FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Working Capital and the Financing Decision

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

True/False

Review LaterAdd Note

Review Later

As a general rule, it is desirable to finance the permanent assets, including "permanent current assets", with long-term debt and equity.

A) True
B) False

Correct Answer

verified

Show Answer

Question 2

Multiple Choice

Review LaterAdd Note

Review Later

A firm will usually increase the ratio of short-term debt to long-term debt when

A) short-term debt has a lower cost than long-term equity.
B) the term structure is inverted and expected to shift down.
C) the term structure is upward sloping and expected to shift up.
D) the firm is undertaking a large capital budgeting project.

E) B) and D)
F) B) and C)

Correct Answer

verified

Show Answer

Question 3

True/False

Review LaterAdd Note

Heavy use of long-term financing generally leads to lower financing costs.

Pressure to increase current asset buildup often results from

The successful financial manager is very interested in the term structure of interest rates but is not concerned with the relative volatility or historical level of interest rates.

Which of the following techniques allows explicit consideration of more than one possible outcome?

Wal-Mart requires manufacturers to ship goods with RFID tags so that it can better track inventory and reduce the need for supply chain management.

The key to current asset planning is the ability of management to forecast sales accurately and then match production schedules with the sales forecast.

Short-term interest rates are generally lower than long-term interest rates.

Hicks Health Clubs, Inc., expects to generate an annual EBIT of $750,000 and needs to obtain financing for $1,200,000 of assets. Their tax bracket is 40%. If the firm goes with a short-term financing plan, their rate will be 7.5 percent, and with a long-term financing plan their rate will be 9 percent. By how much will their earnings after tax change if they choose the more conservative financing plan instead of the more aggressive plan?

The "term structure of interest rates" depicts the competitive cost of funds for the various short-term sources of funds such as Treasury bills, commercial paper, and bank CDs.

Match the following with the items below:

During an economic "boom" period, a shortage of low-cost financing alternatives exists.

A financial executive devotes the most time to

A "normal" term structure of interest rates would depict

Generally a downward sloping yield curve indicates an eminent economic boom.

According to the expectations hypothesis, when long-term interest rates are higher than short-term interest rates, short-term rates are expected to rise.

If a firm uses level production with seasonal sales

Only the market segmentation theory has any significant impact on interest rates.

The term structure of interest rates