mcqs about working capital

Question 1.
To financial analysts, "working capital" means the same thing as __________.

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total assets
fixed assets
current assets
current assets minus current liabilities.

End of Question 1





Question 2.
Which of the following would be consistent with an aggressive approach to financing working capital?

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Financing short-term needs with short-term funds.
Financing permanent inventory buildup with long-term debt.
Financing seasonal needs with short-term funds.
Financing some long-term needs with short-term funds.

End of Question 2





Question 3.
Which of the following would be consistent with a conservative approach to financing working capital?

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Financing short-term needs with short-term funds.
Financing short-term needs with long-term debt.
Financing seasonal needs with short-term funds.
Financing some long-term needs with short-term funds.

End of Question 3





Question 4.
Which of the following would be consistent with a hedging (maturity matching) approach to financing working capital?

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Financing short-term needs with short-term funds.
Financing short-term needs with long-term debt.
Financing seasonal needs with long-term funds.
Financing some long-term needs with short-term funds.

End of Question 4





Question 5.
Which of the following is a basic principle of finance as it relates to the management of working capital?

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Profitability varies inversely with risk.
Liquidity moves together with risk.
Profitability moves together with risk.
Profitability moves together with liquidity.

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Question 6.
Which of the following illustrates the use of a hedging approach to financing assets?

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Temporary current assets financed with long-term liabilities.
Permanent working capital financed with long-term liabilities.
Short-term assets financed with equity
All assets financed with a mixture of 50% equity and 50% long-term debt.

End of Question 6





Question 7.
In deciding the optimal level of current assets for the firm, management is confronted with __________.

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a trade-off between profitability and risk
a trade-off between liquidity and risk
a trade-off between equity and debt
a trade-off between short-term versus long-term borrowing

End of Question 7





Question 8.
Which of the following statements is most correct?

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For small companies, long-term debt is the principal source of external financing.
Current assets of the typical manufacturing firm account for over half of its total assets.
Strict adherence to the maturity matching approach to financing would call for all current assets to be financed solely with current liabilities.
Similar to the capital structure management, working capital management requires the financial manager to make a decision and not address the issue again for several months.

End of Question 8





Question 9.
The amount of current assets required to meet a firm's long-term minimum needs is referred to as __________ working capital.

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permanent
temporary
net
gross

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Question 10.
The amount of current assets that varies with seasonal requirements is referred to as __________ working capital.

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permanent
net
temporary
gross

End of Question 10





Question 11.
Having defined working capital as current assets, it can be further classified according to __________.

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financing method and time
rate of return and financing method
time and rate of return
components and time

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Question 12.
Your firm has a philosophy that is analogous to the hedging (maturity matching) approach. Which of the following is the most appropriate form for financing a new capital investment in plant and equipment?

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Trade credit.
6-month bank notes.
Accounts payable.
Common stock equity.

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Question 13.
Your firm has a philosophy that is analogous to the hedging (maturity matching) approach. Which of the following is the most appropriate non-spontaneous form for financing the excess seasonal current asset needs?

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Trade credit.
6-month bank notes.
Accounts payable.
Common stock equity.

End of Question 13





Question 14.
Under a conservative financing policy a firm would use long-term financing to finance some of the temporary current assets. What should the firm do when a "dip" in temporary current assets causes total assets to fall below the total long-term financing?

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Use the excess funds to pay down long-term debt.
Invest the excess long-term financing in marketable securities.
Use the excess funds to repurchase common stock.
Purchase additional plant and equipment.

End of Question 14





Question 15.
Which of the following statements is correct for a conservative financing policy for a firm relative to a former aggressive policy?

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The firm uses long-term financing to finance all fixed and current assets.
The firm will see an increase in its expected profits.
The firm will see an increase in its risk profile.
The firm will increase its dividends per share (DPS) this period.

End of Question 15





Question 16.
Which of the following statements is correct for an aggressive financing policy for a firm relative to a former conservative policy?

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The firm will use long-term financing to finance all fixed and current assets.
The firm will see an increase in its expected profits.
The firm will see a decline in its risk profile.
The firm will need to issue additional common stock this period to finance the assets.

End of Question 16





Question 17.
How can a firm provide a margin of safety if it cannot borrow on short notice to meet its needs?

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Maintain a low level of current assets (especially cash and marketable securities).
Shorten the maturity schedule of financing.
Increasing the level of fixed assets (especially plant and equipment).
Lengthening the maturity schedule of financing.

End of Question 17





Question 18.
Risk, as it relates to working capital, means that there is jeopardy to the firm for not maintaining sufficient current assets to __________.

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meet its cash obligations as they occur and take advantage of prompt payment discounts
support the proper level of sales and take prompt payment discounts
maintain current and acid-test ratios at or above industry norms
meet its cash obligations as they occur and support the proper level of sales

End of Question 18





Question 19.
If a company moves from a "conservative" working capital policy to an "aggressive" policy, it should expect __________.

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liquidity to decrease, whereas expected profitability would increase
expected profitability to increase, whereas risk would decrease
liquidity would increase, whereas risk would also increase
risk and profitability to decrease

End of Question 19





Question 20.
To financial analysts, "net working capital" means the same thing as __________.

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total assets
fixed assets
current assets
current assets minus current liabilities.

Answers

1.  current assets
2. Financing some long-term needs with short-term funds.
3. Financing short-term needs with long-term debt.
4.
5. Profitability moves together with risk.
6.: Permanent working capital financed with long-term liabilities.
7,a trade-off between profitability and risk
8.Current assets of the typical manufacturing firm account for over half of its total assets.
9,permanent
10. temporary
11.components and time
12.
13.6-month bank notes.