Financial Management
11. Most retail stores are mainly concerned with:
- their buyers' forecasts for the coming season
- matching sales and inventory levels
- decreasing inventory turnover
- 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:
- investors generally prefer to invest short periods of time
- government policy maintains this relationship
- there is greater risk in long-term bonds
- 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:
- is more expensive than the use of collection centers
- utilizes local banks to clear local payments made to the collection center
- provides more float than collection centers
- 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:
- yield
- maturity
- marketability
- 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:
- prior record of payment
- terms of credit
- financial stability
- current net worth
Correct answer: (B)
terms of credit
16. A cash discount may best be defined as:
- a reduction in price if payment is made within the specified time period
- a discount offered to critical suppliers
- a discount applied to volume sales
- 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:
- a short term obligation of the government issued to commercial investors
- short term unsecured promissory notes issued by corporations
- an insignificant source of funds to large corporations
- 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:
- the marketability of the pledged goods
- their associated price stability of the goods
- the perishability of the goods
- 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:
- dividing the number of years by the number of compounding periods
- multiplying the number of years by the number of compounding periods
- dividing the interest rate by the number of compounding period
- 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:
- during the period
- at the beginning of the period
- at the end of the period
- it doesn't matter when they occur
Correct answer: (C)
at the end of the period