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1.
The factor, unlike the commercial finance company:
Answer
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engages in accounts receivable financing |
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purchases the accounts receivable outright |
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assumes limited credit risks |
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is not responsible for the collection of accounts |
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2.
For most lines of business the basic source of short-term loan financing is: Answer commercial banks finance companies the commercial paper market factors 3.
Firms who wish to obtain short-term secured loans generally have two major current assets available as collateral in the form of: Answer cash and marketable securities receivables and inventory receivables and factoring inventory and floor planning 4.
The most important reason for directly issuing or using commercial paper dealers is: Answer the cost of borrowing is generally less than regular bank rates it’s a profitable alternative to the purchase of Treasury bills the avoidance of compensating balances the convenience and profitability 5. The factoring of receivables: Answer had its origins in the textile industry but now extends over a wide range of industries is especially suited to the heavy durable goods industries has now been largely replaced with other types of financing places special risk on the firm whose receivables are being factored 6. The capital-budgeting process starts with which one of the following stages: Answer development identification implementation selection 7. When considering the time value of money, which of the following four methods of project evaluation would appear to be the least satisfactory? Answer internal rate of return profitability index net present value payback period method 8. The payback period concept is best explained by which of the following? Answer marginal cost of capital point where initial investment has been returned rate where NPV is equal to zero accounting rate of return 9. When the net present value is negative, the internal rate of return is __________ the cost of capital. Answer greater than greater than or equal to less than equal to 10. The ________ is the discount rate that equates the present value of the cash inflows with the initial investment. Answer payback period average rate of return cost of capital internal rate of return 11. A risk which results from a firm’s inability to meet currently maturing obligations is often referred to as: Answer liquidity risk purchasing power risk interest rate risk financial leverage risk 12. In the cash budget, the firm’s final sales forecast us usually a function of Answer economic forecasts. the sales force estimate of demand. external and internal factors in combination. accounts payable experience. 13. The willingness of a credit applicant to pay her or his bills is measured by: Answer capacity capital conditions character collateral 14. If a firm purchases materials on credit and thus has accounts payable, its cash conversion cycle will be: Answer longer than its operating cycle the same length as its operating cycle shorter than its operating cycle the same length as its sales turnover cycle 15. The principle of hedging calls for the matching of a firm’s average: Answer liquidity of its assets with its liabilities and equity liquidity of its accounts receivable with its accounts payable maturities of its assets with its liabilities and equity maturities of its sales with its assets 16.
In calculating the cost of new common stock using the constant dividend growth model, it is important that the __________ are subtracted from the price of the stock. Answer flotation costs par value cost of retained earnings proceeds of the sale 17.
The internal and sustainable growth rate relationships suggest that there are three measurable influences on growth. These include all of the following except: Answer asset policy dividend policy profitability the firm’s capital structure 18. Which of the following is a correct way to calculate degree of combined leverage? Answer divide DFL by DOL multiply DOL by DFL divide DOL by DFL add DOL and DFL 19. Other factors being constant, higher fixed operating costs mean: Answer higher financial leverage higher operating leverage lower combined leverage the degree of financial leverage is equal to 1.0 20. A firm’s business risk is measured by the variability in which one of the following over time: Answer net sales total assets operating income (EBIT) net income 21. The extent to which assets are used to support sales is indicated by which of the following ratios: Answer liquidity ratios asset utilization ratios financial leverage ratios profitability ratios 22. Which one of the following financial statements reports a firm’s assets and the claims on assets? Answer balance sheet income statement statement of changes in financial position cash flow statement 23. Which group of ratios might be most interesting to potential creditors of a firm? Answer asset utilization ratios profitability ratios leverage ratios market value ratios 24.
In cost-volume-profit analysis, a firm “breaks even” when its total revenues: Answer equal variable costs equal total costs equal fixed costs are less than the sum of variable and fixed costs 25. Cost-volume-profit analysis can be used to estimate the firm’s operating profits at different levels of: Answer dollar sales unit sales dollar fixed costs unit variable costs |
