FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Working Capital and the Financing Decision

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

True/False

Review LaterAdd Note

Review Later

The key to current asset planning is the ability of management to forecast sales accurately and then match production schedules with the sales forecast.

Correct Answer

verified

Show Answer

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

Some analysts believe that the term structure of interest rates is determined by the behaviour of various types of financial institutions.This theory is called the:

A) expectations hypothesis.
B) segmentation theory.
C) liquidity premium theory.
D) theory of industry supply and demand for bonds.

Correct Answer

verified

Show Answer

Question 3

Multiple Choice

Review LaterAdd Note

If a firm uses level production with seasonal sales:

One reason for long-term diminishing liquidity is more efficient cash management.

Christensen & Assoc.is developing an asset financing plan.Christensen has $500,000 in current assets,of which 15% are permanent,and $700,000 in capital assets.The current long-term rate is 11%,and the current short-term rate is 8.5%.Christensen's tax rate is 40%. A)Construct two financing plans-one conservative,with 80% of assets financed by long-term sources,and the other aggressive,with only 60% of assets financed by long-term sources. B)If Christensen's earnings before interest and taxes are $325,000,calculate net income under each alternative. C)What are some of the risks associated with each plan? D)Which plan would you recommend to Christensen? Why?

Working capital management is relatively unimportant to the small businessperson.

A risky financial plan will use long-term financing for capital assets,permanent current assets,and a portion of temporary current assets.

What influences the amount of liquidity in the firm?

The cash budget combines the cash receipts and cash payments schedules in determining cash flow.

What is the cash conversion cycle? What does the cash conversion cycle consist of?

Retail companies like Sears and Chapters exhibit sales patterns that are mostly influenced by:

Firms with predictable cash-flow patterns should assume relatively low levels of risk.

As a general rule,it is desirable to finance the permanent assets,including "permanent current assets," with long-term debt and equity.

Government of Canada securities are used to construct yield curves because:

Self-liquidating current assets are really capital assets since they have lives greater than one year.

The ratio of long-term financing to short-term financing at any point in time will be greatly influenced by the term structure of interest rates and common stock prices.

A normal yield curve is downward sloping to the right.

If a firm uses long-term financing to cover short-term needs it is:

The more short-term financing relative to long-term financing,the more risky the financial structure.

Yield curves change daily to reflect: