Finance Ch 13, 15, 17

CH 13All of the following are potential benefits of stock repurchases except:A. a means for providing an internal investment opportunityB. an approach for maintaining the existing capital structure while still making a distribution to shareholdersC. a favorable impact on earnings per shareD. the elimination of a minority ownership group of stockholders B. an approach for maintaining the existing capital structure while still making a distribution to shareholders
CH 13Which of the following strategies may be used to alter a firm’s capital structure toward a higher percentage of debt compared to equity?A. stock dividendB. stock splitC. maintain a low dividend payout raioD. stock repurchase D. stock repurchase
CH 13LAW, Inc. settled a large lawsuit that caused earning to be negative for the quarter. This quarterly loss was first in 22 years. In addition, the company has a record of 48 consecutive quarters of dividend payments. Which of the following is correct?A. The company cannot pay dividends this quarter since the company had no earningsB. The company can use cash generated through prior retention of earnings, or borrowed funds to pay the dividendC. The company can omit the dividend; shareholders are always understanding about the riskiness of businessD. The clientele effect says that investors choice of investment vehicle is independent of dividend policy and therefore the payment/omission of the dividend is immaterial B. The company can use cash generated through prior retention of earnings, or borrowed funds to pay the dividend
CH 13For accounting purposes a stock split has been defined as a stock dividend exceeding:A. 25%B. 35%C. 50%D. 66 2/3% A. 25%
CH 13Which of the following is the most valid reason to split a stock that has a market price of $110 per share?A. conserve cashB. reduce the market price to a more popular trading rangeC. obtain additional capitalD. increase investor’s net worth B. reduce the market price to a more popular trading range
CH 13An increase in flotation costs will most likely result in which of the following?A. smaller dividend payments so that less external equity financing is neededB. larger dividend payments so shareholders are able to earn their required returnsC. larger dividend payments to offset higher taxes paid by investorsD. no change in dividend policies because flotation costs are paid by purchasers of common stock A. smaller dividend payments so that less external equity financing is needed
CH 13Each of the following factors may cause a corporation to lower its dividend payout ratio except:A. the corporation’s earnings predictability is highB. the corporation’s current and quick ratios are higher than industry averageC. the corporation’s retained earning balance is highD. current common shareholders are unable to participate in new equity offerings A. the corporation’s earnings predictability is high
CH 13Which of the following statements would be consistent with the bird-in-the-hand dividend theory?A. Investors are indifferent whether stock returns come from dividend income or capital gains incomeB. Dividends are more certain than capital gains incomeC. Wealthy investors prefer corporations to defer dividend payments because capital gains produce greater after-tax incomeD. dividends are less certain than capital gains B. Dividends are more certain than capital gains income
CH 13A corporation has been paying out $1 million per year in dividends for the past several years. This year, the company wants to pay the $1 million dividend, but can’t. All of the following are reasons the company cannot continue its dividend payment policy except:A. the company’s net income this year is less than $1 millionB. the company’s retained earnings balance at the end of the year is less than $1 millionC. the company’s cash balance is less than $1 millionD. the company’s liabilities exceed its assets A. the company’s net income this year is less than $1 million
CH 13Assume that firm has a stead record of paying stable dividend for years. Market analysts had expected management to increase the dividend by 7.5% in the latest quarter. However, management announced a 15% increase in the current year’s dividend. The market value of the stock rose 20% on the day of the announcement. Which of the following would best explain the stock market’s reaction to the announcement?A. Expectations TheoryB. Dividend Irrelevance TheoryC. Residual Dividend TheoryD. Agency Theory A. Expectations Theory
CH 13All of the following are likely to result in a lower dividend, other things the same except:A. statutory restrictionsB. debt covenantsC. liquidity constraintsD. highly diverse ownership D. highly diverse ownership
CH 13The correct order of dividend process dates is:A. date of record, declaration date, ex-dividend date, payment dateB. declaration date, date of record, ex-dividend date, payment dateC. ex-dividend date, date of record, declaration date, payment dateD. declaration date, ex-dividend date, date of record, payment date D. declaration date, ex-dividend date, date of record, payment date
CH 13CDE Corporation declared a $2 per share dividend on October 1. The date of record is October 20th, the ex-dividend date is October 18th, and the payment date is October 31st. Joe owns a share of stock on October 1. Joe sells his share to Mary on October 19th, and Mary sells the share to Tom on October 29th. Who will receive the dividend?A. JoeB. MaryC. TomD. No one, since the share was not owned consistently by one person over the period A. Joe
CH 13Sam owns 5,000 shares in Global X Corporation with a market value of $15,000. Global X declares a 20% stock dividend. After the dividend is paid, Sam ownsA. 6,000 shares with a market value of $18,000’B. 6,000 shares with a market value of $15,000C. 5,100 shares with a market value of $15,300D. 5,000 shares with a market calue of $18,000 B. 6,000 shares with a market value of $15,000
CH 13JB Corporation has a retained earnings balance of $2,000,000. The company reported net income of $600,000, sales of $4,000,000, and has 200,000 shares of common stock outstanding. The company announced a dividend of $2.00 per share. Therefore, the company’s dividend payout ratio isA. 66.7%B. 50%C. 20%D. 10% A. 66.7%
CH 13All of the following conclusions on the importance of dividend policy are true except:A. as a firm’s investment opportunities increase, the dividend payout ratio should decreaseB. the firm’s expected earnings power and the riskiness of these earnings are more important to the investor than the dividend policyC. dividends may influence stock price by the investor’s desire to minimize and/or defer taxes and from the role of dividends in minimizing agency costsD. in order to avoid surprising investors, management should anticipate financing needs for the short-term, but not for the long term D. in order to avoid surprising investors, management should anticipate financing needs for the short-term, but not for the long term
CH 13JLI Corp. had earnings per share of $4 per share last year and paid a dividend of $1 per share. For the current year, JLI Corp. generated earnings per share of $6 and paid a dividend of $1 per share. This is an example of what type of dividend policy?A. constant dividend payout ratioB. stable dollar dividend per shareC. small, regular dividend plus a year-end extraD. payout ratio equal to zero B. stable dollar dividend per share
CH 13Assume that Harris, Inc. has 10,000,000 common shares outstanding that have a par value of $2 per share. The stock is currently trading for $30 per share. The firm reported a net profit after-tax of $25,000,000. All else equal, what will happen to earnings per share if the company issues a 10% stock dividend?A. Earnings per share will remain the same since a stock dividend does not create an expenseB. Earnings per share will increase because the dividend increases the value of the companyC. Earnings per share will decrease because the number of shares outstanding will go upD. The impact cannot be determined without additional information on the new price per share C. Earnings per share will decrease because the number of shares outstanding will go up
CH 13Stock repurchases may be used for all of the following except:A. a means for providing an internal investment opportunityB. to improve earnings per shareC. to decrease the corporation’s debt ratioD. to eliminate a minority ownership group of stockholders C. to decrease the corporation’s debt ratio
CH 13Which of the following statements concerning stock repurchases is most correct?A. Increasingly companies are using stock repurchases to distribute cash to their shareholders, but dividends remain the primary means to distribute cashB. Companies currently spending more money on stock buybacks than on dividend paymentsC. Repurchasing stock is strictly a financing decision made by the corporationD. A tender offer is the only way to complete a stock repurchase due to SEC rules B. Companies currently spending more money on stock buybacks than on dividend payments
CH 13Corporation A announces its quarterly dividend will increase from $3.80 to $4.00. After the announcement, the price of Corporation A’s stock drops. The most likely explanation is thatA. the stock market is a perfect marketB. investors are irrationalC. investors were expecting a larger increaseD. Corporation A’s debt ratio decreased C. investors were expecting a larger increase
CH 13Low dividends may increase stock value according to theA. bird-in-the-hand theoryB. information effectC. impact of agency costsD. tax bias in favor of capital gains D. tax bias in favor of capital gains
CH 13High dividends may increase stock values due to all of the following reasons except:A. dividend are more certain than capital gainsB. higher dividends are used to signal higher expected future earningsC. dividends are used as a tool to minimize agency costsD. higher dividends allow companies to increase their proportion of external equity financing D. higher dividends allow companies to increase their proportion of external equity financing
CH 13The dividend irrelevance hypothesis is based on all of the following assumptions except:A. investment decisions will not be altered by the amount of dividend paymentsB. investors do not need cash dividends to supplement their current incomeC. perfect capital marketsD. borrowing decisions will not be altered by the amount of dividend payments B. investors do not need cash dividends to supplement their current income
CH 13JBC Corp. declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet JBC Corp. stock declines by 3% the day of the announcement. RBG Corp. declared a dividend of $2 per share, which was the same as the prior year, and its stock increased in value by 2% on the day of announcement. These events could be most readily explained by theA. information effectB. clientele effectC. expectations theoryD. residual dividend theory C. expectations theory
CH 13Which of the following statements would be consistent with the residual dividend theory?A. Wealthy investors prefer corporations to defer dividend payments because capital gains produce greater after-tax incomeB. Dividends are more certain than capital gainsC. Dividends should only be paid if a firm has profits in excess of the amount needed to finance the current year’s capital investmentsD. Investors are indifferent whether stock returns come from dividend income or capital gains income C. Dividends should only be paid if a firm has profits in excess of the amount needed to finance the current year’s capital investments
CH 13The correct dividend process dates is:A. date of record, declaration date, ex-dividend date, payment dateB. declaration date, date of record, ex-dividend date, payment dateC. ex-dividend date, date of record, declaration date, payment dateD. declaration date, ex-dividend date, date of record, payment date D. declaration date, ex-dividend date, date of record, payment date
Ch 13BTW Corp. declared a $1.00 dividend on January 5th, with an ex-dividend date of January 19th, a record date of January 21st, and a payment date of March 15th. Joe purchased BTW stock on January 6th.A. Joe will not receive the dividend because he purchased the stock after the declaration dateB. Joe will not receive the divided because he purchased the stock prior to the record dateC. Joe will receive the dividend if he still sells his stock on January 18th because he owned the stock before the ex-dividend dateD. Joe will receive the dividend if he still owns the stock on January 21st, even if he sells the stock before the payment date D. Joe will receive the dividend if he still owns the stock on January 21st, even if he sells the stock before the payment date
CH 13Sam owns 1,000 shares of XYZ Corp.’s common stock. The stock has a par value of $1 per share and is currently selling for $80 per share. XYZ declares a 20% stock dividend. In a perfect capital market, after the dividend Sam will haveA. 1,200 shares selling for $66.67 eachB. 1,020 shares selling for $80.80 eachC. 1,200 shares selling for $96.00 eachD. 1,020 shares selling for $64.00 each A. 1,200 shares selling for $66.67 each
CH 13JB corporation has a retained earnings balance of $2,000,000. The company reported net income of $600,000, sales of $4,000,000, and has 200,000 shares of common stock outstanding. The company announced a dividend of $2.00 per share. Therefore, the company’s dividend payout ratio isA. 66.7%B. 50%C. 20%D. 10% A. 66.7%
CH 15Which of the following statements concerning liquidity and debt is true?A. The greater the use of short-term debt, the lower the risk of illiquidity.B. Long-term debt is generally less costly than short-term debt.C. A firm can reduce its risk for illiquidity by shifting from short-term debt to long-term debt. D. The risk of illiquidity does not depend on the mix of short-term versus long-term debt. C. A firm can reduce its risk for illiquidity by shifting from short-term debt to long-term debt.
CH 15Which of the following sources of short-term financing is likely to have the highest interest rate?A. accounts receivable loan (pledging of accounts receivable) B. line of credit C. line of credit with a compensating balance D. commercial paper A. accounts receivable loan (pledging of accounts receivable)
CH 15Which of the following sources of short-term financing is likely to have the lowest interest rate?A. accounts receivable loan (pledging of accounts receivable) B. line of credit C. line of credit with a compensating balanceD. commercial paper D. commercial paper
CH 15Which of the following loans provide the least amount of security to the lender?A. chattel mortgage B. factoringC. floating lien D. terminal warehouse agreement C. floating lien
CH 15Which item would constitute poor collateral for an inventory loan?A. lumberB. vegetablesC. grainD. chemicals B. vegetables
CH 15Which of the following is an advantage of the use of current liabilities to finance assets?A. less risk of illiquidityB. more flexibilityC. lower interest costsD. Both more flexibility and lower interest costs D. Both more flexibility and lower interest costs
CH 15All of the following are potential disadvantages of short-term debt except:A. short-term debt must be paid back more quickly than long-term debt.B. uncertainty of interest costs because short-term debt must be replaced often.C. a greater risk of illiquidity than long-term debt.D. short-term debt generally has a higher interest cost than long-term debt. D. short-term debt generally has a higher interest cost than long-term debt.
CH 15Which of the following is most likely to be a temporary source of financing?A. commercial paperB. preferred stockC. long-term debtD. common stock A. commercial paper
CH 15With regard to the hedging principle, which of the following assets should be financed with current liabilities?A. minimum level of cash required for year round operationsB. expansion of accounts receivable to meet seasonal demandC. machineryD. buildings B. expansion of accounts receivable to meet seasonal demand
CH 15Boeing Corp. buys on 3/10, net 30 days. What is the nominal cost of interest if Boeing does not take advantage of the trade discount offered? Assume a 360-day year.A. 12.0%B. 22.3%C. 55.7%D. 66.3% C. 55.7%
CH 15Key Enterprises borrows $12,000 for a short-term purpose. The loan will be repaid after 120 days, with Key paying a total of $12,400. What is the approximate cost of credit using the APR , or annual percentage rate, calculation?A. 3.33%B. 4.00%C. 10.00%D. 11.75% C. 10.00%
CH 15Assume that Billings, Inc. borrows $5,000,000 for 120 days. The total interest paid is $150,000. What is the APY, or Effective Annual Rate of interest that Billings pays?A. 3.00%B. 9.00%C. 9.27%D. 9.77% C. 9.27%
CH 15The Stuart Glass Company established a line of credit with a local bank. The maximum amount that can be borrowed under the terms of the agreement is $1,000,000 at an annual rate of 8 percent. A compensating balance averaging 25 percent of the amount borrowed is required. Prior to the agreement, Stuart had no deposit with the bank. Shortly after signing the agreement, Stuart needed $240,000 to pay off a note that was due. It borrowed the $240,000 from the bank by drawing on the line of credit. What is the effective annual cost of credit?A. 12.50%B. 11.11%C. 10.67%D. 8.85% C. 10.67%
CH 15Penn Inc. needs to borrow $250,000 for the next 6 months. The company has a line of credit with a bank that allows the company to borrow funds with an 8% interest rate subject to a 20% of loan compensating balance. Currently, Penn Inc. has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs. What will be the annual percentage rate, or APR, for this financing?A. 10.00%B. 12.12%C. 10.67%D. 13.33% A. 10.00%
CH 15The Jubilee Manufacturing Company is going to issue 180-day commercial paper to raise $25 million. It anticipates a discounted interest rate of 13 percent, and dealer placement costs of approximately $60,000. What is the effective annual cost of credit to Jubilee?A. 13.46%B. 14.06%C. 14.45%D. 15.38% C. 14.45%
CH 15Interest costs for short-term debt are generally lower than interest costs for long-term debt becauseA. the term structure of interest rates generally reflects an upward sloping yield curve.B. short-term debt is more flexible, allowing a match of short-term needs with short-term financing.C. both the term structure of interest rates generally reflects an upward sloping yield curve and short-term debt is more flexible, allowing a match of short-term needs with short-term financing.D. investors demand higher returns on short-term debt due to liquidity concerns. C. both the term structure of interest rates generally reflects an upward sloping yield curve and short-term debt is more flexible, allowing a match of short-term needs with short-term financing.
CH 15The primary advantage that pledging accounts receivable provides is:A. the flexibility it gives to the borrower.B. that the financial institution bears the risk of collection.C. the low cost as compared with other sources of short-term financing.D. that the financial institution services the accounts. A. the flexibility it gives to the borrower.
CH 15A company that increases its liquidity by holding more cash and marketable securities isA. likely to achieve a higher return on equity because of higher interest income.B. likely to achieve a lower return on equity because of the smaller rates of return earned on cash and marketable securities compared to the firm’s other investments.C. going to maximize firm value because risk is decreased.D. going to have to sell common stock to raise the cash to become more liquid. B. likely to achieve a lower return on equity because of the smaller rates of return earned on cash and marketable securities compared to the firm’s other investments.
CH 15Which of the following statements regarding a line of credit is true?A. The purpose for which the money is being borrowed must be stated by the borrower.B. A line of credit agreement usually fixes the interest rate that will be applied to any extensions of credit.C. A line of credit agreement is a legal commitment on the part of the bank to provide the stated credit.D. Such agreements usually cover the borrower’s fiscal year. D. Such agreements usually cover the borrower’s fiscal year.
CH 15Which of the following is not an advantage of trade credit?A. The amount of extended credit expands and contracts with the needs of the firm.B. The cost of forgoing the discount is less than the prime rate.C. Generally no formal agreements are involved in the extension of trade credit.D. Trade credit is very flexible. B. The cost of forgoing the discount is less than the prime rate.
CH 15Which of the following is a disadvantage of the use of current liabilities to finance assets?A. greater risk of illiquidityB. less flexibilityC. higher interest costsD. the hedging principle A. greater risk of illiquidity
CH 15Which of the following actions would improve a firm’s liquidity?A. repurchasing stockB. selling bonds and increasing cashC. buying bondsD. increasing the company’s dividend payments B. selling bonds and increasing cash
CH 15Permanent sources of financing include all butA. corporate bonds.B. common stock.C. preferred stock.D. commercial paper. D. commercial paper.
CH 15According to the hedging principle, which of the following assets should be financed with permanent sources of financing?A. seasonal expansions of inventoryB. seasonal increases in accounts receivableC. levels of inventory and accounts receivable the firm maintains throughout the yearD. none of these C. levels of inventory and accounts receivable the firm maintains throughout the year
CH 15Jones Company has a cash flow problem. The company owes its suppliers $300,000 on credit terms of 2/10 net 40, but Jones doesn’t have the cash to pay during the discount period. Jones, however, can borrow the $300,000 at annual rate of 24%. Should Jones borrow the money to pay its accounts payable?A. No, additional borrowing will cost more for interest ($60,000 per year) than the discount is worth.B. Yes, the effective cost of forgoing the discount is greater than 24%.C. No, the effective cost of forgoing the discount is equal to 24%, and there are transactions costs associated with borrowing.D. It doesn’t matter because the present value of the cost of borrowing is exactly equal to the amount of the discount for paying within 10 days. B. Yes, the effective cost of forgoing the discount is greater than 24%.
CH 15Your company is able to arrange financing at either a rate of 12.75% annually, or at a rate of 12% compounded monthly. Assuming financing is needed for one year, which rate is the best?A. 12% compounded monthly, because the annual percentage yield is 12.68%B. Both rates are effectively the same, so your company should be indifferent between the two.C. 112.75% annually because the annual percentage yield for 12% compounded monthly is greater than 12.75%.D. 12.75% annually, because even though the annual percentage yield is higher, interest if paid only once per year at year end. A. 12% compounded monthly, because the annual percentage yield is 12.68%
CH 15Key Enterprises borrows $12,000 for a short-term purpose. The loan will be repaid after 120 days, with Key paying a total of $12,400. What is the approximate cost of credit using the APY , or annual percentage yield, calculation?A. 4.33%B. 10.34%C. 12.25%D. 12.46% B. 10.34%
CH 15Penn Inc. needs to borrow $250,000 for the next 6 months. The company has a line of credit with a bank that allows the company to borrow funds with an 8% interest rate subject to a 20% of loan compensating balance. Currently, Penn Inc. has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs. How much will Penn Inc. need to borrow?A. $270,000B. $300,000C. $312,500D. $347,222 C. $312,500
CH 15The Stuart Glass Company established a line of credit with a local bank. The maximum amount that can be borrowed under the terms of the agreement is $1,000,000 at an annual rate of 8 percent. A compensating balance averaging 25 percent of the amount borrowed is required. Prior to the agreement, Stuart had no deposit with the bank. Shortly after signing the agreement, Stuart needed $240,000 to pay off a note that was due. Stuart decides to borrow an amount sufficient to pay the $240,000 note and also to cover the compensating balance. What is the effective annual cost of credit if the loan is made on a discount basis?A. 11.94%B. 11.00%C. 10.83%D. 10.57% A. 11.94%
CH 15Benkart Tool and Die Company plans to sell $50,000,000 of 120-day commercial paper, on which it expects to pay discounted interest at a rate of 5% per year. Dealer fees are expected to be $30,000. The effective cost of credit to Benkart Tool and Die Company isA. 5.27%.B. 5.64%.C. 6.22%.D. 7.53%. A. 5.27%.
CH 17What is the greatest risk associated with cash management?A. yieldsB. insolvencyC. holding too much cashD. managing float B. insolvency
CH 17The financial manager is concerned with:A. striking a balance between holding too much and too little cash.B. maintaining high levels of profitability.C. minimizing the chance of insolvency.D. all of these. D. all of these.
CH 17Funds that are available in a company’s bank account until its payment check has cleared refers to:A. mail float.B. processing float.C. transit float.D. disbursing float. D. disbursing float.
CH 17Which of the following affects the precautionary motive for holding cash?A. the cash flow predictabilityB. the firm’s access to external fundsC. both the cash flow predictability and the firm’s access to external fundsD. none of these C. both the cash flow predictability and the firm’s access to external funds
CH 17Money market fundsA. are tax exempt.B. typically invest in a diversified portfolio of short-term, high-grade debt instruments.C. are generally very profitable but fail to provide liquidity to the small investor.D. typically sell shares to the public in $25,000 denominations. B. typically invest in a diversified portfolio of short-term, high-grade debt instruments.
CH 17All of the following are false except:A. the mail float is caused by the time lapse from the moment a firm receives the check and begins to process it.B. the processing float is caused by the time necessary for a bank to process the check.C. the transit float is caused by the time lapse from the moment a customer mails a check until the firm begins to process it.D. the disbursing float derives from the fact that funds remain in a firm’s bank account until its payment check is cleared through the banking system. D. the disbursing float derives from the fact that funds remain in a firm’s bank account until its payment check is cleared through the banking system.
CH 17A firm’s credit and collection policies usually include:A. terms of sale, quality of customers, and collection of credit sales.B. average collection period, dollar value of aged receivables, and terms of sale.C. terms of sale and collection of credit sales.D. terms of sale, level of credit sales, and collection of credit sales. A. terms of sale, quality of customers, and collection of credit sales.
CH 17A construction firm that accumulates cash in anticipation of a significant drop in lumber costs is an example of the ________ motive for holding cash.A. transactionB. speculativeC. hedgingD. precautionary B. speculative
CH 17Which of the following is generally under the control of the financial manager?A. the percentage of credit sales to total salesB. the actual level of salesC. the credit policiesD. the percentage of credit sales to total sales and the actual level of sales C. the credit policies
CH 17If you were a treasurer for a Fortune 1,000 corporation who has responsibility for investing “excess cash balances,” which of the following alternatives would you be least likely to select?A. commercial paperB. common stockC. bankers’ acceptancesD. U.S. Treasury bills B. common stock
CH 17Which of the following factors determines the amount that a firm would have invested in accounts receivable?A. collection effortsB. the percentage of credit sales to total salesC. the volume of salesD. the terms of saleE. all of these. E. all of these.
CH 17If a firm with credit terms of 1/10 net 30 were to change its terms to 3/10 net 30, the result would probably be:A. increased bank loans.B. increased accounts receivable turnover.C. an increase in the average level of accounts receivable.D. a decrease in accounts payable. B. increased accounts receivable turnover.
CH 17Assume that liquid funds can be invested to yield 4.5 percent. If annual remittance checks total $2 billion, what is it worth for the firm to reduce float by 1 day?A. $388,349B. $246,575C. $257,534D. $24,658 B. $246,575
CH 17Determine the annualized cost of forgoing the trade discount on terms 1/20 net 45. Use 360-day year.A. 14.55%B. 15.24%C. 16.780%D. 20.69% A. 14.55%
CH 17Martin Inc. is negotiating with the bank for a lockbox system that is expected to reduce check collection time by 4 days. Martin’s average check size is $1,200 and any funds freed up by the new system will be invested in a money market account that is currently paying 2.5% annually. What is the most Martin should be willing to pay the bank for the lockbox service, assuming the bank charges a per-check processing fee?A. 20.500 centsB. 29.767 centsC. 30.726 centsD. 32.877 cents D. 32.877 cents
CH 17Zero balance accounts permit centralized control over cash outflows while maintaining divisional disbursing authority.A. TrueB. False A. True
CH 17The benefits of a lockbox system include all of the following except:A. increased working cash.B. elimination of clerical functions.C. increase in total float.D. early knowledge of dishonored checks. C. increase in total float.
CH 17John Maynard Keynes segmented a firm’s demand for cash into the following motives:A. risk, investment, and liquidity.B. transaction, speculative and precautionary.C. transaction, liquidity, and speculative.D. transaction, speculative, and risky. B. transaction, speculative and precautionary.
CH 17When a corporation designs an investment strategy for investing temporary excess cash balances in marketable securities, it must consider a variety of factors. Which of the following is the most important?A. maintaining the safety of principalB. maintaining the greatest floatC. achieving the highest yieldD. illiquidity A. maintaining the safety of principal
CH 17Which of the following would be an example of the “speculative motive” for a firm holding cash balances?A. make dividend paymentsB. anticipating a strikeC. purchase of inventoryD. take advantage of an anticipated decline in the price of raw materials D. take advantage of an anticipated decline in the price of raw materials
CH 17Customer Concern Insurance Company tries to settle claims as quickly as possible. In certain cases, agents can present payments to claimants which are cleared through the banking system like a check, but must be passed through the Insurance Company for approved prior to payment. This is an example of aA. zero balance account.B. payable-through draft.C. insurance float voucher.D. post-dated check. B. payable-through draft.
CH 17Which of the following has the least interest rate risk?A. a six-month unsecured promissory note from International HarvesterB. an eight-year investment certificate from a federally insured bankC. a 15-year U.S. Treasury bondD. an AT&T bond maturing in 15 years A. a six-month unsecured promissory note from International Harvester
CH 17Given that short-term interest rates typically fluctuate less than long-term rates, interest rate risk is least forA. treasury bills.B. common stock.C. long-term government bonds.D. medium-term corporate bonds. A. treasury bills.
CH 17Banker’s acceptances have the following characteristics except:A. typically maturities of 1 to 5 years.B. fully taxable at the federal, state, and local levels.C. are sold on a discount basis and payable to the bearer.D. are not “issued” in predetermined denominations. A. typically maturities of 1 to 5 years.
CH 17Cash inflows come from:A. purchase of marketable securities.B. purchase of fixed assets.C. credit sales.D. cash sales. D. cash sales.
CH 17The objectives of a zero balance account system for the firm include:A. reduce disbursing float.B. achieve better control over its cash payments.C. increase cash balances in regional rather than national banks.D. all of these are correct. B. achieve better control over its cash payments.
CH 17If a firm with credit terms of 2/10 net 30 were to change its terms to 2/10 net 60, the result would probably be:A. more customers would take advantage of the cash discount.B. fewer customers would take advantage of the cash discount.C. increased accounts receivable turnover.D. a reduction in safety stock. B. fewer customers would take advantage of the cash discount.
CH 17If you compare the yield of a municipal bond with that of a negotiable certificate of deposit, what is the equivalent before-tax yield of the certificate of deposit if the municipal bond has a yield of 8% per year and the investor has a marginal tax rate of 28%?A. 8.28%B. 9.30%C. 10.24%D. 11.11% D. 11.11%
CH 17Determine the annualized cost of forgoing the trade discount on terms 2/15 net 65. Use 360-day year.A. 11.30%B. 14.69%C. 32.6%D. 48.98% B. 14.69%
CH 17Martin Inc. is considering a lockbox system that will increase its check processing cost by $.15 per check. The company estimates an average check size of $1,700 and expects the lockbox to reduce check collection time by 3 days. What annual before-tax yield must Martin Inc. earn on its marketable securities for the lockbox system to be beneficial?A. 1.825%B. 1.118%C. 1.074%D. 0.735% C. 1.074%

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