FIN 100 WEEK 11 QUIZ

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
 
accounting rate of return
Question 16 
The cost of debt:
 
is typically higher than the cost of   preferred stock
 
must be adjusted to an after-tax cost
 
is higher than the cost of retained   earnings
 
is the lowest component cost because   corporations can deduct 70 percent of the interest expense
Question 17 
As a general rule, the capital structure that maximizes stock price also:
 
minimizes the weighted average cost   of capital
 
maximizes the weighted average cost   of capital
 
minimizes the required rate of return   on equity
 
maximizes the cost of debt
Question 18 
The after-tax cost of debt for a firm in the 35% tax bracket with a before-tax cost of debt of 6% is:
 
6%
 
2.1%
 
3.9%
 
5.8%
Question 19 
Ningbo Shipping has issued preferred stock at its $125 per share par value. The stock will pay a $15 annual dividend. The cost of issuing and selling the stock was $4 per share. The cost of Ningbo Shipping preferred stock is:
 
7.2%.
 
12.0%.
 
12.4%.
 
15%.
Question 20 
A firm’s mix of debt and equity defines the firm’s:
 
capital structure
 
working capital
 
net working capital
 
degree of operating leverage
 
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