Question 1

A firm will generally generate more financing from internal sources if the firm is experiencing sales growth.

Accepted Answer

A) True 
 B)False

Question 2

When the term structure of interest rates is downward sloping and interest rates are expected to decline, the

Accepted Answer

A)   financial manager generally borrows short-term.
B)   financial manager borrows at the lower long-term rates.
C)   corporation's ratio of short-term to long-term debt is low.
D)   None of the options are true.

Question 3

Walmart requires manufacturers to ship goods with RFID tags so it can better track inventory and reduce the need for supply chain management.

Accepted Answer

A) True 
 B)False

Question 4

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?

Accepted Answer

A)   4,000 units
B)   5,500 units
C)   3,400 units
D)   8,400 units

Question 5

The financial managers generally devote little time to the management of working capital.

Accepted Answer

A) True 
 B)False

Question 6

A conservatively financed firm would

Accepted Answer

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.

Question 7

According to the expectations hypothesis, when long-term interest rates are higher than short-term interest rates, long-term rates are expected to decline.

Accepted Answer

A) True 
 B)False

Question 8

U.S. government securities are used to construct yield curves because

Accepted Answer

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.

Question 9

Risk exposure due to heavy short-term borrowing can be compensated for by

Accepted Answer

A)   carrying highly liquid assets.
B)   carrying many illiquid assets.
C)   carrying longer term, more profitable current assets.
D)   carrying more receivables to increase cash flow.

Question 10

The following are the expected one-year T-bill rates for the next four years: 3%, 4%, 5%, and 6%. According to the basic model of the expectations hypothesis, what would you expect the rate for three-year securities to be?

Accepted Answer

A)   4%
B)   4.5%
C)   6%
D)   3.75%

Question 11

When actual sales are greater than forecasted sales

Accepted Answer

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.

Question 12

The behavior of various kinds of financial institutions determines the shape of the yield curve, according to the market segmentation theory.

Accepted Answer

A) True 
 B)False

Question 13

Liquidating current assets is like liquidating fixed assets since they have lives greater than one year.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)   utilize long-term financing.
B)   utilize short-term financing.
C)   wait to see what will happen with future financing.
D)   utilize long-term equity.

Question 15

Level production methods smooth production schedules and utilize manpower and equipment more efficiently than seasonal production methods.

Accepted Answer

A) True 
 B)False

Question 16

One of the primary benefits of implementing supply chain management is reducing inventory on hand.

Accepted Answer

A) True 
 B)False

Question 17

As a general rule, it is desirable to finance the permanent assets, including "permanent current assets," with long-term debt and equity.

Accepted Answer

A) True 
 B)False

Question 18

Permanent current assets are not a factor in a manager's decision-making process when all current assets are

Accepted Answer

A)   financed by short-term debt.
B)   long-term in nature.
C)   self-liquidating.
D)   internally financed.

Question 19

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)   future interest rates are expected to increase.
C)   long-term debt has a lower cost than long-term equity.
D)   future interest rates are expected to decrease.

Question 20

Which of the following combinations of asset structures and financing patterns is likely to create the least 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

Exam 6: Working Capital and the Financing Decision

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

Correct AnswerverifiedShow Answer

When the term structure of interest rates is downward sloping and interest rates are expected to decline, the

Correct AnswerverifiedShow Answer

According to the expectations hypothesis, when long-term interest rates are higher than short-term interest rates, long-term rates are expected to decline.

Correct AnswerverifiedShow Answer

As a general rule, it is desirable to finance the permanent assets, including "permanent current assets," with long-term debt and equity.

Correct AnswerverifiedShow Answer

When actual sales are greater than forecasted sales

Correct AnswerverifiedShow Answer

The following are the expected one-year T-bill rates for the next four years: 3%, 4%, 5%, and 6%. According to the basic model of the expectations hypothesis, what would you expect the rate for three-year securities to be?

Correct AnswerverifiedShow Answer

The financial managers generally devote little time to the management of working capital.

Correct AnswerverifiedShow Answer

Liquidating current assets is like liquidating fixed assets since they have lives greater than one year.

Correct AnswerverifiedShow Answer

Permanent current assets are not a factor in a manager's decision-making process when all current assets are

Correct AnswerverifiedShow Answer

One of the primary benefits of implementing supply chain management is reducing inventory on hand.

Correct AnswerverifiedShow Answer

A firm will generally generate more financing from internal sources if the firm is experiencing sales growth.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

U.S. government securities are used to construct yield curves because

Correct AnswerverifiedShow Answer

A conservatively financed firm would

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

The behavior of various kinds of financial institutions determines the shape of the yield curve, according to the market segmentation theory.

Correct AnswerverifiedShow Answer

Risk exposure due to heavy short-term borrowing can be compensated for by

Correct AnswerverifiedShow Answer

Level production methods smooth production schedules and utilize manpower and equipment more efficiently than seasonal production methods.

Correct AnswerverifiedShow Answer

Walmart requires manufacturers to ship goods with RFID tags so it can better track inventory and reduce the need for supply chain management.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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