Chapter 16, 17, & 18 Multiple choice
final exam question Questions and
Graded Answers.
Which of the following statements is TRUE?
A. The key risk for a flexible short-term financing policy is losing credit access.
B. A 'fortress' balance sheet generally includes restrictive short-term financial policies.
C. A restrictive short-term financing policy has high carrying costs and low shortage costs.
D. Borrowing short-term to meet peak needs and maintaining a cash reserve for emergencies
described as a compromise policy for short-term financing. - D. Borrowing short-term to
meet peak needs and maintaining a cash reserve for emergencies described as a compromise
policy for short-term financing.
Which one of the following statements is correct?
A. Firms that follow restrictive financial policies can generally avoid short-term debt financing.
B. Short-term borrowing is generally more expensive than long-term borrowing.
C. Long-term interest rates tend to be more volatile than short-term rates.
D. A firm is less apt to face financial distress if it adopts a flexible financial policy rather than a
restrictive policy. - D. A firm is less apt to face financial distress if it adopts a flexible
financial policy rather than a restrictive policy.
Which was a source of cash, increasing a firm's cash balance, all else equal?
A. $20 million shares repurchased in the open market.
B. Accounts payable increased by $50 million.
C. $15 million in sales from inventory on credit, simultaneously increasing accounts receivable
by $15 million.
D. $60 million of short-term debt was paid off and partially refinanced with $40 million in long-
term debt. - B. Accounts payable increased by $50 million.
, Which one of the following activities is a source of cash?
A. Decreasing long-term debt
B. Decreasing accounts receivable
C. Increasing fixed assets
D. Repurchasing shares of stock - B. Decreasing accounts receivable
All else constant, which one of the following will decrease the cash cycle?
A. Decreasing the credit period granted to a customer
B. Decreasing the inventory turnover rate
C. Decreasing the accounts payable period
D. Decreasing the accounts receivable turnover rate - A. Decreasing the credit period
granted to a customer
Which of the following statements is FALSE?
A. Increasing long-term debt, or borrowing over the long term, increases cash.
B. Decreasing current assets other than cash, such as collecting accounts receivable, is
considered a source of cash.
C. Increasing current liabilities, such as getting a 90-day loan, will decrease cash.
D. Increasing current assets other than cash, such as extending more credit to customers,
isconsidered a use of cash. - C. Increasing current liabilities, such as getting a 90-day loan,
will decrease cash.
Which of the following statements is TRUE?
A. Activities that increase cash are called uses of cash, and activities that decrease cash are called
sources of cash.
B. Sources of cash always involve increasing a liability or equity account, or decreasing an asset
account (other than cash); for example, decreasing fixed assets by selling some property, plant,
and equipment, is considered a source of cash.
C. The accounts payable period is the time between the sale of inventory and the collection of the
receivable.
final exam question Questions and
Graded Answers.
Which of the following statements is TRUE?
A. The key risk for a flexible short-term financing policy is losing credit access.
B. A 'fortress' balance sheet generally includes restrictive short-term financial policies.
C. A restrictive short-term financing policy has high carrying costs and low shortage costs.
D. Borrowing short-term to meet peak needs and maintaining a cash reserve for emergencies
described as a compromise policy for short-term financing. - D. Borrowing short-term to
meet peak needs and maintaining a cash reserve for emergencies described as a compromise
policy for short-term financing.
Which one of the following statements is correct?
A. Firms that follow restrictive financial policies can generally avoid short-term debt financing.
B. Short-term borrowing is generally more expensive than long-term borrowing.
C. Long-term interest rates tend to be more volatile than short-term rates.
D. A firm is less apt to face financial distress if it adopts a flexible financial policy rather than a
restrictive policy. - D. A firm is less apt to face financial distress if it adopts a flexible
financial policy rather than a restrictive policy.
Which was a source of cash, increasing a firm's cash balance, all else equal?
A. $20 million shares repurchased in the open market.
B. Accounts payable increased by $50 million.
C. $15 million in sales from inventory on credit, simultaneously increasing accounts receivable
by $15 million.
D. $60 million of short-term debt was paid off and partially refinanced with $40 million in long-
term debt. - B. Accounts payable increased by $50 million.
, Which one of the following activities is a source of cash?
A. Decreasing long-term debt
B. Decreasing accounts receivable
C. Increasing fixed assets
D. Repurchasing shares of stock - B. Decreasing accounts receivable
All else constant, which one of the following will decrease the cash cycle?
A. Decreasing the credit period granted to a customer
B. Decreasing the inventory turnover rate
C. Decreasing the accounts payable period
D. Decreasing the accounts receivable turnover rate - A. Decreasing the credit period
granted to a customer
Which of the following statements is FALSE?
A. Increasing long-term debt, or borrowing over the long term, increases cash.
B. Decreasing current assets other than cash, such as collecting accounts receivable, is
considered a source of cash.
C. Increasing current liabilities, such as getting a 90-day loan, will decrease cash.
D. Increasing current assets other than cash, such as extending more credit to customers,
isconsidered a use of cash. - C. Increasing current liabilities, such as getting a 90-day loan,
will decrease cash.
Which of the following statements is TRUE?
A. Activities that increase cash are called uses of cash, and activities that decrease cash are called
sources of cash.
B. Sources of cash always involve increasing a liability or equity account, or decreasing an asset
account (other than cash); for example, decreasing fixed assets by selling some property, plant,
and equipment, is considered a source of cash.
C. The accounts payable period is the time between the sale of inventory and the collection of the
receivable.
