Test Bank For Working with People The Helping Process 9th Edition All Chapters - 9780137612680.pdf

PrinciplespofpManagerialpFinance,p12ep (Gitman)
Chapterp14p WorkingpCapitalpandp CurrentpAssetspManagement

LearningpGoalp1:p Understandpshort-
termpfinancialpmanagement,pnetpworkingpcapital,pandptheprelatedptrade
offpbetweenpprofitabilitypandprisk.
1) Apfirmpthatpispunableptoppaypitspbillspasptheypcomepduepisptechnicallypinsolvent
.pAnswer:pTRUE
Topic:pBasicspofpShort-
TermpFinancialpManagementpQuestionpStatus:p Pr
eviouspEdition

2) Short-
termpfinancialpmanagementpispconcernedpwithpmanagementpofpthepfirm'spcurrentpassetspandpc
urrentpliabilities.
Answer:p TRUE
Topic:pBasicspofpShort-
TermpFinancialpManagementpQuestionpStatus:p Pr
eviouspEdition

3) Thepgoalpofpshort-
termpfinancialpmanagementpisptopmanagepeachpofpthepfirm'spcurrentpassetspandpcurrentpliabi
litiespinporderptopachievepapbalancepbetweenpprofitabilitypandpriskpthatpcontributesptopthepfir
m'spvalue.
Answer:p TRUE
Topic:pBasicspofpShort-
TermpFinancialpManagementpQuestionpStatus:p Pr
eviouspEdition

4) Workingpcapitalprepresentsprefersptopapfirm'splongptermpcapital.
pAnswer:pFALSE

Topic:p WorkingpCapitalpManagementp
QuestionpStatus:p PreviouspEdition

5) Inpgeneral,pthepgreaterpapfirm'spcurrentpassetsprelativeptopitspshort-
termpobligations,pthepbetterpablepitpwillpbeptoppaypitspbillspasptheypcomepdue.
Answer:p TRUE
Topic:p WorkingpCapitalpManagementp
QuestionpStatus:p PreviouspEdition

6) Thepmoreppredictablepapfirm'spcashpinflows,pthepmorepnetpworkingpcapitalpitpwillpneed.
pAnswer:pFALSE

Topic:p WorkingpCapitalpManagementp
QuestionpStatus:p PreviouspEdition

7) Aspthepratiopofpcurrentpassetsptoptotalpassetspincreases,pthepfirm'spriskpincreases.
pAnswer:pFALSE

Topic:p WorkingpCapitalpManagementp
QuestionpStatus:p PreviouspEdition

8) Becausepfirmsparepunableptopmatchpcashpinflowsptopoutflowspwithpcertainty,pmostpofpthem
1

,needpcurrentpliabilitiespthatpmorepthanpcoverpoutflowspforpcurrentpassets.
p

Answer:p FALSE
Topic:p WorkingpCapitalpManagementp
QuestionpStatus:p PreviouspEdition




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, 9) Toopmuchpinvestmentpinpcurrentpassetspreducespfirmpprofitability,pwhereasptooplittlepinvest
mentpinpcurrentpassetspincreasespthepriskpofpnotpbeingpableptoppaypdebtspasptheypcomepdue.
Answer:p TRUE
Topic:pTrade-
offpBetweenpProfitabilitypandpRiskpQuestionpStatus:
p PreviouspEdition



10) Businesspriskpispthepriskpofpbeingpunableptopmakepthepscheduledpfixedpfinancingppaymentspon
pdebtpandppreferredpstock.

Answer:p FALSE
Topic:p BusinesspRisk
QuestionpStatus:p PreviouspEdition

11) Netpworkingpcapitalpcanpbepdefinedpaspthepportionpofpthepfirm'spcurrentpassetspfinancedpwith
plong-termpfunds.

Answer:p TRUE
Topic:p NetpWorkingpCapitalpQue
stionpStatus:pPreviouspEdition

12) Apfirmpispsaidptopbeptechnicallypinsolventpwhenpitsptotalpassetspisplesspthanpitsptotalpliabilitie
spandpstockholders'pequity.
Answer:p FALSE
Topic:p TechnicalpInsolvencypQue
stionpStatus:pPreviouspEdition

13) Anpincreasepinpcurrentpassetspincreasespnetpworkingpcapital,ptherebypreducingpthepriskpof
ptechnicalpinsolvency.

Answer:p TRUE
Topic:p TechnicalpInsolvencypQue
stionpStatus:pPreviouspEdition

14) Thepeffectpofpap decreasepinpthepratiopofpcurrentpassetsptoptotalpassetspandpthepeffectpofpanp incr
easepinpthepratiopofpcurrentpliabilitiesptoptotalpassetsparepincreasespinpthepfirm'spprofitspand,pco
rrespondingly,pitsprisk.
Answer:p TRUE
Topic:pTrade-
offpBetweenpProfitabilitypandpRiskpQuestionpStatus:
p PreviouspEdition



15) Netp workingp capitalp isp definedp as
A) ap ratiop measurep ofp liquidityp bestp usedp inp cross-sectionalp analysis.
B) thep portionp ofp thep firm'sp assetsp financedp withp short-termp funds.
C) currentp liabilitiesp minusp currentp assets.
D) currentpassetspminuspcurrentpliabilities.
pAnswer:pD

Topic:p NetpWorkingpCapitalpQue
stionpStatus:pPreviouspEdition




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, 16) Thep portionp ofp ap firm'sp currentp assetsp financedp withp long-termp fundsp mayp bep called
A) workingp capital.
B) accountsp receivable.
C) netp workingp capital.
D) inventory.
pAnswer:pC

Topic:p NetpWorkingpCapitalpQue
stionpStatus:pPreviouspEdition

17) Inp workingp capitalp management,p riskp isp measuredp byp thep probabilityp thatp ap firmp willp become
A) liquid.
B) technicallyp insolvent.
C) unablep top meetp long-termp obligations.
D) lesspprofitable.
pAnswer:pB

Topic:p WorkingpCapitalpManagementp
QuestionpStatus:p PreviouspEdition

18) Thep conversionp ofp currentp assetsp fromp inventoryp top receivablesp top cashp providesp thep
ofp cashp usedp top payp thep currentp liabilities,p whichp representsp a(n)p ofpcash.
A) outflow;p inflow
B) use;p source
C) source;p use
D) inflow;poutflow
pAnswer:pC

Topic:p WorkingpCapitalpManagementp
QuestionpStatus:p PreviouspEdition

19) Thep goalp ofp workingp capitalp managementp isp to
A) balancep currentp assetsp againstp currentp liabilities.
B) payp offp short-termp debts.
C) achievep ap balancep betweenp riskp andp returnp inp orderp top maximizep thep firm'sp value.
D) achievepapbalancepbetweenpshort-termpandplong-
termpassetspsopthatptheypaddptopthepachievementpofpthepfirm'spoverallpgoals.
Answer:p C
Topic:p WorkingpCapitalpManagementp
QuestionpStatus:p PreviouspEdition

20) Currentp liabilitiesp canp bep viewedp as
A) debtsp thatp maturep inp onep yearp orp less.
B) debtsp thatp maturep inp morep thanp onep year.
C) sourcesp ofp cashp inflows.
D) nonepofpthepabove
pAnswer:pA

Topic:p WorkingpCapitalpManagementp
QuestionpStatus:p PreviouspEdition




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