Question 1

The more short-term financing relative to long-term financing, the more risky the financial structure.

Accepted Answer

A) True 
 B)False

Question 2

A financial executive devotes the most time to

Accepted Answer

A)   long-range planning.
B)   capital budgeting.
C)   short-term financing.
D)   working capital management.E) B) and C)
F) A) and B)

Question 3

The concept of a self-liquidating asset implies that

Accepted Answer

A)   the working capital associated with a product will be liquidated within a one year period.
B)   all the product will be sold, receivables collected, and bills paid over the time period specified.
C)   assets associated with the production of a product will be liquidated over the amortized life of the assets.
D)   self-liquidating assets will be financed by long-term sources of capital.E) B) and D)
F) C) and D)

Question 4

If a firm uses level production with seasonal sales

Accepted Answer

A)   as sales decline inventory will increase.
B)   as sales decline inventory will decrease.
C)   as sales decline accounts receivable will increase.
D)   a and c are correctE) All of the above
F) A) and B)

Question 5

The key to current asset planning is the ability of management to forecast sales accurately and then match production schedules with the sales forecast.

Accepted Answer

A) True 
 B)False

Question 6

The term structure of interest rates

Accepted Answer

A)   is not an indication of investors' expectations about inflation and future interest rates.
B)   will be upward sloping if short-term interest rates are higher than long-term rates.
C)   will be downward sloping under normal conditions.
D)   none of the other answers are correctE) A) and C)
F) None of the above

Question 7

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 borrowingE) B) and C)
F) None of the above

Question 8

According to the expectations hypothesis, short-term rates would be expected to rise if they were far below long-term rates.

Accepted Answer

A) True 
 B)False

Question 9

Yield curves change very little in the short run (3 months).

Accepted Answer

A) True 
 B)False

Question 10

Three basic theories describe the term structure of interest rates, or shape of the yield curve. List end explain these theories.

Accepted Answer

The liquidity premium theory stat...

Question 11

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 Government of Canada securities of varying maturities.
D)   all of the other answers are correctE) A) and C)
F) A) and B)

Question 12

The ratio of long-term financing to short-term financing at any point in time will be greatly influenced by the term structure of interest rates and common stock prices.

Accepted Answer

A) True 
 B)False

Question 13

What influences the amount of liquidity in the firm?

Accepted Answer

Liquidity in the firm is influ...

Question 14

Liquidating current assets are really capital assets since they have lives greater than one year.

Accepted Answer

A) True 
 B)False

Question 15

The term structure of interest rates

Accepted Answer

A)   is not an indication of investors' expectations about inflation.
B)   will be upward sloping if short-term interest rates are higher than long-term rates.
C)   will be downward sloping under normal conditions.
D)   is an indication of investors' expectations about inflation and future interest rates.E) A) and B)
F) C) and D)

Question 16

Ideally, all current assets will be

Accepted Answer

A)   financed by short-term debt.
B)   long-term in nature.
C)   self-liquidating.
D)   internally financed.E) None of the above
F) A) and C)

Question 17

An aggressive working capital policy would have which of the following characteristics?

Accepted Answer

A)   a high ratio of long-term debt to capital assets
B)   a low ratio of short-term debt to total debt
C)   a high ratio of short-term debt to long-term sources of funds
D)   a short average collection periodE) A) and B)
F) A) and C)

Question 18

During tight money periods

Accepted Answer

A)   long-term rates are higher than short-term rates.
B)   short-term rates are higher than long-term rates.
C)   short-term rates are equal to long-term rates.
D)   the relationship between short and long-term rates remains unchanged.E) A) and C)
F) None of the above

Question 19

If a firm uses a conservative financial plan, it will usually have marketable securities at the bottom of a cyclical sales swing.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is a true statement concerning interest rates?

Accepted Answer

A)   short-term rates are not influenced by inflation
B)   long-term rates are influenced by current demands for money.
C)   inflation during the 1970s and early 1980s had a large effect in boosting interest rates and changing expectations of future rates.
D)   long-term rates have been much more volatile than short-term rates from the 1970s until today.E) B) and C)
F) All of the above

Exam 6: Working Capital and the Financing Decision

If a firm uses a conservative financial plan, it will usually have marketable securities at the bottom of a cyclical sales swing.

Correct AnswerverifiedShow Answer

A financial executive devotes the most time to

Correct AnswerverifiedShow Answer

Ideally, all current assets will be

Correct AnswerverifiedShow Answer

The ratio of long-term financing to short-term financing at any point in time will be greatly influenced by the term structure of interest rates and common stock prices.

Correct AnswerverifiedShow Answer

The key to current asset planning is the ability of management to forecast sales accurately and then match production schedules with the sales forecast.

Correct AnswerverifiedShow Answer

An aggressive working capital policy would have which of the following characteristics?

Correct AnswerverifiedShow Answer

The concept of a self-liquidating asset implies that

Correct AnswerverifiedShow Answer

According to the expectations hypothesis, short-term rates would be expected to rise if they were far below long-term rates.

Correct AnswerverifiedShow Answer

The term structure of interest rates

Correct AnswerverifiedShow Answer

The more short-term financing relative to long-term financing, the more risky the financial structure.

Correct AnswerverifiedShow Answer

The term structure of interest rates

Correct AnswerverifiedShow Answer

What influences the amount of liquidity in the firm?

Correct AnswerverifiedLiquidity in the firm is influ...View AnswerShow Answer

Yield curves change very little in the short run (3 months).

Correct AnswerverifiedShow Answer

Three basic theories describe the term structure of interest rates, or shape of the yield curve. List end explain these theories.

Correct AnswerverifiedThe liquidity premium theory stat...View AnswerShow Answer

If a firm uses level production with seasonal sales

Correct AnswerverifiedShow Answer

Which of the following is a true statement concerning interest rates?

Correct AnswerverifiedShow Answer

During tight money periods

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

Liquidating current assets are really capital assets since they have lives greater than one year.

Correct AnswerverifiedShow Answer

The term structure of interest rates

Correct AnswerverifiedShow Answer

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Liquidity in the firm is influ...
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The liquidity premium theory stat...
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