Question 1
Assume a firm’s production process requires an average of 80 days to go from raw materials to finished products and another 40 days before the finished goods are sold. If the accounts receivable cycle is 70 days and the accounts payable cycle is 80 days, what would the operating cycle be?
110 days
130 days
190 days
270 days
Question 2
The time between ordering materials and collecting cash from receivables is known as the:
operating cycle
cash conversion cycle
accounts receivable period
term payable cycle
Question 3
The time between when the firm pays its suppliers and when it collects money from its customers is known as the:
operating cycle
cash conversion cycle
accounts receivable period
clearing cycle
Question 4
Which of the following is not an advantage of short-term borrowing?
flexibility
establishing continuous relationships with a bank or financial institution
frequent renewals
lower cost
Question 5
In June, Erie Plastics had an ending cash balance of $35,000. In July, the firm had total cash receipts of $40,000 and total cash disbursements of $50,000. The minimum cash balance required by the firm is $25,000. At the end of July, Erie Plastics had
an excess cash balance of $25,000
An excess cash balance of $0
required financing of $10,000
required financing of $25,000
Question 6
A compensating balance on a bank loan effectively ____________ the cost of the loan.
raises
lowers
has no effect on
has an indeterminate effect on
Question 7
In order to borrow $100,000 for a 10% loan on discount basis, the firm will actually have to borrow:
$110,000
$111,111
$100,000
$90,000
Question 8
When old short-term debt is replaced by new short-term debt as the old debt comes due, the process is known as:
compensating balance
rolling the debt
fluctuating financing
re-terming
Question 9
Which of the following short-term sources of funds is available only to the financially strongest concerns?
trade credit
commercial bank loans
finance company loans
commercial paper
Question 10
If a firm actually sells its accounts receivable, the process is known as:
wholesale financing
pledging
field crediting
factoring
Question 11
The ratio between the present value of a project’s cash inflows and the present value of its initial investment is called the:
MIRR.
IRR.
PI.
NPV.
Question 12
Internal rate of return (IRR) and net present value (NPV) methods:
generally arrive at the same accept/reject decisions
are less sophisticated than the payback period
cannot make use of the same cash flows
can be substituted for by the payback period
Question 13
Which of the following is not considered a stage in the capital budgeting process?
development
production
implementation
selection
Question 14
The internal rate of return concept is best explained by which of the following?
rate where NPV is equal to zero
point where initial investment has been returned
marginal cost of capital
average book value
Question 15
The payback period concept is best explained by which of the following?
marginal cost of capital
point where initial investment has been returned
rate where NPV is equal to zero
