Question

2) Your firm borrows money from the bank on a short-term note due in 9 months. This type of financing would be most appropriate for which of the following activities?

A) The support of accounts receivable

B) The construction of a new warehouse

C) The support of accounts payable

D) The financing of new equity

3) Which of the following is NOT considered a source of short-term financing?

A) a 10-year bond

B) a banker's acceptance

C) a 90-day bank loan

D) an issue of commercial paper

4) ________ is/are the most common form of short-term financing for a small and medium sized firms.

A) Commercial paper

B) Banker's acceptances

C) Short-term bank loans, or promissory notes,

D) New common stock

5) The ________ is, in theory, the interest rate offered to a bank's most credit worthy customers.

A) LIBOR

B) prime rate

C) promissory rate

D) bridge rate

15) Laminates Inc. has as age of inventory of 43 days, an age of receivables of 47 days and an age of payables of 61 days. Their closest competitor, Natural Inc., has comparable numbers of 51 days, 32 days and 55 days. Which of the following statements is true?

A) Laminates has the shorter and more desirable working capital gap of 57 days compared to Natural's WCG of 74 days.

B) Laminates has the longer and less desirable working capital gap of 65 days compared to Natural's WCG of 36 days.

C) Laminates has the shorter and less desirable working capital gap of 28 days compared to Natural's WCG of 49 days.

D) Laminates has the longer and less desirable working capital gap of 29 days compared to Natural's WCG of 28 days.

16) The author presents evidence that recently Southwest Airlines had a negative working capital gap. Which of the following reasons is likely to be primarily responsible for this enviable situation.

A) Southwest borrows a lot of money short-term thus keeping their borrowing costs low.

B) Southwest receives payment from customers in advance of most flights.

C) Southwest pays for fuel far in advance of the flights.

D) Southwest grants unusually long credit terms to encourage high levels of accounts receivable

17) Which of the following statements about inventory control is TRUE?

A) Too little inventory may lead to opportunity costs in the form of missed sales.

B) Too much inventory may reduce profitability due to increased financing and storage costs.

C) Seasonality in sales may require a firm to hold different levels of inventory throughout the year.

D) All of the statements about inventory control are true.

18) "The Holiday Store" is a retail firm that is only open in the weeks prior to major American holidays. The rest of the year the store is closed to the public for in-store and on line sales. The store is well-managed and manages to sell a very high percentage of its inventory each holiday season. The store's working capital gap is likely:

A) to be the same at any particular date during the year.

B) lowest in the weeks leading up to times when it opens its doors to the public.

C) highest in the weeks leading up to times when it opens its doors to the public.

D) highest when they close their doors following a holiday season.

Answer 1

2) Your firm borrows money from the bank on a short-term note due in 9 months. This type of financing would be most appropriate for which of the following activities?

The correct answer is option C) the support of accounts payable

Accounts payables are current liabilities which are due within a year. So, the firm borrowing money on a short term note due in 9 months supports to pay the accounts payable.

Option A is incorrect because accounts receivable is a current asset. We are going to receive money, so theres is no need to borrow to support this.

Option B is incorrect because construction of a new warehouse requires money to be borrowed for a long-term.

Option D is incorrect because the financing of new equity is not done through short-term note.

3) Which of the following is NOT considered a source of short-term financing?

The correct answer is option A) a-ten year bond

A 10-year bond is a long-term financing source.

Options B, C, and D are incorrect because they are a source of short-term financing.

B) a banker's acceptance

C) a 90-day bank loan

D) an issue of commercial paper

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