FIN 340 EXAM COMBINED QUESTIONS WITH ALL
ANSWERS CORRECT
True/False:Working capital management has to do with managing current asset
and current liability accounts - ANSWER True
True/False:Working capital management is more important for larger firms than
smaller businesses - ANSWER False
True/False:There is a close relationship between growth and the need to finance
current assets - ANSWER True
True/False:Small business mainly rely on long-term credit and are not
concerned with short-term loans and trade credit - ANSWER False
True/False:There is no consequence to holding large amounts of cash within the
firm - ANSWER False
True/False:Firms can profit by holding less cash - ANSWER True
True/False:An aggressive working capital policy would finance large amounts
of current assets with mainly long-term debt - ANSWER False
Complete the following statements with "increase" or "decrease": An increase in
Inventory conversion period will _________ the CCC - ANSWER increase
Complete the following statements with "increase" or "decrease": An increase in
the Payable deferral period will __________ the CCC - ANSWER decrease
Complete the following statements with "increase" or "decrease":a decrease in
the Average Collection period will ___________ the CCC - ANSWER
decrease
Which is preferable: A higher CCC or lower CCC? - ANSWER Lower
, List 4 reasons for a firm would hold cash and marketable securities - ANSWER
1 Transaction balances
2 Compensating balances
3 Pre-cautionary balance
4 Speculative purposes
What goes on a Monthly Cash Budget? (if drawing one out is easier than listing,
feel free) - ANSWER Inflows(Revenue & Any Loan $),
Outflows(Purchases,Expenses,taxes,dividends,loan pmts), and Ending numbers
(Begining cash, Net inflow, Ending cash, min cash balance, surplus/deficit)
What goes on a Balance Sheet? (if drawing one out is easier than listing, feel
free) - ANSWER Assets:(Cash, A/R, Inventory,Land/equipment/furniture,
Accumulated depreciation)
Liabilities:(A/P, accrued tax, accrued wages, other liabilities, common stock, L-
t debt, s-t debt,Retained earnings[net income +rollover RE from previous yr-
dividends])
=Surplus/Deficit
What goes on an Income Statement? (if drawing one out is easier than listing,
feel free) - ANSWER (sales- COGS)=Gross Profit Margin
(Operating Expenses (including Depreciation)= Total Opp. Exp.
EBIT
Interest
EBT
Taxes
Less:dividends
Net Income
What is the goal of cash management? - ANSWER To minimize the amount of
cash held, without adversly affecting the firm's liquidity.
What are 3 ways to minimize the cash cycle? - ANSWER Collect A/R faster,
Turnover inventory faster, increase average pmt period
ANSWERS CORRECT
True/False:Working capital management has to do with managing current asset
and current liability accounts - ANSWER True
True/False:Working capital management is more important for larger firms than
smaller businesses - ANSWER False
True/False:There is a close relationship between growth and the need to finance
current assets - ANSWER True
True/False:Small business mainly rely on long-term credit and are not
concerned with short-term loans and trade credit - ANSWER False
True/False:There is no consequence to holding large amounts of cash within the
firm - ANSWER False
True/False:Firms can profit by holding less cash - ANSWER True
True/False:An aggressive working capital policy would finance large amounts
of current assets with mainly long-term debt - ANSWER False
Complete the following statements with "increase" or "decrease": An increase in
Inventory conversion period will _________ the CCC - ANSWER increase
Complete the following statements with "increase" or "decrease": An increase in
the Payable deferral period will __________ the CCC - ANSWER decrease
Complete the following statements with "increase" or "decrease":a decrease in
the Average Collection period will ___________ the CCC - ANSWER
decrease
Which is preferable: A higher CCC or lower CCC? - ANSWER Lower
, List 4 reasons for a firm would hold cash and marketable securities - ANSWER
1 Transaction balances
2 Compensating balances
3 Pre-cautionary balance
4 Speculative purposes
What goes on a Monthly Cash Budget? (if drawing one out is easier than listing,
feel free) - ANSWER Inflows(Revenue & Any Loan $),
Outflows(Purchases,Expenses,taxes,dividends,loan pmts), and Ending numbers
(Begining cash, Net inflow, Ending cash, min cash balance, surplus/deficit)
What goes on a Balance Sheet? (if drawing one out is easier than listing, feel
free) - ANSWER Assets:(Cash, A/R, Inventory,Land/equipment/furniture,
Accumulated depreciation)
Liabilities:(A/P, accrued tax, accrued wages, other liabilities, common stock, L-
t debt, s-t debt,Retained earnings[net income +rollover RE from previous yr-
dividends])
=Surplus/Deficit
What goes on an Income Statement? (if drawing one out is easier than listing,
feel free) - ANSWER (sales- COGS)=Gross Profit Margin
(Operating Expenses (including Depreciation)= Total Opp. Exp.
EBIT
Interest
EBT
Taxes
Less:dividends
Net Income
What is the goal of cash management? - ANSWER To minimize the amount of
cash held, without adversly affecting the firm's liquidity.
What are 3 ways to minimize the cash cycle? - ANSWER Collect A/R faster,
Turnover inventory faster, increase average pmt period
