Corporate Finance – FIN 622
QUIZ NO: 02
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1. A firm collects 70 percent of its credit sales in 30 days, 20 percent in 60 days,
and 10 percent in 90 days. The average collection period is:
A) 33 days.
B) 56 days.
C) 47 days.
D) 42 days.
2. A more aggressive financing policy by a firm would lead to ________
profitability and ________ risk.
A) higher, lower
B) higher, higher
C) lower, higher
D) lower, lower
3. Financial data for three firms is presented below. Each differs only with
respect to philosophy on an aggressive vs. a conservative approach to
current asset management.
FIRM A FIRM B FIRM C
Sales $2,000,000 $2,000,000 $2,000,000
EBIT 200,000 200,000 200,000
Current Assets 600,000 500,000 400,000
Fixed Assets 500,000 500,000 500,000
Total Assets 1,100,000 1,000,000 900,000
The firm with the least aggressive philosophy has an asset turnover of
A) 3.33-to-1.
B) 2.22-to-1.
C) 5.00-to-1.
D) 1.82-to-1.
4. Temporary working capital
A) Varies with seasonal requirements.
B) is the constant component of working capital.
C) excludes inventories.
D) should be financed with bonds or common stock.
5. Which of the following would be consistent with a more aggressive (i.e., a
high risk-profitability) approach to financing working capital?
A) Financing permanent inventory buildup with long-term funds.
B) Financing seasonal needs with short-term funds.
C) Financing short-term needs with short-term funds.
D) Financing some long-term needs with short-term funds
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risk and return is affected by all of the following except
A) The pattern of cash borrowing needs of the firm.
B) The difference between long-term and short-term interest rates.
C) The ratio of cash to marketable securities.
D) The debt maturity schedule.
7. A good cash management system involves properly managing
A) Collections, disbursements, cash balances, and capital investment.
B) Collections, disbursements, cash balances, and marketable securities investment.
C) Only collections, disbursements, and cash balances.
D) Only collections and disbursements.
8. The International Co. is holding cash as a buffer in case of an unexpected
need with operations. This is an example of the ________ motive for holding
cash.
A) Precautionary
B) Speculative
C) Transactions
D) Capital needs
9. A competing firm has made a hostile offer for your corporation. You have
invited a second firm to make a friendly counter-bid to thwart the unwelcome
hostile offer from the original bidding firm. The second firm is known as a (an)
________.
A) White knight
B) Entrenchment firm
C) Pure-play firm
D) Counter-offer firm
10. A leveraged buyout
A) is an ownership transfer financed largely by debt.
B) is facilitated by rising interest rates.
C) usually involves a labor-intensive business.
D) results in a publicly held corporation.
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