Exam 4 Practice Questions
1. A bank lends a firm $1,000,000 for one year at 12 percent on a discounted basis and
requires compensating balances of 10 percent of the face value of the loan. The
effective annual interest rate associated with this loan is:
A. 12 percent.
B. 13.3 percent.
C. 13.6 percent.
D. 15.4 percent.
2. Which of the following types of firms are most likely NOT to payout cash dividends?
A) Rapidly growing firms
B) Firms with modest growth
C) Large, mature firms
D) International corporations
3. At the quarterly meeting of Tangshan Mining Corporation, held on September 10th, the
directors declared a $1.00 per share cash dividend for the firm's 100,000 shares of
common stock outstanding. The net effect of declaring and paying this cash dividend
would be to:
A) decrease total assets by $100,000 and increase stockholders equity by $100,000.
B) decrease total assets by $100,000 and decrease stockholders equity by $100,000.
C) increase total assets by $100,000 and increase stockholders equity by $100,000.
D) increase total assets by $100,000 and decrease stockholders equity by $100,000.
4. In general, the more net working capital a firm has:
A) the greater its risk.
B) the lower its risk.
C) the less likely are creditors to lend to the firm.
D) the lower its level of long-term funds.
5. A firm has an average age of inventory of 60 days, an average collection period of 45
days, and an average payment period of 30 days. The firm's cash conversion cycle is
________ days.
A) 15
B) 45
C) 75
D) 135
Exam 4 Practice Questions
6. A firm has an average age of inventory of 101 days, an average collection period of 49
days, and an average payment period of 60 days. Assuming a 365 day calendar, the
firm's inventory turnover is: ________.
A) 3.2
B) 4.0
C) 2.5
D) 3.6
7. Tangshan Mining was extended credit terms of 3/15 net 30. The cost of giving up the
cash discount, assuming payment would be made on the last day of the credit period, is
closest to:
A) 56%.
B) 48%.
C) 75%.
D) 37%.
8. A firm purchased goods with a purchase price of $1,000 and credit terms of 1/10 net 30.
The firm paid for these goods on the 5th day after the date of sale. The firm must pay
________ for the goods.
A) $990
B) $900
C) $1,000
D) $1,100
Exam 4 Practice Questions
Answer Key:
1.
2.
3.
4.
5.
6.
7.
8.
D
A
B
B
C
D
C
A