Question 1

The term structure of interest rates

Accepted Answer

A)  changes daily to reflect current competitive conditions in the money and capital markets.
B)  plots returns for securities of different risk.
C)  shows the relative interest rate spread between bonds with different risk ratings such as AAA, AA, A, BBB, and so on.
D)  depicts interest rates for T-bills over the last year.E) B) and C)
F) B) and D)

Question 2

One advantage of level production is that

Accepted Answer

A)  manpower and equipment are used efficiently at lower cost.
B)  current assets fluctuate more than with seasonal production.
C)  seasonal bulges and sharp declines in current assets occur.
D)  None of the options are advantageous.E) A) and D)
F) A) and C)

Question 3

During an economic "boom" period, a shortage of low-cost financing alternatives exists.

Accepted Answer

A) True 
 B)False

Question 4

Heavy use of long-term financing can generate more profit for the company during a tight money period.

Accepted Answer

A) True 
 B)False

Question 5

Retail companies like Target and Limited Brands 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.E) B) and C)
F) A) and D)

Question 6

Heavy use of long-term financing generally leads to lower financing costs.

Accepted Answer

A) True 
 B)False

Question 7

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 optionsE) All of the above
F) B) and C)

Question 8

The term structure of interest rates is influenced by

Accepted Answer

A)  inflation.
B)  the money supply.
C)  Federal Reserve activities.
D)  All of the optionsE) A) and D)
F) A) and B)

Question 9

Working capital management primarily involves long-term planning.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not a condition under which a prudent manager would accept some risk in financing?

Accepted Answer

A)  Predictable cash-flow patterns
B)  Inventory is highly perishable.
C)  The price of inventory is stable.
D)  Basic access to capital marketsE) B) and C)
F) B) and D)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Frisch Fish Corp expects net income next year to be $750,000. Inventory and accounts receivable will have to be increased by $650,000 to accommodate this sales level. Frisch will pay dividends of $300,000. How much external financing will Frisch Fish need assuming no organically generated increase in liabilities?

Accepted Answer

A)  No external financing is required.
B)  $100,000
C)  $200,000
D)  $300,000E) All of the above
F) B) and D)

Question 13

Only the market segmentation theory has any significant impact on interest rates.

Accepted Answer

A) True 
 B)False

Question 14

RFID chips have been used to

Accepted Answer

A)  track livestock.
B)  track marathon runners' times.
C)  track inventory at retailers.
D)  All of the optionsE) A) and C)
F) A) and B)

Question 15

The more short-term financing there is relative to long-term financing, the riskier the financial structure.

Accepted Answer

A) True 
 B)False

Question 16

By using long-term capital to cover short-term needs, the firm is virtually assured of becoming technically insolvent.

Accepted Answer

A) True 
 B)False

Question 17

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 optionsE) B) and C)
F) A) and D)

Question 18

Generally, more use is made of short-term financing because

Accepted Answer

A)  short-term interest rates are generally lower than long-term interest rates.
B)  most firms do not have basic access to the capital markets.
C)  short-term financing is usually more predictable than long-term financing.
D)  short-term interest rates are generally lower than long-term interest rates and most firms do not have basic access to the capital markets.E) A) and B)
F) A) and C)

Question 19

Firms with highly volatile and perishable inventory should assume relatively low levels of risk.

Accepted Answer

A) True 
 B)False

Question 20

Short-term financing is risky because of the possibility of rising short-term rates and the inability of always being able to refund short-term debt.

Accepted Answer

A) True 
 B)False

Exam 6: Working Capital and the Financing Decision

The term structure of interest rates is influenced by

Correct Answer
verified

During an economic "boom" period, a shortage of low-cost financing alternatives exists.

Correct Answer
verified

Which of the following is not a condition under which a prudent manager would accept some risk in financing?

Correct Answer
verified

The term structure of interest rates

Correct Answer
verified

The more short-term financing there is relative to long-term financing, the riskier the financial structure.

Correct Answer
verified

Heavy use of long-term financing generally leads to lower financing costs.

Correct Answer
verified

Working capital management primarily involves long-term planning.

Correct Answer
verified

By using long-term capital to cover short-term needs, the firm is virtually assured of becoming technically insolvent.

Correct Answer
verified

Retail companies like Target and Limited Brands are more likely to have

Correct Answer
verified

RFID chips have been used to

Correct Answer
verified

Firms with highly volatile and perishable inventory should assume relatively low levels of risk.

Correct Answer
verified

Heavy use of long-term financing can generate more profit for the company during a tight money period.

Correct Answer
verified

Generally, more use is made of short-term financing because

Correct Answer
verified

The term structure of interest rates

Correct Answer
verified

One advantage of level production is that

Correct Answer
verified

Pressure to increase current asset buildup often results from

Correct Answer
verified

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

Correct Answer
verified

Only the market segmentation theory has any significant impact on interest rates.

Correct Answer
verified

Correct Answer
verified

Short-term financing is risky because of the possibility of rising short-term rates and the inability of always being able to refund short-term debt.

Correct Answer
verified

Exam 6: Working Capital and the Financing Decision

The term structure of interest rates is influenced by

Correct AnswerverifiedShow Answer

During an economic "boom" period, a shortage of low-cost financing alternatives exists.

Correct AnswerverifiedShow Answer

Which of the following is not a condition under which a prudent manager would accept some risk in financing?

Correct AnswerverifiedShow Answer

The term structure of interest rates

Correct AnswerverifiedShow Answer

The more short-term financing there is relative to long-term financing, the riskier the financial structure.

Correct AnswerverifiedShow Answer

Heavy use of long-term financing generally leads to lower financing costs.

Correct AnswerverifiedShow Answer

Working capital management primarily involves long-term planning.

Correct AnswerverifiedShow Answer

By using long-term capital to cover short-term needs, the firm is virtually assured of becoming technically insolvent.

Correct AnswerverifiedShow Answer

Retail companies like Target and Limited Brands are more likely to have

Correct AnswerverifiedShow Answer

RFID chips have been used to

Correct AnswerverifiedShow Answer

Firms with highly volatile and perishable inventory should assume relatively low levels of risk.

Correct AnswerverifiedShow Answer

Heavy use of long-term financing can generate more profit for the company during a tight money period.

Correct AnswerverifiedShow Answer

Generally, more use is made of short-term financing because

Correct AnswerverifiedShow Answer

The term structure of interest rates

Correct AnswerverifiedShow Answer

One advantage of level production is that

Correct AnswerverifiedShow Answer

Pressure to increase current asset buildup often results from

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Only the market segmentation theory has any significant impact on interest rates.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Short-term financing is risky because of the possibility of rising short-term rates and the inability of always being able to refund short-term debt.

Correct AnswerverifiedShow Answer

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