illiquid assets and heavy long-term borrowing
C)   Liquid assets and heavy long-term borrowing
D)   Liquid assets and heavy short-term borrowing

Question 15

Yield curves change very little in the short run (i.e. one year or less).

Accepted Answer

A) True 
 B)False

Question 16

Ideally, which of the following type of assets should be financed with long-term financing?

Accepted Answer

A)   Fixed assets only
B)   Fixed assets and temporary current assets
C)   Fixed assets and permanent current assets
D)   Temporary and permanent current assets

Question 17

The "term structure of interest rates" represents the competitive cost of funds for the various short-term sources of funds such as Treasury bills, commercial paper, and bank CDs.

Accepted Answer

A) True 
 B)False

Question 18

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.

Accepted Answer

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.

Question 19

The term structure of interest rates

Accepted Answer

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.

Question 20

Interest rates and inflation are inversely related.

Accepted Answer

A) True 
 B)False

Exam 6: Working Capital and the Financing Decision

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.

Correct AnswerverifiedShow Answer

When the yield curve is downward sloping, generally a financial manager should

Correct AnswerverifiedShow Answer

Genetech has $4,000,000 in assets. It has decided to finance 30% with long-term financing (9% rate) and 70% with short-term financing (7%) rate. Assuming a 40% tax rate, what will its annual after-tax interest costs be?

Correct AnswerverifiedShow Answer

Normally, permanent current assets should be financed by

Correct AnswerverifiedShow Answer

Ideally, which of the following type of assets should be financed with long-term financing?

Correct AnswerverifiedShow Answer

Interest rates and inflation are inversely related.

Correct AnswerverifiedShow Answer

Retail companies like Target and Macy's exhibit sales patterns that are most typically influenced by

Correct AnswerverifiedShow Answer

Which of the following combinations of asset structures and financing patterns is likely to create the most volatile earnings?

Correct AnswerverifiedShow Answer

When using level production, inventory will peak in the month where unit sales trend above the planned production level.

Correct AnswerverifiedShow Answer

Generally, a downward sloping yield curve indicates aforthcoming economic boom.

Correct AnswerverifiedShow Answer

A successful financial manager is very interested in the term structure of interest rates but is not concerned with the relative volatility or historical level of interest rates.

Correct AnswerverifiedShow Answer

Pressure to increase current asset buildup often results from

Correct AnswerverifiedShow Answer

In periods of tight money, long-term rates are typically higher than short-term rates.

Correct AnswerverifiedShow Answer

Retail companies like Target and Macy's are more likely to have

Correct AnswerverifiedShow Answer

The aggressive financing plan involves utilizing long-term financing for permanent and temporary current assets.

Correct AnswerverifiedShow Answer

A "risky" financial plan will use long-term financing for fixed assets, permanent current assets, and a portion of temporary current assets.

Correct AnswerverifiedShow Answer

The term structure of interest rates

Correct AnswerverifiedShow Answer

Yield curves change very little in the short run (i.e. one year or less).

Correct AnswerverifiedShow Answer

A firm will usually increase the ratio of short-term debt to long-term debt when

Correct AnswerverifiedShow Answer

The "term structure of interest rates" represents the competitive cost of funds for the various short-term sources of funds such as Treasury bills, commercial paper, and bank CDs.

Correct AnswerverifiedShow Answer

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