FIN 100 WEEK 11 QUIZ

  

Question 1 

Which of the following is not an advantage of short-term borrowing?

  

flexibility

 

establishing continuous relationships   with a bank or financial institution

 

frequent renewals

 

lower cost

Question 2 

The time between when the firm pays its suppliers and when it collects money from its customers is known as the:

  

operating cycle

 

cash conversion cycle

 

accounts receivable period

 

clearing cycle

Question 3 

Which of the following would not normally be discussed when describing a firm's operating cycle?

  

manufacturing process

 

selling effort

 

acquiring financing

 

collection period

Question 4 

Working capital does not include:

  

cash

 

accounts receivable

 

marketable securities

 

property, plant, and equipment

Question 5 

The time between ordering materials and collecting cash from receivables is known as the:

  

operating cycle

 

cash conversion cycle

 

accounts receivable period

 

term payable cycle

Question 6 

Which would not be likely to be accepted as collateral for an inventory loan?

  

nails at a hardware store

 

cars at an automobile dealership

 

vegetables at a grocery store

 

TV's at an appliance store

Question 7 

When old short-term debt is replaced by new short-term debt as the old debt comes due, the process is known as:

  

compensating balance

 

rolling the debt

 

fluctuating financing

 

re-terming

Question 8 

If a firm has positive net working capital, the current ratio is:

  

greater than one

 

less than one

 

equal to one

 

between zero and one

Question 9 

If a firm actually sells its accounts receivable, the process is known as:

  

wholesale financing

 

pledging

 

field crediting

 

factoring

Question 10 

The most important form of short-term business financing is:

  

a revolving credit agreement

 

accounts-receivable financing

 

inventory loans

 

trade credit

Question 11 

The time required for the cumulative cash flows from a project to equal zero is called the:

  

profitability index

 

cash flow time frame

 

project life

 

payback period

Question 12 

If a project has a positive net present value (NPV), then the profitability index is:

  

greater than one

 

less than one

 

equal to one

 

negative

Question 13 

The internal rate of return concept is best explained by which of the following?

  

rate where NPV is equal to zero

 

point where initial investment has   been returned

 

marginal cost of capital

 

average book value

Question 14 

The payback period concept is best explained by which of the following?

  

marginal cost of capital

 

point where initial investment has   been returned

 

rate where NPV is equal to zero

 

accounting rate of return

Question 15 

Internal rate of return (IRR) and net present value (NPV) methods:

  

generally arrive at the same   accept/reject decisions

 

are less sophisticated than the   payback period

 

cannot make use of the same cash   flows

 

can be substituted for by the payback   period

Question 16 

The after-tax cost of debt for a firm in the 35% tax bracket with a before-tax cost of debt of 6% is:

  

6%

 

2.1%

 

3.9%

 

5.8%

Question 17 

Ningbo Shipping has common stock with a market price of $25 per share and an expected dividend of $2 per share at the end of the coming year. The growth rate in dividends has been 5 percent and this growth is expected to continue indefinitely. Based on this information, the cost of the firm's common stock equity is

  

5%.

 

8%.

 

10%.

 

13%.

Question 18 

What is Ningbo Shipping's WACC if it's after tax cost of debt is 3.5%, it's cost of retained earnings is 14%, and the firm's market value of debt is $40 million while the market value of its equity is $60 million?

  

9.8%.

 

3.5%.

 

11.8%.

 

14.7%.

Question 19 

The cost of debt:

  

is typically higher than the cost of   preferred stock

 

must be adjusted to an after-tax cost

 

is higher than the cost of retained   earnings

 

is the lowest component cost because   corporations can deduct 70 percent of the interest expense

Question 20 

Ningbo Shipping has issued preferred stock at its $125 per share par value. The stock will pay a $15 annual dividend. The cost of issuing and selling the stock was $4 per share. The cost of Ningbo Shipping preferred stock is:

  

7.2%.

 

12.0%.

 

12.4%.

 

15%.