Question 1

Accruals arise automatically from a firm's operations and are "free" capital in the sense that no explicit interest must normally be paid on accrued liabilities.

Accepted Answer

A) True 
 B)False

Question 2

Dewey Corporation has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle?

Accepted Answer

A)   25 days
B)   28 days
C)   31 days
D)   35 days
E)   38 daysF) B) and D)
G) B) and C)

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A)   Under normal conditions, a firm's expected ROE would probably be higher if it financed with short-term rather than with long-term debt, but using short-term debt would probably increase the firm's risk.
B)   Conservative firms generally use no short-term debt and thus have zero current liabilities.
C)   A short-term loan can usually be obtained more quickly than a long-term loan, but the cost of short-term debt is normally higher than that of long-term debt.
D)   If a firm that can borrow from its bank at a 6% interest rate buys materials on terms of 2/10, net 30, and if it must pay by Day 30 or else be cut off, then we would expect to see zero accounts payable on its balance sheet.
E)   If one of your firm's customers is "stretching" its accounts payable, this may be a nuisance but it will not have an adverse financial impact on your firm if the customer periodically pays off its entire balance.F) A) and E)
G) B) and D)

Question 4

What's the difference in the projected ROEs under the restricted and relaxed policies?

Accepted Answer

A)   1.20%
B)   1.50%
C)   1.80%
D)   2.16%
E)   2.59%F) C) and D)
G) A) and E)

Question 5

Long-term loan agreements always contain provisions, or covenants, that constrain the firm's future actions. Short-term credit agreements are just as restrictive in order to protect the interest of the lender.

Accepted Answer

A) True 
 B)False

Question 6

If the firm adopts a restricted policy, how much lower would its interest expense be than under the relaxed policy?

Accepted Answer

A)   $ 8,418
B)   $ 8,861
C)   $ 9,327
D)   $ 9,818
E)   $10,309F) B) and D)
G) None of the above

Question 7

Other things held constant, if a firm "stretches" (i.e., delays paying) its accounts payable, this will lengthen its cash conversion cycle (CCC).

Accepted Answer

A) True 
 B)False

Exam 17: Working Capital

If the firm adopts a restricted policy, how much lower would its interest expense be than under the relaxed policy?

Correct Answer
verified

Accruals arise automatically from a firm's operations and are "free" capital in the sense that no explicit interest must normally be paid on accrued liabilities.

Correct Answer
verified

What's the difference in the projected ROEs under the restricted and relaxed policies?

Correct Answer
verified

Other things held constant, if a firm "stretches" (i.e., delays paying) its accounts payable, this will lengthen its cash conversion cycle (CCC).

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Dewey Corporation has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle?

Correct Answer
verified

Long-term loan agreements always contain provisions, or covenants, that constrain the firm's future actions. Short-term credit agreements are just as restrictive in order to protect the interest of the lender.

Correct Answer
verified

Exam 17: Working Capital

If the firm adopts a restricted policy, how much lower would its interest expense be than under the relaxed policy?

Correct AnswerverifiedShow Answer

Accruals arise automatically from a firm's operations and are "free" capital in the sense that no explicit interest must normally be paid on accrued liabilities.

Correct AnswerverifiedShow Answer

What's the difference in the projected ROEs under the restricted and relaxed policies?

Correct AnswerverifiedShow Answer

Other things held constant, if a firm "stretches" (i.e., delays paying) its accounts payable, this will lengthen its cash conversion cycle (CCC).

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Dewey Corporation has the following data, in thousands. Assuming a 365-day year, what is the firm's cash conversion cycle?

Correct AnswerverifiedShow Answer

Long-term loan agreements always contain provisions, or covenants, that constrain the firm's future actions. Short-term credit agreements are just as restrictive in order to protect the interest of the lender.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified