Business Administration Test Questions

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BADM 746: Test 2
Name: Student ID:
Instructions: There are three parts in this paper. 1st part is worth 30%, 2nd part is worth 30% and 3rd part is worth 40% of all points in this test. Answer all the questions in each part to get full credit.

Part I: Multiple choice questions
Each question is worth 3 points. Please choose the best option that answers the question.

1. A conservative current operating asset financing approach will result in permanent current assets and some seasonal current assets being financed using long-term securities. a.True

2. For a zero-growth firm, it is possible to increase the percentage of sales that are made on credit and still keep accounts receivable at their current level, provided the firm can shorten the length of its collection period sufficiently. a.True


3. Which of the following statements is CORRECT?
a.Trade credit is provided only to relatively large, strong firms. b.Commercial paper is a form of short-term financing that is primarily used by large, strong, financially stable companies. c.Short-term debt is favored by firms because, while it is generally more expensive than long-term debt, it exposes the borrowing firm to less risk than long-term debt. d.Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate. e.Commercial paper is typically offered at a long-term maturity of at least five years.

4. Helena Furnishings wants to reduce its cash conversion cycle. Which of the following actions should it take? a.Increase average inventory without increasing sales.
b.Take steps to reduce the DSO.
c.Start paying its bills sooner, which would reduce the average accounts payable but not affect sales. d.Sell common stock to retire long-term bonds.
e.Sell an issue of long-term bonds and use the proceeds to buy back some of its common stock.

5. Firms generally choose to finance temporary current operating assets with short-term debt because a.a firm that borrows heavily on a long-term basis is more apt to be unable to repay the debt than a firm that borrows short term. b.short-term interest rates have traditionally been more stable than long-term interest rates. c.matching the maturities of assets and liabilities reduces risk under some circumstances, and also because short-term debt is often less expensive than long-term capital. d.the yield curve is normally downward sloping.

e.short-term debt has a higher cost than equity capital.

6. Which of the following statements is most consistent with efficient inventory management? The firm has a a.below average inventory turnover ratio.
b.low incidence of production schedule disruptions.
c.below average total assets turnover ratio.
d.relatively high current ratio.
e.relatively low DSO.

7. Which of the following actions would be likely to shorten the cash conversion cycle? a.Adopt a new manufacturing process that speeds up the conversion of raw materials to finished goods from 20 days to 10 days. b.Change the credit terms offered to customers from 3/10 net 30 to 1/10 net 50. c.Begin to take discounts on inventory purchases; we buy on terms of 2/10 net 30. d.Adopt a new manufacturing process that saves some labor costs but slows down the conversion of raw materials to finished goods from 10 days to 20 days. e.Change the credit terms offered to customers from 2/10 net 30 to 1/10 net 60.

8. If a profitable firm finds that it simply must "stretch" its accounts payable, then this suggests that it is undercapitalized, i.e., that it needs more working capital to support its operations. a.True


9.A lockbox plan is most beneficial to firms that
a.have suppliers who operate in many different parts of the country. b.have widely dispersed manufacturing facilities.
c.have a large marketable securities portfolio and cash to protect. d.receive payments in the form of currency, such as fast...
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