Financial Management Practice Questions PDF

QUESTIONS 1. A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary....

QUESTIONS 1. A financial intermediary is a corporation that takes funds from investors and then provides those funds to those who need capital. A bank that takes in demand deposits and then uses that money to make long-term mortgage loans is one example of a financial intermediary. a. True b. False 2. A share of common stock is not a derivative, but an option to buy the stock is a derivative because the value of the option is derived from the value of the stock. a. True b. False 3. Financial institutions are more diversified today than they were in the past, when federal laws kept investment banks, commercial banks, insurance companies, and similar organizations quite separate. Today the larger financial services corporations offer a variety of services, ranging from checking accounts, to insurance, to underwriting securities, to stock brokerage. a. True b. False 4. Money markets are markets for a. Foreign currencies b. Consumer automobile loans c. Common stocks d. Long-term bonds e. Short-term debt securities such as Treasury bills and commercial paper 5. Which of the following statements is CORRECT? a. If you purchase 100 shares of Disney stock from your brother-in-law, this is an example of a primary market transaction. b. If Disney issues additional shares of common stock through an investment banker, this would be a secondary market transaction. c. The NYSE is an example of an over-the-counter market. d. Only institutions, and not individuals, can engage in derivative market transactions. e. As they are generally defined, money market transactions involve debt securities with maturities of less than one year. 6. You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of: a. A money market transaction b. A primary market transaction c. A secondary market transaction d. A futures market transaction e. An over-the-counter market transaction 7. Which of the following statements is CORRECT? a. The term "IPO" stands for Introductory Price Offered, and it is the price at which shares of a new company are offered to the public. b. IPO prices are generally established by the market, and buyers of the new stock must pay the price that prevails at the close of trading on the day the stock is offered to the public.  c. In a "Dutch auction," investors who want to buy shares in an IPO submit bids indicating how many shares they want to buy and the price they are willing to pay. The company determines how many shares it wants to sell. The highest price that enables the company to sell the desired number of shares is the price that all buyers must pay. d. It is possible that the price set in an IPO is so high that investors will refuse to buy the number of shares that the company wants to sell. In this situation, the IPO is said to be oversubscribed. e. It is possible that the price set in an IPO is so low that investors will want to buy more shares than the company wants to sell. In that case, the company will have to issue more shares than it wants to sell. 8. Which of the following statements is CORRECT? a. The New York Stock Exchange is an auction market, and it has a physical location. b. Home mortgage loans are traded in the money market. c. If an investor sells shares of stock through a broker, then it would be a primary market transaction. d. Capital markets deal only with common stocks and other equity securities. e. While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. 9. During periods when inflation is increasing, interest rates tend to increase, while interest rates tend to fall when inflation is declining. a. True b. False 10. If investors expect a zero rate of inflation, then the nominal rate of return on a very short-term U.S. Treasury bond should be equal to the real risk-free rate, r*. a. True b. False 11. The risk that interest rates will increase, and that increase will lead to a decline in the prices of outstanding bonds, is called "interest rate risk," or "price risk." a. True b. False 12. Assume that inflation is expected to decline steadily in the future, but that the real risk-free rate, r*, will remain constant. Which of the following statements is CORRECT, other things held constant? a. If the pure expectations theory holds, the Treasury yield curve must be downward sloping. b. If the pure expectations theory holds, the corporate yield curve must be downward sloping. c. If there is a positive maturity risk premium, the Treasury yield curve must be upward sloping. d. If inflation is expected to decline, there can be no maturity risk premium. e. The expectations theory cannot hold if inflation is decreasing. 13. Which of the following factors would be most likely to lead to an increase in nominal interest rates?  a. Households reduce their consumption and increase their savings. b. A new technology like the Internet has just been introduced, and it increases investment opportunities. c. There is a decrease in expected inflation. d. The economy falls into a recession. e. The Federal Reserve decides to try to stimulate the economy. 14. Suppose the U.S. Treasury issued $50 billion of short-term securities and sold them to the public. Other things held constant, what would be the most likely effect on short-term securities' prices and interest rates? a. Prices and interest rates would both rise. b. Prices would rise and interest rates would decline. c. Prices and interest rates would both decline. d. Prices would decline and interest rates would rise. e. There is no reason to expect a change in either prices or interest rates. 15. Which of the following statements is CORRECT? a. If the maturity risk premium (MRP) is greater than zero, the Treasury bond yield curve must be upward sloping. b. If the maturity risk premium (MRP) equals zero, the Treasury bond yield curve must be flat. c. If inflation is expected to increase in the future and the maturity risk premium (MRP) is greater than zero, the Treasury bond yield curve must be upward sloping. d. If the expectations theory holds, the Treasury bond yield curve will never be downward sloping. e. Because long-term bonds are riskier than short-term bonds, yields on long-term Treasury bonds will always be higher than yields on short-term T-bonds. 16. Assume that the current corporate bond yield curve is upward sloping. Under this condition, then we could be sure that a. Inflation is expected to decline in the future. b. The economy is not in a recession. c. Long-term bonds are a better buy than short-term bonds. d. Maturity risk premiums could help to explain the yield curve's upward slope. e. Long-term interest rates are more volatile than short-term rates. 17. Which of the following statements is CORRECT? a. The higher the maturity risk premium, the higher the probability that the yield curve will be inverted. b. The most likely explanation for an inverted yield curve is that investors expect inflation to increase. c. The most likely explanation for an inverted yield curve is that investors expect inflation to decrease. d. If the yield curve is inverted, short-term bonds have lower yields than long-term bonds. e. Inverted yield curves can exist for Treasury bonds, but because of default premiums, the corporate yield curve can never be inverted. 18. Which of the following statements is most correct? a. Retained earnings, as reported on the balance sheet, represents the amount of cash a company has available to pay out as dividends to shareholders. b. 70% of the interest received by corporations is excluded from taxable income.  c. 70% of the dividends received by corporations is excluded from taxable income. d. Because taxes on long-term capital gains are not paid until the gain is realized, investors must pay the top individual tax rate on that gain. e. The corporate tax system favors equity financing, as dividends paid are deductible from corporate taxes. 19. Last year, Delip Industries had (1) negative cash flow from operations, (2) a negative free cash flow, and (3) an increase in cash as reported on its balance sheet. Which of the following factors could explain this situation? a. The company had a sharp increase in its inventories. b. The company had a sharp increase in its accrued liabilities. c. The company sold a new issue of common stock. d. The company made a large capital investment early in the year. e. The company had a sharp increase in depreciation expenses. 20. The Nantell Corporation just purchased an expensive piece of equipment. Assume that the firm planned to depreciate the equipment over 5 years on a straight-line basis, but Congress then passed a provision that requires the company to depreciate the equipment on a straight-line basis over 7 years. Other things held constant, which of the following will occur as a result of this Congressional action? Assume that the company uses the same depreciation method for tax and stockholder reporting purposes. a. Nantell's taxable income will be lower. b. Nantell's operating income (EBIT) will increase. c. Nantell's cash position will improve (increase). d. Nantell's reported net income for the year will be lower. e. Nantell's tax liability for the year will be lower. 21. Assume that Besley Golf Equipment commenced operations on January 1, 2014, and it was granted permission to use the same depreciation calculations for shareholder reporting and income tax purposes. The company planned to depreciate its fixed assets over 15 years, but in December 2014 management realized that the assets would last for only 10 years. The firm's accountants plan to report the 2014 financial statements based on this new information. How would the new depreciation assumption affect the company's financial statements? a. The firm's reported net fixed assets would increase. b. The firm's EBIT would increase. c. The firm's reported 2014 earnings per share would increase. d. The firm's cash position in 2014 and 2015 would increase. e. The provision will increase the company's tax payments. 22. A start-up firm is making an initial investment in new plant and equipment. Assume that currently its equipment must be depreciated on a straight-line basis over 10 years, but Congress is considering legislation that would require the firm to depreciate the equipment over 7 years. If the legislation becomes law, which of the following would occur in the year following the change? a. The firm's operating income (EBIT) would increase. b. The firm's taxable income would increase. c. The firm's cash flow would increase. d. The firm's tax payments would increase. e. The firm's reported net income would increase. 23. Which of the following statements is CORRECT?  a. Since depreciation increases the firm's net cash provided by operating activities, the more depreciation a company has, the larger its retained earnings will be, other things held constant. b. A firm can show a large amount of retained earnings on its balance sheet yet need to borrow cash to make required payments. c. Common equity includes common stock and retained earnings, less accumulated depreciation. d. The retained earnings account as reported on the balance sheet shows the amount of cash that is available for paying dividends. e. If a firm reports a loss on its income statement, then the retained earnings account as shown on the balance sheet will be negative. 24. The CFO of Daves Industries plans to have the company issue $300 million of new common stock and use the proceeds to pay off some of its outstanding bonds that carry a 7% interest rate. Assume that the company, which does not pay any dividends, takes this action, and that total assets, operating income (EBIT), and its tax rate all remain constant. Which of the following would occur? a. The company's taxable income would fall. b. The company's interest expense would remain constant. c. The company would have less common equity than before. d. The company's net income would increase. e. The company would have to pay less taxes. 25. Bauer Software's current balance sheet shows total common equity of $5,125,000. The company has 530,000 shares of stock outstanding, and they sell at a price of $27.50 per share. By how much do the firm's market and book values per share differ? a. $17.83 b. $18.72 c. $19.66 d. $20.64 e. $21.67 26. Brown Fashions Inc.'s December 31, 2014, balance sheet showed total common equity of $4,050,000 and 200,000 shares of stock outstanding. During 2014, the firm had $450,000 of net income, and it paid out $100,000 as dividends. What was the book value per share at 12/31/14, assuming no common stock was either issued or retired during 2014? a. $20.90 b. $22.00 c. $23.10 d. $24.26 e. $25.47 27. Considered alone, which of the following would increase a company's current ratio? a. An increase in net fixed assets. b. An increase in accrued liabilities. c. An increase in notes payable. d. An increase in accounts receivable. e. An increase in accounts payable. 28. Which of the following would, generally, indicate an improvement in a company's financial position, holding other things constant?  a. The TIE declines. b. The DSO increases. c. The quick ratio increases. d. The current ratio declines. e. The total assets turnover decreases. 29. A firm wants to strengthen its financial position. Which of the following actions would increase its current ratio? a. Reduce the company's days' sales outstanding to the industry average and use the resulting cash savings to purchase plant and equipment. b. Use cash to repurchase some of the company's own stock. c. Borrow using short-term debt and use the proceeds to repay debt that has a maturity of more than one year. d. Issue new stock, then use some of the proceeds to purchase additional inventory and hold the remainder as cash. e. Use cash to increase inventory holdings. 30. Which of the following statements is CORRECT? a. A reduction in inventories would have no effect on the current ratio. b. An increase in inventories would have no effect on the current ratio. c. If a firm increases its sales while holding its inventories constant, then, other things held constant, its inventory turnover ratio will increase. d. A reduction in the inventory turnover ratio will generally lead to an increase in the ROE. e. If a firm increases its sales while holding its inventories constant, then, other things held constant, its fixed assets turnover ratio will decline. 31. Companies E and P each reported the same earnings per share (EPS), but Company E's stock trades at a higher price. Which of the following statements is CORRECT? a. Company E probably has fewer growth opportunities. b. Company E is probably judged by investors to be riskier. c. Company E must have a higher market-to-book ratio. d. Company E must pay a lower dividend. e. Company E trades at a higher P/E ratio. 32. A firm's new president wants to strengthen the company's financial position. Which of the following actions would make it financially stronger? a. Increase accounts receivable while holding sales constant. b. Increase EBIT while holding sales and assets constant. c. Increase accounts payable while holding sales constant. d. Increase notes payable while holding sales constant. e. Increase inventories while holding sales constant. 33. Which of the following would indicate an improvement in a company's financial position, holding other things constant? a. The inventory and total assets turnover ratios both decline. b. The total debt to total capital ratio increases. c. The profit margin declines. d. The times-interest-earned ratio declines. e. The current and quick ratios both increase. 34. If a bank loan officer were considering a company's loan request, which of the following statements would you consider to be CORRECT? a. The lower the company's inventory turnover ratio, other things held constant, the lower the interest rate the bank would charge the firm. b. Other things held constant, the higher the days sales outstanding ratio, the lower the interest rate the bank would charge. c. Other things held constant, the lower the total debt to total capital ratio, the lower the interest rate the bank would charge. d. The lower the company's TIE ratio, other things held constant, the lower the interest rate the bank would charge. e. Other things held constant, the lower the current ratio, the lower the interest rate the bank would charge the firm. 35. Amram Company's current ratio is 2.0. Considered alone, which of the following actions would lower the current ratio? a. Borrow using short-term notes payable and use the proceeds to reduce accruals. b. Borrow using short-term notes payable and use the proceeds to reduce long-term debt. c. Use cash to reduce accruals. d. Use cash to reduce short-term notes payable. e. Use cash to reduce accounts payable. 36. Assume that interest rates on 20-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows: T-bond = 7.72% A = 9.64% AAA = 8.72% BBB = 10.18% The differences in rates among these issues were most probably caused primarily by: a. Real risk-free rate differences. b. Tax effects. c. Default and liquidity risk differences. d. Maturity risk differences. e. Inflation differences. 37. Under normal conditions, which of the following would be most likely to increase the coupon rate required for a bond to be issued at par? a. Adding additional restrictive covenants that limit management's actions. b. Adding a call provision. c. The rating agencies change the bond's rating from Baa to Aaa. d. Making the bond a first mortgage bond rather than a debenture. e. Adding a sinking fund. 38. Tucker Corporation is planning to issue new 20-year bonds. The current plan is to make the bonds non-callable, but this may be changed. If the bonds are made callable after 5 years at a 5% call premium, how would this affect their required rate of return? a. Because of the call premium, the required rate of return would decline. b. There is no reason to expect a change in the required rate of return. c. The required rate of return would decline because the bond would then be less risky to a bondholder.  d. The required rate of return would increase because the bond would then be more risky to a bondholder. e. It is impossible to say without more information. 39. A 10-year corporate bond has an annual coupon of 9%. The bond is currently selling at par ($1,000). Which of the following statements is CORRECT? a. The bond's expected capital gains yield is zero. b. The bond's yield to maturity is above 9%. c. The bond's current yield is above 9%. d. If the bond's yield to maturity declines, the bond will sell at a discount. e. The bond's current yield is less than its expected capital gains yield. 40. A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is CORRECT? a. The bond's coupon rate exceeds its current yield. b. The bond's current yield exceeds its yield to maturity. c. The bond's yield to maturity is greater than its coupon rate. d. The bond's current yield is equal to its coupon rate. e. If the yield to maturity stays constant until the bond matures, the bond's price will remain at $850. 41. If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value? a. A 1-year zero coupon bond. b. A 1-year bond with an 8% coupon. c. A 10-year bond with an 8% coupon. d. A 10-year bond with a 12% coupon. e. A 10-year zero coupon bond. 42. An individual stock's diversifiable risk, which is measured by its beta, can be lowered by adding more stocks to the portfolio in which the stock is held. a. True b. False 43. Managers should under no conditions take actions that increase their firm's risk relative to the market, regardless of how much those actions would increase the firm's expected rate of return. a. True b. False 44. Most corporations earn returns for their stockholders by acquiring and operating tangible and intangible assets. The relevant risk of each asset should be measured in terms of its effect on the risk of the firm's stockholders. a. True b. False 45. Since the market return represents the expected return on an average stock, the market return reflects a certain amount of risk. As a result, there exists a market risk premium, which is the amount over and above the risk-free rate that is required to compensate stock investors for assuming an average amount of risk. a. True  b. False 46. For a portfolio of 40 randomly selected stocks, which of the following is most likely to be true? a. The riskiness of the portfolio is greater than the riskiness of each of the stocks if each was held in isolation. b. The riskiness of the portfolio is the same as the riskiness of each stock if it was held in isolation. c. The beta of the portfolio is less than the weighted average of the betas of the individual stocks. d. The beta of the portfolio is equal to the weighted average of the betas of the individual stocks. e. The beta of the portfolio is larger than the weighted average of the betas of the individual stocks. 47. Which of the following statements best describes what you should expect if you randomly select stocks and add them to your portfolio? a. Adding more such stocks will reduce the portfolio's unsystematic, or diversifiable, risk. b. Adding more such stocks will increase the portfolio's expected rate of return. c. Adding more such stocks will reduce the portfolio's beta coefficient and thus its systematic risk. d. Adding more such stocks will have no effect on the portfolio's risk. e. Adding more such stocks will reduce the portfolio's market risk but not its unsystematic risk. 48. Net working capital is defined as current assets divided by current liabilities. a. True b. False 49. Other things held constant, which of the following will cause an increase in net working capital? a. Cash is used to buy marketable securities. b. A cash dividend is declared and paid. c. Merchandise is sold at a profit, but the sale is on credit. d. Long-term bonds are retired with the proceeds of a preferred stock issue. e. Missing inventory is written off against retained earnings. 50. Helena Furnishings wants to reduce its cash conversion cycle. Which of the following actions should it take? a. Increases 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. 51. Which of the following statements best represents what finance is about? a. How political, social, and economic forces affect corporations. b. Maximizing profits. c. Creating and maintenance of economic wealth. d. Reducing risk.  e. Access to capital markets. 52. Which of the following factors enable a public corporation to grow to a greater extent, and perhaps at a faster rate, than a partnership or a proprietorship? a. Unlimited liability of shareholders b. Access to the capital markets c. Limited life d. Elimination of double taxation on corporate income e. All of the above 53. The goal of the firm should be: a. maximization of profits b. maximization of shareholder wealth c. maximization of consumer satisfaction d. maximization of sales 54. Which of the following reasons is most responsible for corporations being the most important form of business organization in the United States? a. Corporations have limited life b. Stockholders have unlimited liability c. Corporations are subject to less government regulation than the other forms of business organization d. Corporations have the ability to raise larger sums of capital than the other forms of business organization e. Corporations are subjected to less taxation than other forms of business organization. 55. Difficulty in finding profitable projects is due to: a. social responsibility b. competitive markets c. ethical dilemmas d. opportunity costs e. raising costs 56. Which of the following is NOT a principle of basic financial management? a. Risk/return tradeoff b. Incremental ash flow counts c. Efficient capital markets d. Profit is king e. Risk minimization 57. The corporation is the most effective form of organization in terms of raising capital. a. True b. False 58. Ethical dilemmas frequently exist in finance. a. True b. False 59. Which of the following is NOT an advantage of the sole proprietorship? a. Limited liability  b. No time limit imposed on its existence c. No legal requirements for starting the business d. Unlimited liability e. None of the above 60. What is the chief disadvantage of the sole proprietorship as a form of business organization when compared to the corporate form? a. Sole proprietorships are subject to double taxation of profits b. The cost of formation c. Inadequate profit sharing d. Owners have unlimited liability e. Owners have limited liability 61. Which of the following is NOT true for limited partnerships? a. Limited partners can only manage the business b. One general partner must exist who has unlimited liability c. Only the name of general partners can appear in the name of the firm d. Limited partners may sell their interest in the company e. Limited partners cannot manage the business 62. In terms of organizational costs, which of the following sequences is generally correct, moving from lowest to highest cost? a. General partnership, sole proprietorship, limited partnership, corporation b. Sole proprietorship, general partnership, limited partnership, corporation c. Corporation, limited partnership, general partnership, sole proprietorship d. Sole proprietorship, general partnership, corporation, limited partnership e. Limited partnership, sole proprietorship, corporation, general partnership 63. Assume that you are starting a business. Further assume that the business is expected to grow very quickly and a great deal of capital will be needed soon. What type of business organization would you choose? a. Corporation b. General Partnership c. Sole proprietorship d. Limited partnership e. Cooperative 64. Which one of the following categories of owners enjoys limited liability? a. General partners in a limited partnership b. Shareholders (common stock) of a corporation c. Sole proprietors d. Both A and B e. None of the above 65. Which of the following is a characteristic of a limited partnership? a. It allows one or more partners to have limited liability b. It requires one or more of the partners to be a general partner to whom the privilege of limited liability does not apply c. It prohibits the limited partners from participating in the management of the partnership d. All of the above 66. Which of the following categories of owners have limited liability? a. General partners b. Sole proprietors c. Shareholders of a corporation d. Both A and B 67. Which of the following types of business forms is the most ideal in terms of attracting new capital? a. Sole proprietorship b. Limited partnership c. General partnership d. A public corporation 68. Which forms of organization are free of initial legal requirements? a. Sole proprietorship b. Limited partnership c. General partnership d. Both A and B 69. For these types of organization, no distinction is made between business and personal assets. a. Sole proprietorship b. Limited partnership c. General partnership d. Both A and B 70. Which of the following is a significant disadvantage of a general partnership? a. The cost of forming it is high b. Each partner is fully responsible for the liabilities incurred by the partnership c. There is a risk associated with the industry in which it operates d. Forming the business is very complex 71. Which of the following forms of business organization is the dominant economic force in the United States? a. Sole proprietorship b. Limited partnership c. General partnership d. Joint venture e. Corporation 72. A limited liability company (LLC) is: a. able to retain limited liability for owners b. taxed like a corporation c. a cross between a partnership and a corporation d. A and C e. All of the above 73. Purchasing a security of a company that is issuing their stock for the first time publicly would be considered: a. a secondary market transaction b. an initial public offering c. a seasoned new issue  d. Both A and B 74. Corporations receive money from investors with: a. initial public offerings b. seasoned new issues c. primary market transactions d. A and B e. All of the above 75. IBM issuing new shares of common stock would be classified as: a. a new seasoned issue b. an initial public offering c. a secondary market transaction d. Both A and B 76. The sole proprietorship is the same as the individual for liability purposes. a. True b. False 77. In a general partnership, all partners have unlimited liability for the actions of any one partner when that partner is conducting business for the firm. a. True b. False 78. There is no legal distinction made between the assets of the business and the personal assets of the owners in the limited partnership. a. True b. False 79. The owners of a corporation are liable for the corporation’s obligations up to the amount of their investment. a. True b. False 80. General partners have unrestricted transferability of ownership, while limited partners must have the consent of all partners to trasnfer their ownership. a. True b. False 81. Ultimate control in a corporation is vested in the board of directors. a. True b. False 82. Owners must register and pay yearly fees to their State of residence when establishing a sole proprietorship. a. True b. False 83. Limited partners may actively manage the business. a. True b. False 84. The life of a corporation is not dependent upon the status of the investors. a. True b. False 85. A sole proprietorship is the most desirable business form in all circumstances. a. True b. False 86. In a sole proprietorship, the owner is personally responsible without limitation for the liabilities incurred. a. True b. False 87. In a limited partnership, at least one general partner must remain in the association; the privilege of limited liability still applies to this partner. a. True b. False 88. In a general partnership, each partner is liable for the partnership’s obligations only up to a percentage of the obligation equal to that partner’s percentage of ownership of the partnership. a. True b. False 89. Maximization of shareholder wealth as a goal is superior to profit maximization because: a. it considers the time value of the money b. following the shareholder wealth maximization goal will ensure high stock prices c. it considers uncertainty d. A and C 90. Which of the following best describes the goal of the firm? a. The maximization of the total market value of the firm’s common stock b. Profit maximization c. Risk minimization d. None of the above 91. Profit maximization does not adequately describe the goal of the firm because: a. profit maximization does not require the consideration of risk b. profit maximization ignores the timing of a project’s return c. maximization of dividend payout ratio is a better description of the goal of the firm d. A and B 92. Working capital management involves investment and financing decisions related to: a. plant and equipment and current liabilities b. current assets and capital structure c. current assets and current liabilities d. sales and credit 93. The goal of managing working capital, such as an inventory, should be to minimize the: a. costs of carrying inventory b. opportunity cost of capital c. aggregate of carrying and shortage costs  d. amount of spoilage or pilferage 94. Zap company follows an aggressive financing policy in its working capital management while Zing Corporation follows a conservative financing policy. Which one of the following statements is correct? a. Zap has low ration of short-term debt to total debt while Zing has a high ratio of short- term debt to total debt b. Zap has a low current ratio while Zing has a high current ratio c. Zap has less liquidity risk while Zing has more liquidity risk d. Zap finances short-term assets with long-term debt while Zing finances short-term assets with short-term debt. 95. Which of the following would increase risk? a. Raise the level of working capital b. Decrease the amount of inventory by formulating an effective inventory policy. c. Increase the amount of short-term borrowing d. Increase the amount of equity financing 96. The longer the firm;s accounts payable period, the: a. longer the firm’s cash conversion cycle is b. shorter the firm;s inventory period is c. more the delay in the accounts receivable period d. less the firm must invest in working capital 97. The average length of time a peso is tied up in current asset is called the: a. net working capital b. inventory conversion period c. receivable cobversion period d. cash conversion period 98. All these factors are used in credit policy administration except a. credit standards b. terms of trade c. peso amount if receivables d. collection policy 99. All but which of the following is considered in determining credit policy? a. credit standards b. credit limits c. accounts payable deferral period d. collection efforts 100. The use of safety stock by a firm will a. reduce inventory costs b. increase inventory costs c. have no effect on inventory costs d. none of the above ANSWERS 50. B 51. C 1. A 52. B 2. A 53. B 3. A 54. D 4. E 55. B 5. E 56. D 6. C 57. A 7. C 58. A 8. A 59. A 9. A 60. D 10. A 61. A 11. A 62. B 12. A 63. A 13. B 64. B 14. D 65. D 15. C 66. C 16. D 67. D 17. A 68. D 18. C 69. D 19. C 70. B 20. B 71. E 21. D 72. D 22. C 73. B 23. B 74. E 24. D 75. A 25. A 76. A 26. B 77. A 27. D 78. B 28. C 79. A 29. D 80. B 30. C 81. B 31. E 82. B 32. B 83. B 33. E 84. A 34. C 85. B 35. B 86. A 36. C 87. B 37. B 88. B 38. D 89. D 39. A 90. A 40. C 91. D 41. E 92. C 42. B 93. C 43. B 94. B 44. A 95. C 45. A 96. D 46. D 97. D 47. A 98. C 48. B 99. C 49. C 100. B TOPICS COVERED I. Capital Markets a. Stock Markets b. Equity Valuation c. Capital Structure II. Behavioral Finance a. Emotion and Investing b. Behavioral Finance and Investment Strategy c. Behavioral Finance and Capital Markets III. Interest Rates a. Interest Rate Determination b. Interest Rate Risk c. Interest Rate Derivatives d. Monetary Policy e. Yield Curve f. Inflation and Interest Rates IV. Income and Business Taxation a. Corporate Taxation b. Individual Taxation c. Tax Planning and Optimization V. Financial Analysis and Reporting a. Financial Statements Analysis b. Ratio Analysis c. Cash Flow Analysis d. Financial Modeling e. Financial Reporting and Disclosure VI. Banking and Financial Institutions a. Banking Regulation b. Risk Management in Banks c. Financial Institutions and Markets d. Bank Operations and Management VII. Fundamentals of Corporate Finance a. Capital Budgeting b. Cost of Capital c. Capital Structure  d. Dividend Policy e. Mergers and Acquisitions f. Corporate Governance VIII. Bonds and their Valuation a. Bond Basics b. Bond Valuation c. Bond Yields and Prices d. Bond Risks e. Fixed Income Portfolio Management IX. Investment and Portfolio Management a. Portfolio Theory b. Asset Allocation c. Security Analysis d. Investment Strategies e. Risk Management f. Performance Evaluation X. Cash and Working Capital Management a. Cash Flow Management b. Accounts Receivable and Payable Management c. Inventory Management d. Short-term Financing e. Working Capital Optimization f. Liquidity Management REFERENCES A. Books 1. "Financial Management: Principles and Applications" by Sheridan Titman, John D. Martin, and Arthur J. Keown 2. "Corporate Finance" by Stephen Ross, Randolph W. Westerfield, and Jeffrey Jaffe 3. "Investments" by Zvi Bodie, Alex Kane, and Alan J. Marcus 4. "Financial Management: Theory and Practice" by Eugene F. Brigham and Michael C. Ehrhardt 5. "Financial Markets and Institutions" by Frederic S. Mishkin and Stanley G. Eakins 6. "Valuation: Measuring and Managing the Value of Companies" by McKinsey & Company Inc. 7. "Financial Management for Decision Makers" by Peter Atrill and Eddie McLaney B. Websites 1. Financial Management - Meaning, Scope, Objectives & Functions https://www.managementstudyguide.com/financial-management.htm 2. eFinance Management - https://efinancemanagement.com/ 3. Business Jargons - https://businessjargons.com/financial-management.html 4. Financial Analysis and the Statement of Cash Flows - https://www.principlesofaccounting.com/chapter-16/