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1) What differentiates "discretionary financing needs" from "external financing needs?"

1) What differentiates "discretionary financing needs" from "external financing needs?" A) assets
B) retained earnings
C) spontaneous liabilities
D) sales

2) The quick ratio of a firm would be unaffected by which of the following?
A) land held for investment is sold for cash
B) inventories are sold on a short-term credit basis
C) equipment is purchased, financed by a long-term debt issue
D) inventories are sold for cash                                                                                 SOLUTION

3) The current ratio of a firm would be decreased by which of the following? A) Land held for investment is sold for cash.
B) Inventories are sold on a long-term credit basis.
C) Equipment is purchased, financed by a long-term debt issue.
D) Inventories are sold for cash.

4) Strategies to counter exchange rate risk include all of the following except
A) spot-market hedges.
B) forward-market hedges.
C) futures contracts.
D) money-market hedges.

5) Firms generally do not hedge against which type of exposure?
A) economic
B) transaction
C) financial
D) translation

6) Which of the following is the initial and most important step in the preparation of pro forma financial statements?
A) Estimate the levels of investment in current and fixed assets.
B) Approximate the cost of raw materials.
C) Project the firm's sales revenues for the planning period.
D) Determine the rate of interest that will be required for borrowed funds.


7) Assume that a firm has determined that its investment in accounts receivable is getting too large relative to its sales volume. Which of the following courses of action would be best for it to take in order to improve the collection of accounts receivable in future periods?
A) sell more products
B) change the color of the firm's invoices
C) allow customers more time to pay for products
D) raise the firm's credit standards
E) reduce product quality control requirements

8) Capital market instruments include
A) commercial paper.
B) Treasury bills.
C) corporate equities.
D) negotiable certificates of deposit.

9) Activities of the investment banker include
A) providing advice to firms issuing securities.
B) selling new securities to the ultimate investors.
C) assuming the risk of selling a security issue.
D) All of the above

10) Financial intermediaries
A) include the national and regional stock exchange.
B) offer indirect securities.
C) constitute the various secondary markets.
D) usually are underwriting syndicates.


11) An example of a primary market transaction involving a money market security is A) a new issue of a security with a very short maturity.
B) the transfer of a previously issued security with a very long maturity.
C) a new issue of a security with a very long maturity.
D) the transfer of a previously issued security with a very short maturity.

12) Which of the following refers to all institutions and procedures that provide for transactions in short-term debt instruments generally issued by borrowers with very high credit ratings?
A) stock market
B) commercial banks
C) capital market
D) money market

13) Why is the quick ratio a more refined liquidity measure than the current ratio? A) Inventories are generally the least liquid of the firm's current assets.
B) Inventories are generally among the most liquid of the firm's current assets.
C) It measures how "quickly" cash and other liquid assets flow through the company.
D) Cash is the most liquid current asset.

14) Which of the following ratios would be the poorest indicator of how rapidly the firm's credit accounts are being collected?
A) accounts receivable turnover ratio
B) cash conversion cycle
C) inventory turnover
D) average collection period

15) A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio?
A) leverage
B) efficiency
C) liquidity
D) profitability

16) Which of the following ratios would you rely upon the most in order to determine a corporation's ability to meet its required interest payments?
A) total asset turnover
B) times interest earned
C) debt ratio
D) net profit margin
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