FINANCIAL MANAGEMENT Set A Quiz No.

1. Which of the following is true about electronic funds transfer from a cash flow standpoint?
a. It is always beneficial from a cash flow standpoint.
b. It is never beneficial from a cash flow standpoint.
c. It is beneficial from a cash receipts standpoint but not from a cash disbursements standpoint.
d. It is beneficial from a cash disbursements standpoint but not from a cash receipts standpoint.
2. Which of the following is true about a firm’s float?
a. A firm strives to minimize the float for both cash receipts and cash disbursements.
b. A firm strives to maximize the float for both cash receipts and cash disbursements.
c. A firm strives to maximize the float for cash receipts and minimize the float for cash disbursements.
d. A firm strives to minimize the float for cash receipts and maximize the float for cash disbursements.
3. A working capital technique that increases the payable float and therefore delays the outflow of cash is
a. Concentration banking c. Electronic Data Interchange
b. A draft d. A lockbox system
4. A minimum checking account balance that a firm must maintain with a commercial bank is a
a. Transaction balance c. Precautionary balance
b. Compensating balance d. Speculative balance
5. All of the following are alternative marketable securities suitable for investments except:
a. Treasury bills c. Commercial paper
b. Convertible bonds d. Answer not given
6. The most important considerations with respect to short-term investments are
a. Return and value c. Return and risk
b. Risk and liquidity d. Growth and value
7. Which of the following investments generally pay the highest return?
a. Money market accounts c. Treasury notes
b. Treasury bills d. Commercial paper
8. All of the following statements in regard to working capital are correct except:
a. Current liabilities are an important source of financing for many small firms.
b. Profitability varies inversely with liquidity.
c. The hedging approach to financing involves matching maturities of debt with specific financing needs.
d. Financing permanent inventory buildup with long-term debt is an example of an aggressive working
capital policy.
9. Determining the appropriate level of working capital for a firm requires
a. Evaluating the risks associated with various levels of fixed assets and the types of debt used to finance
these assets.
b. Changing the capital structure and dividend policy of the firm.
c. Maintaining shot-term debt at the lowest possible level because it is generally more expensive than long-
term debt.
d. Offsetting the benefit of current assets and current liabilities against the probability of technical
insolvency.
10. Statement 1: Working capital management refers to the effective utilization of working capital to attain
predetermined company objectives:
Statement 2: Working capital management is the difference between current assets and current liabilities.
a. Only statement 1 is true c. Both statements are true
b. Only statement 2 is true d. Both statements are false
11. Statement 1: Electronic fund transfer is the process of taking advantage of the discrepancies between the
company books and bank book due to clearing of checks and manner of check deposit.
Statement 2: Accounts receivable turnover is the measure of the rate of cash inflow from the collection of
receivables.
a. Only statement 1 is true c. Both statements are true
b. Only statement 2 is true d. Both statements are false
12. Statement 1: Lockbox system is a process in which the customers are instructed to send their payments to a post
office box served by the company’s bank.
Statement 2: Floats is the process of postponing the payments to their due dates or maximizing the paying period
of the firm.
a. Only statement 1 is true c. Both statements are true
b. Only statement 2 is true d. Both statements are false
13. Statement 1: Treasury bill is a debt instrument representing obligation of the government issued by the central
bank.
Statement 2: Working capital can be determined by deducting current liabilities from total assets.
a. Only statement 1 is true c. Both statements are true
b. Only statement 2 is true d. Both statements are false
14. Statement 1: The collection of accounts receivable would result to an increase in both current ratio and net
working capital.
 Statement 2: A short-term loan payable converted into a long-term loan payable will result to an increase in both
working capital and current ratio.
a. Only statement 1 is true c. Both statements are true
b. Only statement 2 is true d. Both statements are false
15. Statement 1: Electronic data interchange is a working capital technique that increases the payable float and
delays cash outflow.
Statement 2: The age of the firm’s plant and equipment does not directly affect the firm’s investment in working
capital.
a. Only statement 1 is true c. Both statements are true
b. Only statement 2 is true d. Both statements are false
16. In finance, working capital means the same thing as
a. Total assets c. Fixed assets
b. Current assets d. None of the above
17. Which of the following would be consistent with a more aggressive approach to financing working capital?
a. Financing short-term needs with short-term funds
b. Financing permanent inventory buildup with long-term debt
c. Financing seasonal needs with short-term funds
d. Financing some long-term needs with short-term funds
18. Which asset-liability combination would most likely result in the firm’s having the greatest risk of technical
insolvency?
a. Increasing current assets while lowering current liabilities
b. Increasing current assets while incurring more current liabilities.
c. Reducing current assets, increasing current liabilities, and reducing long-term debt.
d. Replacing short-term debt with equity.
19. Which of the following illustrates the use of a hedging (or matching) approach to financing?
a. Short-term assets financed with long-term liabilities.
b. Permanent working capital financed with long-term liabilities.
c. Short-term assets financed with equity.
d. All assets financed with a 50 percent equity, 50 percent long-term debt mixture.
20. In deciding the appropriate level of current assets for the firm, management is confronted with
a. A trade-off between profitability and risk.
b. A trade-off between liquidity and marketability.
c. A trade-off between equity and debt.
d. A trade-off between short-term versus long-term borrowing.
21. varies inversely with profitability.
a. Liquidity. c. Blue.
b. Risk. d. False
22. Spontaneous financing includes
a. Accounts receivable. c. Short-term loans.
b. Accounts payable. d. A line of credit.
23. Permanent working capital
a. Varies with seasonal needs.
b. Includes fixed assets.
c. Is the amount of current assets required to meet a firm's long-term minimum needs.
d. Includes accounts payable.
24. Financing a long-lived asset with short-term financing would be
a. An example of "moderate risk -- moderate (potential) profitability" asset financing.
b. An example of "low risk -- low (potential) profitability" asset financing.
c. An example of "high risk -- high (potential) profitability" asset financing.
d. An example of the "hedging approach" to financing.
25. Net working capital refers to
a. Total assets minus fixed assets. c. Current assets minus inventories.
b. Current assets minus current liabilities. d. Current assets.
END

Quiz No. 4
Name: Section: Set:

1. 6. 11. 16. 21.

2. 7. 12. 17. 22.
3. 8. 13. 18. 23.
4. 9. 14. 19. 24.
5. 10. 15. 20. 25.