Financial Management

11. Most retail stores are mainly concerned with:

  1. their buyers' forecasts for the coming season
  2. matching sales and inventory levels
  3. decreasing inventory turnover
  4. their investment in capital assets
Correct answer: (B)
matching sales and inventory levels

12. The liquidity premium theory suggests that long-term interest rates are higher than short-term interest rates because:

  1. investors generally prefer to invest short periods of time
  2. government policy maintains this relationship
  3. there is greater risk in long-term bonds
  4. exchange rate fluctuations establish this relationship
Correct answer: (C)
there is greater risk in long-term bonds

13. Using a lockbox system to improve collections:

  1. is more expensive than the use of collection centers
  2. utilizes local banks to clear local payments made to the collection center
  3. provides more float than collection centers
  4. results in checks being forward to a P.O. box and clearing through local banks
Correct answer: (D)
results in checks being forward to a P.O. box and clearing through local banks

14. All of the following are factors influencing the choice of marketable securities except:

  1. yield
  2. maturity
  3. marketability
  4. maximum investment allowed
Correct answer: (D)
maximum investment allowed

15. In establishing credit standards, the firm must consider the nature of the credit risk based on all of the following, except:

  1. prior record of payment
  2. terms of credit
  3. financial stability
  4. current net worth
Correct answer: (B)
terms of credit

16. A cash discount may best be defined as:

  1. a reduction in price if payment is made within the specified time period
  2. a discount offered to critical suppliers
  3. a discount applied to volume sales
  4. a discount or the repayment of the firm's debt
Correct answer: (A)
a reduction in price if payment is made within the specified time period

17. Commercial paper may best be defined as:

  1. a short term obligation of the government issued to commercial investors
  2. short term unsecured promissory notes issued by corporations
  3. an insignificant source of funds to large corporations
  4. the debt obligations of chartered banks
Correct answer: (B)
short term unsecured promissory notes issued by corporations

18. The extent to which inventory financing may be employed is based on all of the following, except:

  1. the marketability of the pledged goods
  2. their associated price stability of the goods
  3. the perishability of the goods
  4. the control of the goods by the manufacturer
Correct answer: (D)
the control of the goods by the manufacturer

19. If interest or compounding is done on other than an annual basis, adjust by:

  1. dividing the number of years by the number of compounding periods
  2. multiplying the number of years by the number of compounding periods
  3. dividing the interest rate by the number of compounding period
  4. multiplying the years and dividing the interest rate by the number of compounding periods
Correct answer: (D)
multiplying the years and dividing the interest rate by the number of compounding periods

20. Annuity payments are generally assumed to occur:

  1. during the period
  2. at the beginning of the period
  3. at the end of the period
  4. it doesn't matter when they occur
Correct answer: (C)
at the end of the period
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