Business Administration Test Questions
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
b. False
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
b. False
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
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
b. False
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
b. False
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