1.

when the term structure of interest rates is downward sloping and interest rates are
expected to decline, the
a) corporation's ratio of short term to long term debt is low.
b) financial mng borrows at the lower long term rates
c) financial mngs view short term rates as high risk
d) financial mng generally borrows short term
ANS: C) financial mngs view short term rates as high risk
2. under the pervent of sales method, the relationship berween sales and what type
accounts are assumed to maintain a constant relationship
a) cash budget
b) Balance sheet
c) Cash flows
d) Income statement.
ANS: D) Income statement
3. Pro forma statements are:
a) financial statements both in the past and future
b) past financial statements.
c) projected financial statements.
d) projected income statements only.
ANS: C) projected financial statements
4. A firm has forecasted sales of $8,000 in January, $12,000 in February, and $11,000 in
March. All sales are on credit. 40% is collected the month of sale and the remainder
the following month, How much is collected from accounts receivable in February?
A) 6000 B) $10,800 C) 9,600 D) $12,000
ANS: c) 9600
5. Risk exposure due to heavy short-term borrowing can be compensated for by:
A) carrying highly liquid assets.
B) carrying more receivables to increase cash flow.
C) carrying illiquid assets.
D) carrying longer term, more profitable current assets
ANS: A) carrying highly liquid assets
6) Working capital management is primarily concerned with the management and financing
of:
A) current assets. B) receivables and payables. C) cash and inventory. D) current assets and
current liabilities.
ANS: d) current assets and current liabilities.
7) The first step in financial forecasting is the projection of
A) Sales (revenue) B) cash flow C) Liabilities d) net profit
ANS: a) Sales (revenue)
8. One advantage of level production is that
A) current assets fluctuate more than with seasonal production
b) seasonal bolges and sharp declines in current assets occur.
c) labour and equipment are used efficiently at lower cost.
D) the risk of obsolete inventory increases.
ANS: C) labour and equipment are used efficiently at lower cost.
9) Which of the following is NOT a valid reason for holding cash?
A) To meet transaction requirements.
B) To provide a compensating balance for a bank.
C) To earn the highest return possible.
D) To satisfy emergency needs for funds.
ANS: c) To earn the highest return possible.
10) A firm has beginning inventory of 400 units at a cost of $11 each. Production during the
period was 650 units at $12 each. If sales were 700 units, what is the cost of goods sold
(assume FIFO)?
A) $8,000 B) $7,700 C) $8,100 D) $9,000
ANS: A) $8,000
11) Generally, more use is made of short-term financing because:
A) short-term interest rates are generally higher than long-term interest rates.
B) short-term interest rates are generally lower than long-term interest rates.
C) short-term financing is usually more predictable than long-term financing.
D) most firms have easy access to the capital markets.
ANS: b) short-term interest rates are generally lower than long-term interest rates
12) The three primary policy variables to consider when extending credit include all of the
following except:
A) the terms of trade. B) the level of interest rates. C) credit standards. D) collection policy.
ANS: b) the level of interest rates
13) the percent of sales method of financial forecasting
A) is more detailed than a cash budget approach
B) requires more time than a cash budget approach
C) assumes that balance sheet accounts maintain a constant relationship to others
D) provides a month to month breakdown of data
ANS: C) assumes that balance sheet accounts maintain a constant relationship to others
14) Which of the following comb of any create the most volatile earnings?
A) illLiquid assets and heavy short-term borrowing
B) Liquid assets and heavy long-term borrowing
C) Liquid assets and heavy short term borrowing
D) illiquid assets and heavy long-term borrowing
ANS: A) illLiquid assets and heavy short-term borrowing
15) A rapid rate of growth in sales and profins may require
A) the firm to be less lenient with credit customers.
B) sales forecasts to be made less frequently
C) higher dividend payments to shareholders.
D) increased borrowing by the firm to support the sales increase.
ANS: D) increased borrowing by the firm to support the sales increase
16) Hedging is:
A) possible to achieve perfectly in practice.
B) a risk measurement system.
C) matching the maturities of assets and liabilities to reduce risk
D) matching assets and liabilities to measure risk.
ANS: C) matching the maturities of assets and liabilities to reduce risk
17) A firm utilizing FIFO inventory accounting would, in calculating gross profits, assume
that:
A) sales were from beginning inventory until it was depleted, and then use sales from current
production
B) all sales were from current production.
C) all sales were for cash.
D) all sales were from beginning inventory.
ANS: A) sales were from beginning inventory until it was depleted, and then use sales
from current production
18) When actual sales are greater than forecasted sales:
A) inventory will decrease and accounts receivable will increase.
B) inventory will increase.
C) accounts receivable will decrease
D) production schedules might have to be revised downward.
ANS: A) inventory will decrease and accounts receivable will increase.
19) ABC Co company has forecasted June sales of 600 units and july sales of 900 units. the
company maintains ending inventory equal to 130% of next month sales. June beginning
inventory reflects this policy. what is the June’s required production?
A) 0 units B) 800 units c) 990 units d) 1000 units
ANS: d) 1000 units
20) modos company has deposited $2000 in cheques received from customers. it has written
$1,400 in cheque to its suppliers. the initial balance was $400. If $1600 of its customers
cheques have been cleared but only $600 of its own has been deposited, calculate its float.
A) $200 B) $400 C) $300 (D) $700
ANS: d) $700
21) The need for an increase decrease in short-term borrowing can be predicted try:
A) trend analysis B) ratio analysis C) an income statement D) a cash budget.
ANS: d) cash budget
22) The cash budget does not include which of the following
A) Depreciation B) Receipts C) Disbursements D) Borrowings
ANS: a) Depreciation
23) When describing credit standards, the word "character" refers to
A) the state of the borrower's mental health.
B) if the person is willing to pay.
C) if the person has a good net worth.
D) if the person can make a decent living.
ANS: b) if the person is willing to pay
24) Ideally, which of the following types of assets should be financed with long-term
financing?
A) Capital assets and temporary current assets
B) Capital assets only
C) Temporary and permanent current assets
D) Capital assets and permanent current assets
ANS: d) Capital assets and permanent current assets
25) Financial forecasting van he une fut in all of the following except for
A) ensuring firms do set ran out of leve
B) ensuring firms have enough cash on hand
c) avoiding surprises
D) ensure a direct relationship between the projected sales and cash requirement
ANS: D) ensure a direct relationship between the projected sales and cash requirement
26) The primary considerations for the cash budget be
A) the ability to meet cash flow demand the on a timely basis with the efficient mgt of
working capital and short-term and long-term flancing
b) monthly costs associated with inventory manufactured during the period ( matierial,
laboour and overhead) and disbursementsfor general and administrivative expenses
C) adjusted to reflect any uncollectible accounts based on previous experietice and future
expectations.
D) combined with gross profit and assumptions on other expense items.
ANS: A) the ability to meet cash flow demand the on a timely basis with the efficient
mgt of working capital and short-term and long-term flancing
27) If the projected net cash flow for November is ($10,000), the beginning cash balance is
$4,000; the minimum cash balance is $3,000, the beginning loan balance is $8,000, What will
be the cumulative loan balance at the end of November?
A) $17,000 B) $14,000 C) $22,000 D) $5,000
ANS: a) $17,000
28) The term structure of interest rates or the yield curve
A) is always flat in the short-term.
B) is normal when short-term rates are higher than long-term rates.
C) shows the yield to maturity for securities of equal risk over time.
D) is inverted when short-term rates are lower than long-term rates.
ANS: C) shows the yield to maturity for securities of equal risk over time.
29) If a firm uses level production with seasonal sales:
A) as sales decline inventory will increase.
B) as sales decline accounts receivable will increase.
C) as sales decline inventory will decrease.
D) as sales decline accounts receivable will remain unchanged.
ANS: A) as sales decline inventory will increase.
30) An aggressive, risk-oriented firm will likely:
A) borrow short-term and carry low levels of liquidity.
B) borrow long-term and carry low levels of liquidity.
C) borrow long-term and carry high levels of liquidity.
D) borrow short-term and carry high levels of liquidity
ANS: A) borrow short-term and carry low levels of liquidity
31) A firm has beginning inventory of 300 units at a cost of $11 each. Production during the
period was 650 units at $12 each. If sales were 800 units, what is the value of the ending
inventory using FIFO?
A) $3,600 B) $3,250 C) $1,800 D) $7,800
ANS: c) $1800
32) How will widespread adoption of electronic funds transfer affect the use of "lout"?
A) It will virtually eliminate its use.
B) It will have no effect on its use.
C) It will increase its use somewhat.
D) It will decrease its use somewhat
ANS: a) It will virtually eliminate its use.
33) Modoc Company has deposited $4,110 in checks received from customers. It has written
$3,600 in checks to its suppliers. The initial bank and book balance was $460. If $3,450 of its
outstanding checks have cleared, but only $460 of its own, calculate its final balance.
A) $4,660 B) $5,000 C) $550 D) $1,150
ANS: D) $1150
34) A rapid rate of growth in sales may require:
A) the firm to be more lenient with credit customers.
B) increased borrowing by the firm to support the sales increase.
C) sales forecasts to be made less frequently.
D) higher dividend payments to shareholders.
ANS: B) increased borrowing by the firm to support the sales increase.
35) Pressure for current asset build-up often results from:
A) rapidly expanding sales.
B) increased demands of short-term creditors.
C) decreased demands of short-term creditors.
D) decline in sales growth.
ANS: A) rapidly expanding sales
36) Which of the following combinations of asset structures and financing patterns is likely to
create the least volatile earnings?
A) Liquid assets and heavy long-term borrowing
B) Illiquid assets and heavy short-term borrowing
C) Liquid assets and no debt
D) Illiquid assets and heavy long-term borrowing
ANS: A) Liquid assets and heavy long-term borrowing
37) Which of the following balance sheet item would not gennerally vary directly with sales
when calculating required new finances using the percent of sales method
A) inventory
B) Accounts Receivable
c) Conmen Stock
d) Accounts Payable
ANS: c) Conmon Stock
38) In developing the pro forma income statement, we follow four important steps: 1)
compute other expenses. 2) determine a production schedule . 3) establish a sales projection,
4) determine profit by completing the actual pro forma statement. What is the correct order
for These four steps A) 3.2.1.4 B) 1,2,3,4 c) 2.1.3.4 d) 4.3.2.1
ANS: a) 3.2.1.4
39) refers to the cost of holding inventory
A) Ordering Cost
b) Shipping Cost
c) Financing Cost
D) Carrying Cost
ANS: d) Carrying cost
40) A system is one in which a local bank picks up courser remittances from a post office box
A) Safe deposit Box
b) Collection box
c) Lock-box
d) bank vault
ANS: c) Lock box
41) In managing cash and marketable securities, what should be the manager's primary
concern?
A) Acceptable return on investment
B) Liquidity and safety
C) Maximization of profit
D) Maximization of liquid assets
ANS: b) Liquidity and safety
42) If a firm uses long-term financing to cover short-term needs it is:
A) is taking a profitable approach to financing
b) incurring a lower overall interest cost in comparison with short-term financing,
C) assuring itself of having adequate capital always.
D) is taking a relatively risky approach to financing.
ANS: d) is taking a relatively risky approach to financing
43) The terms of a $1,000 sale are 3/20, net/40. If collection is received in 14 days, the
amount received is S
A) 970.
B) 1,000.
C) 800.
D) 30.
ANS: a) 970
44) A "normal" term structure of interest rates would depict
A) medium rates (1-5 years) lower than both short-term and long-term rates
B) long-term rates higher than short-term rates.
C) short-term rates higher than long-term rates.
D) no general relationship between short-and long-term rates.
ANS: b) long-term rates higher than short-term rates
45) Retail companies like Canadian Tire and Indigo exhibit sales patterns that are mostly
influenced by:
A) seasonality.
B) cyclical economic indicators.
C) competitive prices.
D) sales promotions
ANS: a) seasonality
46) A conservatively financed firm would:
A) use long-term financing for permanent assets and capital assets and a portion of the short-
term fluctuating assets and use short-term financing for all other short-term
B) use long-term financing for all capital assets and short-term financing for all other sets
C) use equity to finance capital assets, long-term debt to finance permanent assets, and short-
term debt to finance fluctuating current assets.
D) finance a portion of permanent assets and short-term assets with short-term debt.
ANS: c) use equity to finance capital assets, long-term debt to finance permanent assets,
and short-term debt to finance fluctuating current assets.
47) Honest Joe Corp, reported annual sales of 519,444,445, out of which 90% were on credit.
In the past, Honest Joe's customers have paid within an average of 35 days. Honest Joe's
management is considering allowing customers to pay in 40 days. Calculate Honest Joe's
average daily credit sales?. (Honest Joe uses a 365-day year for accounting purposes)
A) $437,500
B) $486,112
C) $53,273
D) $47,945
E) $555,555
ANS: c) 53273
48) In general, the larger the portion of a firm's sales that are on credit, the
A) lower will be the firm's need to borrow,
B) more rapidly credit sales will be paid off
C) higher will be the firm's need to borrow
D) more the firm can buy raw materials on credit.
ANS: C) higher will be the firm's need to borrow
49) The cash conversion cycle is equal toc
A) the cash flow cycle.
B) inventory holding period less the average collection period plus the accounts payable
period.
C) inventory holding period less the average collection period less the accounts payable
period
D) inventory holding period plus the average collection period less the accounts payable
period
ANS: d) inventory holding period plus the average collection period less the accounts
payable period
50) One of the first considerations in cash management is:
A) profitability.
B) to put any excess cash into accounts receivable.
C) to have as much cash as possible on hand.
D) synchronization of cash inflows and cash outflows
ANS: d) synchronization of cash inflows and cash outflows