Finance Quiz
Finance 534 week 10 quiz 9
Question 1
Which of the following statements is NOT CORRECT?
Answer
|x | |Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate. |
| | |Accruals are "free" in the sense that no explicit interest is paid on these funds. |
| | |A conservative approach to working capital management will result in most if not all permanent current operating assets being |
| | |financed with long-term capital. |
| | |The risk to a firm that borrows with short-term credit is usually greater than if it borrowed using long-term debt. This added |
| | |risk stems from the greater variability of interest costs on short-term debt and possible difficulties with rolling over short-term|
| | |debt. |
| | |Bank loans generally carry a higher interest rate than commercial paper. |
2 points
Question 2
Which of the following statements is CORRECT?
Answer
| | |Accruals are an expensive but commonly used way to finance working capital. |
| | |A conservative financing policy is one where the firm finances part of its fixed assets with short-term capital and all of its net |
| | |working capital with short-term funds. |
| x| |If a company receives trade credit under terms of 2/10 net 30, this implies that the company has 10 days of free trade credit. |
| | |One cannot tell if a firm has a conservative, aggressive, or moderate current asset financing policy without an
Question 1
Which of the following statements is NOT CORRECT?
Answer
|x | |Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate. |
| | |Accruals are "free" in the sense that no explicit interest is paid on these funds. |
| | |A conservative approach to working capital management will result in most if not all permanent current operating assets being |
| | |financed with long-term capital. |
| | |The risk to a firm that borrows with short-term credit is usually greater than if it borrowed using long-term debt. This added |
| | |risk stems from the greater variability of interest costs on short-term debt and possible difficulties with rolling over short-term|
| | |debt. |
| | |Bank loans generally carry a higher interest rate than commercial paper. |
2 points
Question 2
Which of the following statements is CORRECT?
Answer
| | |Accruals are an expensive but commonly used way to finance working capital. |
| | |A conservative financing policy is one where the firm finances part of its fixed assets with short-term capital and all of its net |
| | |working capital with short-term funds. |
| x| |If a company receives trade credit under terms of 2/10 net 30, this implies that the company has 10 days of free trade credit. |
| | |One cannot tell if a firm has a conservative, aggressive, or moderate current asset financing policy without an