Question 1

Which of the following statements is incorrect?

Response: A lower dividend payout ratio will decrease the firm’s need for borrowing
Correct answer: The generation of sales and profits ensures that there will be adequate
cash on hand to meet financial obligations as they come due
Score: 0 out of 1 No

Question 2
Net working capital is the difference between
Response: Current assets and current liabilities.
Correct answer: Current assets and current liabilities.
Score: 1 out of 1 Yes

Question 3
A conservatively financed firm would
Response: Use long-term financing for permanent assets and fixed assets and a portion
of the short-term fluctuating assets and use short-term financing for all other short-term
assets
Correct answer: Use long-term financing for permanent assets and fixed assets and a
portion of the short-term fluctuating assets and use short-term financing for all other
short-term assets
Score: 1 out of 1 Yes

Question 4
Firms that successfully increase their rates of inventory will, among other things,
Response: have a greater need for high balances in their cash accounts.
Correct answer: be able to reduce their borrowing needs.
Score: 0 out of 1 No

Question 5
The need for an increase or decrease in short term borrowing can be predicted by
Response: Trend analysis
Correct answer: A cash budget
Score: 0 out of 1 No
Question 6
In the percent-of-sugges method
Response: as the dividends payout ratio rises, required new funds decline.
Correct answer: as the dividends payout ratio rises, required new funds decline.
Score: 1 out of 1 Yes

Question 7
The percent-of-sales method of financial forecasting
Response: requires more time than a cash budget approach.
Correct answer: assumes that balance sheet accounts maintain a constant relationship
to sales.
Score: 0 out of 1 No

Question 8
Determining the appropriate level of working capital for a firm requires
Response: Maintaining short-term debt at the lowest possible level because it is
generally more expensive than long-term debt.
Correct answer: Offsetting the benefit of current assets and current liabilities against the
probability of technical insolvency.
Score: 0 out of 1 No

Question 9
In general, the larger the portion of a firm’s sales that are on credit, the
Response: More the firm can buy the raw materials on credit.
Correct answer: Higher will be the firm’s need to borrow.
Score: 0 out of 1 No

Question 10
Which of the following ratios would best disclose effective management of working
capital by a given firm relative to other fir, in the same industry?
Response: A high turnover of net working capital relative to the industry average
Correct answer: A high turnover of net working capital relative to the industry average
Score: 1 out of 1 Yes

Question 11
All of the following statements in regard to working capital are correct except
Response: Financing permanent inventory buildup with long-term debt is an example of
an aggressive working capital policy.
Correct answer: Financing permanent inventory buildup with long-term debt is an
example of an aggressive working capital policy.
Score: 1 out of 1 Yes

Question 12
An aggressive working capital policy to be followed by a company during a period of
increased activity due to short term increase in sales would suggest that the that the
level of net working capital
Response: Should be lower than under other business conditions in order that the
company can maximize profits while minimizing working capital investments.
Correct answer: Should be lower than under other business conditions in order that the
company can maximize profits while minimizing working capital investments.
Score: 1 out of 1 Yes

Question 13
Pressure if current asset buildup often results from
Response: Rapidly expanding sales
Correct answer: Rapidly expanding sales
Score: 1 out of 1 Yes

Question 14
An aggressive working capital policy would have which of following characteristics?
Response: A high ratio of short-term debt to long-term sources of funds
Correct answer: A high ratio of short-term debt to long-term sources of funds
Score: 1 out of 1 Yes

Question 15
BH Inc. determines that sales will rise from P300,000 to P500,000 next year.
Spontaneous assets are 70% of sales and spontaneous liabilities are 30% of sales. BH
Inc. has a 10% profit margin and a 40% dividend payout ratio. What is the level of
required new funds?
Response: P50,000
Correct answer: P50,000
Score: 1 out of 1 Yes

Question 16
When using the percent-of-sales method in forecasting funds needed, which of the
following is not true?
Response: Required new funds decrease as profit margins increase.
Correct answer: Required new funds increase as accumulated depreciation increases.
Score: 0 out of 1 No

Question 17
The primary concern of working capital management is the trade-off between
Response: Purchasing power risk and cash flow maximization
Correct answer: Liquidity risk and profitability
Score: 0 out of 1 No

Question 18
A downward-sloping yield curved depicting the team structure of interest rates implies
that
Response: Prevailing short-term interest rates are higher than prevailing long-term
interest rates
Correct answer: Prevailing short-term interest rates are higher than prevailing long-term
interest rates
Score: 1 out of 1 Yes

Question 19
A working capital technique that increases the payable float and therefore delays the
outflow of cash is
Response: A draft
Correct answer: A draft
Score: 1 out of 1 Yes

Question 20
Short-term interest rates are
Response: Not significantly related to long-term rates
Correct answer: Usually lower than long-term rates
Score: 0 out of 1 No

Question 21
Piña Press, Inc. and the Chico Publishing Company had the following statements of
financial position as of December 31, 2010 (thousands of pesos):

The return on equity of Piña if the short-term rate rises to 20% and the rate on new
long-term debt rises to 16%, the rate on existing long-term debt remains unchanged is
Response: 10.56%
Correct answer: 6.84%
Score: 0 out of 1 No

Question 22
As a company becomes more conservative in its working capital policy, it would tend to
have a(n)
Response: Increase in the ratio of current liabilities to noncurrent liabilities.
Correct answer: Increase in the ratio of current assets to units of output.
Score: 0 out of 1 No

Question 23
The trade-off between risk of lost sales and risk of bad debts losses is generally
associated with
Response: Cash budgeting
Correct answer: Credit granting and collecting policies
Score: 0 out of 1 No

Question 24
 Which of the following characteristics are generally associated with a “conservative”
financial policy?
Response: High current assets relative to sales and low current liabilities relative to total
assets.
Correct answer: High current assets relative to sales and low current liabilities relative to
total assets.
Score: 1 out of 1 Yes

Question 25
15. The following is the statement of financial position for 2010 for Marvelous Inc.

Marvelous Inc.
Statement of Financial Position
2010

Assets Liabilities and Equity

Cash P 150,000 Accounts Payable P 900,000
Accounts Receivable 900,000 Notes Payable 300,000
Inventory 600,000 Accrued Expenses 75,000
Current Assets P 1,650,000 Current Liabilities P 1,275,000
Fixed Assets 600,000 Ordinary Shares 750,000
Retained Earnings 225,000
Total Assets P 2,250,000 Total Liabilities & equity P 2,250,000

Sales for 2010 were P3,000,000. Sales for 2011 have been projected to increase by
20%. Marvelous Inc. is operating below capacity. The company has an 8% return on
sales and 70% is paid out as dividends.

The amount of new funds required is

Response: P50,000
Correct answer: P48,600
Score: 0 out of 1 No

Question 26
A rapid rate of growth in sales and profits may require
Response: sales forecasts to be made less frequently.
Correct answer: increased borrowings by the firm to support the sales increase.
Score: 0 out of 1 No

Question 27
 Ideally, which of the following types of assets should be financed with long-term
financing?
Response: Fixed assets only
Correct answer: Fixed assets and permanent current assets
Score: 0 out of 1 No

Question 28
Piña Press, Inc. and the Chico Publishing Company had the following statements of
financial position as of December 31, 2010 (thousands of pesos):

The return on equity of Piña if the short-term rate rises to 20% and the rate on new
long-term debt rises to 16%, the rate on existing long-term debt remains unchanged is
Response: 6.84%
Correct answer: 9.36%
Score: 0 out of 1 No

Question 29
Piña Press, Inc. and the Chico Publishing Company had the following statements of
financial position as of December 31, 2010 (thousands of pesos):
The return on equity of Chico Publishing if the interest rate on current liabilities is 10%
and the rate on long-term debt is 13%
Response: 11.64%
Correct answer: 11.64%
Score: 1 out of 1 Yes

Question 30
A company had P500,000 of sales for the year just ended and is projecting sales of
P600,000 for the coming year. For every P1 increase in sales, 38 centavos of additional
financing is required for the purchase of additional assets. The projected profit margin is
20%, and 60% of profits will be retained for reinvestment in the company. The amount
of additional external financing needed by the company in the coming year is
Response: P 38,000
Correct answer: P 0
Score: 0 out of 1

Question 1
A firm has targeted a 40% growth in sales this year. Last year’s cash as a percent of
sales was 15%, accounts receivable 30%, and inventory 35%. What percentage growth
in current assets is required to support the growth in sales under the percentage-of-
sales forecasting method?
Response: 18%
Correct answer: 32%
Score: 0 out of 1 No

Question 2
Working capital manage is primarily concerned with the management and financing of
Response: Current assets and current liabilities
Correct answer: Current assets
Score: 0 out of 1 No

Question 3
A company had sales last year of P10 million, with net income equal to 6% of sales.
This year the sales are expected to be P11.2 million. The accounts receivable balance
was P1.5 million at the end of last year. Using the percentage-of-sales method, the
accounts receivable balance at the end of this year is forecasted to be
Response: P1,572,000
Correct answer: P1,680,000
Score: 0 out of 1 No

Question 4
Which of the following combinations of assets structure and financing patterns is likely
to create the least volatile earnings?
Response: Illiquid assets and heavy long-term borrowing
Correct answer: Liquid assets and no debts
Score: 0 out of 1 No

Question 5
BH Inc. determines that sales will rise from P300,000 to P500,000 next year.
Spontaneous assets are 70% of sales and spontaneous liabilities are 30% of sales. BH
Inc. has a 10% profit margin and a 40% dividend payout ratio. What is the level of
required new funds?
Response: P20,000
Correct answer: P50,000
Score: 0 out of 1 No

Question 6
All of the following statements in regard to working capital are correct except
Response: The hedging approach to financing involves matching maturities of debt with
specific financing needs.
Correct answer: Financing permanent inventory buildup with long-term debt is an
example of an aggressive working capital policy.
Score: 0 out of 1 No

Question 7
An aggressive working capital policy to be followed by a company during a period of
increased activity due to short term increase in sales would suggest that the that the
level of net working capital
Response: Should be higher than under other businesses conditions in order that there
be sufficient funds to replenish assets.
Correct answer: Should be lower than under other business conditions in order that the
company can maximize profits while minimizing working capital investments.
Score: 0 out of 1 No

Question 8
A “normal” term structure of interest rates would depict
Response: Medium rates (1-5 years) lower than both short-term and long-term rates
Correct answer: Long-term rates higher than short-term rates
Score: 0 out of 1 No

Question 9
Short-term interest rates are
Response: Usually lower than long-term rates
Correct answer: Usually lower than long-term rates
Score: 1 out of 1 Yes

Question 10
Which of the following statements is true?
Response: An increase in sales and/or profits means there is also an increase in cash
on the balance sheet
Correct answer: Pro forma income statements follow a sales forecast and production
plan
Score: 0 out of 1 No

Question 11
A rapid rate of growth in sales and profits may require
Response: higher dividend payments to shareholders.
Correct answer: increased borrowings by the firm to support the sales increase.
Score: 0 out of 1 No

Question 12
A downward-sloping yield curved depicting the team structure of interest rates implies
that
Response: Prevailing short-term interest rates are higher than prevailing long-term
interest rates
Correct answer: Prevailing short-term interest rates are higher than prevailing long-term
interest rates
Score: 1 out of 1 Yes

Question 13
Normally, permanent currents assets should be financed by
Response: Internally generated funds
Correct answer: Long-term funds
Score: 0 out of 1 No

Question 14
The need for an increase or decrease in short term borrowing can be predicted by
Response: A cash budget
Correct answer: A cash budget
Score: 1 out of 1 Yes

Question 15
Piña Press, Inc. and the Chico Publishing Company had the following statements of
financial position as of December 31, 2010 (thousands of pesos):
The return on equity of Chico Publishing if the interest rate on current liabilities is 10%
and the rate on long-term debt is 13%
Response: 6.84%
Correct answer: 11.64%
Score: 0 out of 1 No

Question 16
An aggressive working capital policy would have which of following characteristics?
Response: A low ratio of short-term debt to total debt
Correct answer: A high ratio of short-term debt to long-term sources of funds
Score: 0 out of 1 No

Question 17
Piña Press, Inc. and the Chico Publishing Company had the following statements of
financial position as of December 31, 2010 (thousands of pesos):
The return on equity of Piña if the short-term rate rises to 20% and the rate on new
long-term debt rises to 16%, the rate on existing long-term debt remains unchanged is
Response: 6.84%
Correct answer: 6.84%
Score: 1 out of 1 Yes

Question 18
Determining the appropriate level of working capital for a firm requires
Response: Maintaining short-term debt at the lowest possible level because it is
generally more expensive than long-term debt.
Correct answer: Offsetting the benefit of current assets and current liabilities against the
probability of technical insolvency.
Score: 0 out of 1 No

Question 19
Ideally, which of the following types of assets should be financed with long-term
financing?
Response: Fixed assets and temporary current assets
Correct answer: Fixed assets and permanent current assets
Score: 0 out of 1 No

Question 20
Which of the following combinations of assets structures and financing patterns is likely
to create the most volatile earnings?
Response: [none]
Correct answer: Illiquid assets and heavy short-term borrowing
Score: 0 out of 1 No

Question 21
Which of the following statements is false?
Response: The percent of sales method for financial forecasting assumes that balance
sheet accounts maintain a constant relationship to sales.
Correct answer: The percent of sales forecast is likely to be most accurate when used
with cyclical companies.
Score: 0 out of 1 No
Question 22
A conservatively financed firm would
Response: Use long-term financing for permanent assets and fixed assets and a portion
of the short-term fluctuating assets and use short-term financing for all other short-term
assets
Correct answer: Use long-term financing for permanent assets and fixed assets and a
portion of the short-term fluctuating assets and use short-term financing for all other
short-term assets
Score: 1 out of 1 Yes

Question 23
A company had P500,000 of sales for the year just ended and is projecting sales of
P600,000 for the coming year. For every P1 increase in sales, 38 centavos of additional
financing is required for the purchase of additional assets. The projected profit margin is
20%, and 60% of profits will be retained for reinvestment in the company. The amount
of additional external financing needed by the company in the coming year is
Response: P 38,000
Correct answer: P 0
Score: 0 out of 1 No

Question 24
The primary concern of working capital management is the trade-off between
Response: Interest rate risk and profitability
Correct answer: Liquidity risk and profitability
Score: 0 out of 1 No

Question 25
The percent-of-sales method of financial forecasting
Response: requires more time than a cash budget approach.
Correct answer: assumes that balance sheet accounts maintain a constant relationship
to sales.
Score: 0 out of 1 No

Question 26
In general, the larger the portion of a firm’s sales that are on credit, the
Response: Lower will be the firm’s need to borrow.
Correct answer: Higher will be the firm’s need to borrow.
Score: 0 out of 1 No

Question 27
Which of the following characteristics are generally associated with a “conservative”
financial policy?
Response: Low current assets relative to sales and high current liabilities relative to
total assets.
Correct answer: High current assets relative to sales and low current liabilities relative to
total assets.
Score: 0 out of 1 No

Question 28
A working capital technique that increases the payable float and therefore delays the
outflow of cash is
Response: A draft
Correct answer: A draft
Score: 1 out of 1 Yes

Question 29
The trade-off between risk of lost sales and risk of bad debts losses is generally
associated with
Response: Synchronization of cash flows
Correct answer: Credit granting and collecting policies
Score: 0 out of 1 No

Question 30
Piña Press, Inc. and the Chico Publishing Company had the following statements of
financial position as of December 31, 2010 (thousands of pesos):
The return on equity of Piña Press if the interest rate on current liabilities is 10% and the
rate on long-term debt is 13%.
Response: 6.84%
Correct answer: 10.56%
Score: 0 out of 1

Question 1
A firm has targeted a 40% growth in sales this year. Last year’s cash as a percent of
sales was 15%, accounts receivable 30%, and inventory 35%. What percentage growth
in current assets is required to support the growth in sales under the percentage-of-
sales forecasting method?
Response: 32%
Correct answer: 32%
Score: 1 out of 1 Yes

Question 2
15. The following is the statement of financial position for 2010 for Marvelous Inc.

Marvelous Inc.
Statement of Financial Position
2010

Assets Liabilities and Equity

Cash P 150,000 Accounts Payable P 900,000
Accounts Receivable 900,000 Notes Payable 300,000
Inventory 600,000 Accrued Expenses 75,000
Current Assets P 1,650,000 Current Liabilities P 1,275,000
Fixed Assets 600,000 Ordinary Shares 750,000
Retained Earnings 225,000
Total Assets P 2,250,000 Total Liabilities & equity P 2,250,000

Sales for 2010 were P3,000,000. Sales for 2011 have been projected to increase by
20%. Marvelous Inc. is operating below capacity. The company has an 8% return on
sales and 70% is paid out as dividends.

The amount of new funds required is

Response: P46,800
Correct answer: P48,600
Score: 0 out of 1 No

Question 3
Piña Press, Inc. and the Chico Publishing Company had the following statements of
financial position as of December 31, 2010 (thousands of pesos):

The return on equity of Piña Press if the interest rate on current liabilities is 10% and the
rate on long-term debt is 13%.
Response: 6.84%
Correct answer: 10.56%
Score: 0 out of 1 No

Question 4
A working capital technique that increases the payable float and therefore delays the
outflow of cash is
Response: A draft
Correct answer: A draft
Score: 1 out of 1 Yes
Question 5
All of the following statements in regard to working capital are correct except
Response: Financing permanent inventory buildup with long-term debt is an example of
an aggressive working capital policy.
Correct answer: Financing permanent inventory buildup with long-term debt is an
example of an aggressive working capital policy.
Score: 1 out of 1 Yes

Question 6
An aggressive working capital policy would have which of following characteristics?
Response: A high ratio of short-term debt to long-term sources of funds
Correct answer: A high ratio of short-term debt to long-term sources of funds
Score: 1 out of 1 Yes

Question 7
A rapid rate of growth in sales and profits may require
Response: increased borrowings by the firm to support the sales increase.
Correct answer: increased borrowings by the firm to support the sales increase.
Score: 1 out of 1 Yes

Question 8
Which of the following characteristics are generally associated with a “conservative”
financial policy?
Response: High current assets relative to sales and low current liabilities relative to total
assets.
Correct answer: High current assets relative to sales and low current liabilities relative to
total assets.
Score: 1 out of 1 Yes

Question 9
Working capital manage is primarily concerned with the management and financing of
Response: Current assets
Correct answer: Current assets
Score: 1 out of 1 Yes
Question 10
Piña Press, Inc. and the Chico Publishing Company had the following statements of
financial position as of December 31, 2010 (thousands of pesos):

The return on equity of Chico Publishing if the interest rate on current liabilities is 10%
and the rate on long-term debt is 13%
Response: 11.64%
Correct answer: 11.64%
Score: 1 out of 1 Yes

Question 11
Which of the following ratios would best disclose effective management of working
capital by a given firm relative to other fir, in the same industry?
Response: A high turnover of net working capital relative to the industry average
Correct answer: A high turnover of net working capital relative to the industry average
Score: 1 out of 1 Yes

Question 12
A downward-sloping yield curved depicting the team structure of interest rates implies
that
Response: Prevailing short-term interest rates are higher than prevailing long-term
interest rates
Correct answer: Prevailing short-term interest rates are higher than prevailing long-term
interest rates
Score: 1 out of 1 Yes

Question 13
 Ideally, which of the following types of assets should be financed with long-term
financing?
Response: Fixed assets and permanent current assets
Correct answer: Fixed assets and permanent current assets
Score: 1 out of 1 Yes

Question 14
Short-term interest rates are
Response: Usually lower than long-term rates
Correct answer: Usually lower than long-term rates
Score: 1 out of 1 Yes

Question 15
Piña Press, Inc. and the Chico Publishing Company had the following statements of
financial position as of December 31, 2010 (thousands of pesos):

The return on equity of Piña if the short-term rate rises to 20% and the rate on new
long-term debt rises to 16%, the rate on existing long-term debt remains unchanged is
Response: 10.56%
Correct answer: 6.84%
Score: 0 out of 1 No

Question 16
The need for an increase or decrease in short term borrowing can be predicted by
Response: A cash budget
Correct answer: A cash budget
Score: 1 out of 1 Yes

Question 17
Pressure if current asset buildup often results from
Response: Rapidly expanding sales
Correct answer: Rapidly expanding sales
Score: 1 out of 1 Yes

Question 18
A company had P500,000 of sales for the year just ended and is projecting sales of
P600,000 for the coming year. For every P1 increase in sales, 38 centavos of additional
financing is required for the purchase of additional assets. The projected profit margin is
20%, and 60% of profits will be retained for reinvestment in the company. The amount
of additional external financing needed by the company in the coming year is
Response: P 0
Correct answer: P 0
Score: 1 out of 1 Yes

Question 19
A firm forecasted sales of P3,000 in April, P4,500 in May, and P6,500 in June. All sales
are on credit. 30% is collected the month of sale and the remainder the following month.
What will be the balance in accounts receivable at the end of June?
Response: P1,950
Correct answer: P4,550
Score: 0 out of 1 No

Question 20
A “normal” term structure of interest rates would depict
Response: Medium rates (1-5 years) lower than both short-term and long-term rates
Correct answer: Long-term rates higher than short-term rates
Score: 0 out of 1 No

Question 21
Which of the following statements is incorrect?
Response: The generation of sales and profits ensures that there will be adequate cash
on hand to meet financial obligations as they come due
Correct answer: The generation of sales and profits ensures that there will be adequate
cash on hand to meet financial obligations as they come due
Score: 1 out of 1 Yes

Question 22
The primary concern of working capital management is the trade-off between
Response: Liquidity risk and profitability
Correct answer: Liquidity risk and profitability
Score: 1 out of 1 Yes

Question 23
Determining the appropriate level of working capital for a firm requires
Response: Maintaining short-term debt at the lowest possible level because it is
generally more expensive than long-term debt.
Correct answer: Offsetting the benefit of current assets and current liabilities against the
probability of technical insolvency.
Score: 0 out of 1 No

Question 24
BH Inc. determines that sales will rise from P300,000 to P500,000 next year.
Spontaneous assets are 70% of sales and spontaneous liabilities are 30% of sales. BH
Inc. has a 10% profit margin and a 40% dividend payout ratio. What is the level of
required new funds?
Response: P50,000
Correct answer: P50,000
Score: 1 out of 1 Yes

Question 25
In the percent-of-sales method
Response: as the dividends payout ratio rises, required new funds decline.
Correct answer: as the dividends payout ratio rises, required new funds decline.
Score: 1 out of 1 Yes

Question 26
 An aggressive working capital policy to be followed by a company during a period of
increased activity due to short term increase in sales would suggest that the that the
level of net working capital
Response: Should be lower than under other business conditions in order that the
company can maximize profits while minimizing working capital investments.
Correct answer: Should be lower than under other business conditions in order that the
company can maximize profits while minimizing working capital investments.
Score: 1 out of 1 Yes

Question 27
Which of the following combinations of assets structure and financing patterns is likely
to create the least volatile earnings?
Response: Liquid assets and no debts
Correct answer: Liquid assets and no debts
Score: 1 out of 1 Yes

Question 28
In general, the larger the portion of a firm’s sales that are on credit, the
Response: Higher will be the firm’s need to borrow.
Correct answer: Higher will be the firm’s need to borrow.
Score: 1 out of 1 Yes

Question 29
Which of the following statements is correct?
Response: Lower profit margin resulting from increased competition would mean a
lower used for external funds.
Correct answer: it is helpful to break down the income statement into smaller monthly
periods to enable evaluation of seasonal patterns of cash inflows and outflows
Score: 0 out of 1 No

Question 30
A company had sales last year of P10 million, with net income equal to 6% of sales.
This year the sales are expected to be P11.2 million. The accounts receivable balance
was P1.5 million at the end of last year. Using the percentage-of-sales method, the
accounts receivable balance at the end of this year is forecasted to be
Response: P1,680,000
Correct answer: P1,680,000
Score: 1 out of 1

Question 1
A downward-sloping yield curved depicting the team structure of interest rates implies that
Response: Prevailing short-term interest rates are higher than prevailing long-term interest rates
Correct answer: Prevailing short-term interest rates are higher than prevailing long-term interest
rates
Score: 1 out of 1 Yes

Question 2
Which of the following ratios would best disclose effective management of working capital by a
given firm relative to other fir, in the same industry?
Response: A high turnover of net working capital relative to the industry average
Correct answer: A high turnover of net working capital relative to the industry average
Score: 1 out of 1 Yes

Question 3
Piña Press, Inc. and the Chico Publishing Company had the following statements of financial
position as of December 31, 2010 (thousands of pesos):

The return on equity of Piña if the short-term rate rises to 20% and the rate on new long-term
debt rises to 16%, the rate on existing long-term debt remains unchanged is
Response: 6.84%
Correct answer: 6.84%
Score: 1 out of 1 Yes
Question 4
Piña Press, Inc. and the Chico Publishing Company had the following statements of financial
position as of December 31, 2010 (thousands of pesos):

The return on equity of Piña if the short-term rate rises to 20% and the rate on new long-term
debt rises to 16%, the rate on existing long-term debt remains unchanged is
Response: 6.84%
Correct answer: 9.36%
Score: 0 out of 1 No

Question 5
All of the following statements in regard to working capital are correct except
Response: Financing permanent inventory buildup with long-term debt is an example of an
aggressive working capital policy.
Correct answer: Financing permanent inventory buildup with long-term debt is an example of an
aggressive working capital policy.
Score: 1 out of 1 Yes

Question 6
The primary concern of working capital management is the trade-off between
Response: Liquidity risk and profitability
Correct answer: Liquidity risk and profitability
Score: 1 out of 1 Yes

Question 7
 Which of the following characteristics are generally associated with a “conservative” financial
policy?
Response: High current assets relative to sales and high current liabilities relative to total assets.
Correct answer: High current assets relative to sales and low current liabilities relative to total
assets.
Score: 0 out of 1 No

Question 8
A firm forecasted sales of P3,000 in April, P4,500 in May, and P6,500 in June. All sales are on
credit. 30% is collected the month of sale and the remainder the following month. What will be
the balance in accounts receivable at the end of June?
Response: P4,550
Correct answer: P4,550
Score: 1 out of 1 Yes

Question 9
In general, the larger the portion of a firm’s sales that are on credit, the
Response: Higher will be the firm’s need to borrow.
Correct answer: Higher will be the firm’s need to borrow.
Score: 1 out of 1 Yes

Question 10
Firms that successfully increase their rates of inventory will, among other things,
Response: be able to reduce their borrowing needs.
Correct answer: be able to reduce their borrowing needs.
Score: 1 out of 1 Yes

Question 11
As a company becomes more conservative in its working capital policy, it would tend to have
a(n)
Response: Increase in the ratio of current assets to units of output.
Correct answer: Increase in the ratio of current assets to units of output.
Score: 1 out of 1 Yes

Question 12
A “normal” term structure of interest rates would depict
Response: Medium rates (1-5 years) lower than both short-term and long-term rates
Correct answer: Long-term rates higher than short-term rates
Score: 0 out of 1 No

Question 13
When using the percent-of-sales method in forecasting funds needed, which of the following is
not true?
Response: Required new funds increase as accumulated depreciation increases.
Correct answer: Required new funds increase as accumulated depreciation increases.
Score: 1 out of 1 Yes

Question 14
A firm has targeted a 40% growth in sales this year. Last year’s cash as a percent of sales was
15%, accounts receivable 30%, and inventory 35%. What percentage growth in current assets is
required to support the growth in sales under the percentage-of-sales forecasting method?
Response: 32%
Correct answer: 32%
Score: 1 out of 1 Yes

Question 15
Normally, permanent currents assets should be financed by
Response: Long-term funds
Correct answer: Long-term funds
Score: 1 out of 1 Yes

Question 16
Net working capital is the difference between
Response: Current assets and current liabilities.
Correct answer: Current assets and current liabilities.
Score: 1 out of 1 Yes

Question 17
Which of the following statements is false?
Response: The percent of sales forecast is likely to be most accurate when used with cyclical
companies.
Correct answer: The percent of sales forecast is likely to be most accurate when used with
cyclical companies.
Score: 1 out of 1 Yes

Question 18
Piña Press, Inc. and the Chico Publishing Company had the following statements of financial
position as of December 31, 2010 (thousands of pesos):

The return on equity of Piña Press if the interest rate on current liabilities is 10% and the rate on
long-term debt is 13%.
Response: 11.64%
Correct answer: 10.56%
Score: 0 out of 1 No

Question 19
Which of the following statements is correct?
Response: it is helpful to break down the income statement into smaller monthly periods to
enable evaluation of seasonal patterns of cash inflows and outflows
Correct answer: it is helpful to break down the income statement into smaller monthly periods to
enable evaluation of seasonal patterns of cash inflows and outflows
Score: 1 out of 1 Yes

Question 20
Determining the appropriate level of working capital for a firm requires
Response: Offsetting the benefit of current assets and current liabilities against the probability of
technical insolvency.
Correct answer: Offsetting the benefit of current assets and current liabilities against the
probability of technical insolvency.
Score: 1 out of 1 Yes

Question 21
In the percent-of-sales method
Response: as the dividends payout ratio rises, required new funds decline.
Correct answer: as the dividends payout ratio rises, required new funds decline.
Score: 1 out of 1 Yes

Question 22
Short-term interest rates are
Response: Usually lower than long-term rates
Correct answer: Usually lower than long-term rates
Score: 1 out of 1 Yes

Question 23
15. The following is the statement of financial position for 2010 for Marvelous Inc.

Marvelous Inc.
Statement of Financial Position
2010

Assets Liabilities and Equity

Cash P 150,000 Accounts Payable P 900,000
Accounts Receivable 900,000 Notes Payable 300,000
Inventory 600,000 Accrued Expenses 75,000
Current Assets P 1,650,000 Current Liabilities P 1,275,000
Fixed Assets 600,000 Ordinary Shares 750,000
Retained Earnings 225,000
Total Assets P 2,250,000 Total Liabilities & equity P 2,250,000

Sales for 2010 were P3,000,000. Sales for 2011 have been projected to increase by 20%.
Marvelous Inc. is operating below capacity. The company has an 8% return on sales and 70% is
paid out as dividends.

The amount of new funds required is

Response: P48,600
Correct answer: P48,600
Score: 1 out of 1 Yes

Question 24
A company had sales last year of P10 million, with net income equal to 6% of sales. This year
the sales are expected to be P11.2 million. The accounts receivable balance was P1.5 million at
the end of last year. Using the percentage-of-sales method, the accounts receivable balance at the
end of this year is forecasted to be
Response: P1,680,000
Correct answer: P1,680,000
Score: 1 out of 1 Yes

Question 25
An aggressive working capital policy would have which of following characteristics?
Response: A high ratio of short-term debt to long-term sources of funds
Correct answer: A high ratio of short-term debt to long-term sources of funds
Score: 1 out of 1 Yes

Question 26
Which of the following combinations of assets structures and financing patterns is likely to
create the most volatile earnings?
Response: Illiquid assets and heavy short-term borrowing
Correct answer: Illiquid assets and heavy short-term borrowing
Score: 1 out of 1 Yes

Question 27
An aggressive working capital policy to be followed by a company during a period of increased
activity due to short term increase in sales would suggest that the that the level of net working
capital
Response: Should be lower than under other business conditions in order that the company can
maximize profits while minimizing working capital investments.
Correct answer: Should be lower than under other business conditions in order that the company
can maximize profits while minimizing working capital investments.
Score: 1 out of 1 Yes
 Question 28
Ideally, which of the following types of assets should be financed with long-term financing?
Response: Fixed assets and permanent current assets
Correct answer: Fixed assets and permanent current assets
Score: 1 out of 1 Yes

Question 29
Which of the following statements is incorrect?
Response: The generation of sales and profits ensures that there will be adequate cash on hand to
meet financial obligations as they come due
Correct answer: The generation of sales and profits ensures that there will be adequate cash on
hand to meet financial obligations as they come due
Score: 1 out of 1 Yes

Question 30
BH Inc. determines that sales will rise from P300,000 to P500,000 next year. Spontaneous assets
are 70% of sales and spontaneous liabilities are 30% of sales. BH Inc. has a 10% profit margin
and a 40% dividend payout ratio. What is the level of required new funds?
Response: P50,000
Correct answer: P50,000
Score: 1 out of 1 Yes
Assignment
 Type: Quiz
 Max score: 30
 Category: Quiz
 Start: Feb 17
 Due: Feb 24

 Timer: 30:00 (mm:ss)

Score
Your best submission is used
A-

Category Progress

Grade 86.66666666666667
 None 13.333333333333329

26/30 (87%)
Submission
Submitted: Feb 23, 3:58 am
Time taken: 18 m, 59 s.
Attempts: 4
Max. attempts: unlimited