Managerial Finance Test #2

An advantage of Level Production is that Manpower and equipment are used efficiently at lower cost
An aggressive working capital policy has A high ratio of short-term debt to long-term sources of funds
The term structure of interest rates is influenced by inflation, money supply, and Federal Reserve Activities
An aggressive, risk-oriented firm will likely borrow short-term and carry low levels of liquidity.
Generally, more use is made of short-term financing because short-term interest rates are generally lower than long-term interest rates and most firms do not have basic access to the capital markets.
Retail companies like Target and Macy’s are more likely to have cyclical sales and more volatile earnings per share.
A firm will usually increase the ratio of short-term debt to long-term debt when future interest rates are expected to increase.
The use of cash budgeting procedures helps the firm plan its current asset levels for a given production plan.makes managing inventory easier under seasonal production.illustrates fluctuating levels of current assets for a given production plan.
Working capital management is primarily concerned with the management and financing of Current Assets
Which of the following is a reason for diminishing liquidity in modern corporations? Just-in-time inventory programs.Better utilization of cash via computers.Increased use of point-of-sale terminals.
When selecting marketable securities, the company should always select securities with longer maturities if they offer higher yields. FALSE
Which of the following is not a factor influencing the selection of a marketable security? (Yield, Maturity, Security, Float) Float
One of the first considerations in cash management is synchronization of cash inflows and cash outflows.
Generally, the safest and most marketable instrument for short-term investment is Treasury Bills
The problem in stretching out the maturity of marketable securities is that there is a greater possibility that the value of the security will drop because of the interest fluctuations.
Which of the following is the most liquid asset? Cash Equivalents
Multinational firms find it difficult to shift funds from one country to another. FALSE
International cash management systems are more complex than domestic cash management systems because of the risk involved in currency fluctuations.the changing interest rates across countries.varying time zones across countries.
Which of the following is not a valid quantitative measure for accounts receivable collection policies? Ratio of debt to equity
All of the following are methods of controlling receivables except reducing cash sales.
A cash discount typically lowers the average collection period of a firm. True
When considering offering a cash discount, a firm must weigh the benefits of freed-up cash with the cost of the cash discount. True
Variables important to credit scoring models include age of company in years.negative public records.facility ownership.
Return on investment is the major decision criteria in credit decisions. True
Seasonal production allows for maximum efficiency in machinery and manpower use. False
For a given firm, holding other factors constant, ordering costs per unit generally decline as average inventory increases.
A reduction in carrying costs would increase the economic order quantity. True
Lower ordering costs would tend to increase a firm’s economic order quantity. FALSE
The two basic costs associated with inventory are production cost and ordering cost. FALSE
The inventory decision model provides which type of information? Optimal Order Size
Inventories are usually the most liquid, but lowest-yielding, current asset of a firm. FALSE
Maintaining a safety stock will always guard against an “EOQ point” from occurring. False
Companies that are mostly influenced by seasonal sales have to make a choice between level production and inventory buildup.seasonal production and an uneven workforce.a stable workforce and a fluctuating workforce.

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