FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Working Capital and the Financing Decision

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 51

True/False

Review LaterAdd Note

Review Later

Level production methods smooth production schedules and utilize manpower and equipment more efficiently than seasonal production methods.

Correct Answer

verified

Show Answer

Question 52

Multiple Choice

Review LaterAdd Note

Review Later

The theory of the term structure of interest rates, which suggests that long-term rates are determined by the average of short-term rates expected over the time that a long-term bond is outstanding is the:

A) expectations hypothesis.
B) segmentation theory.
C) liquidity premium theory.
D) market average rate theory.

Correct Answer

verified

Show Answer

Question 53

Multiple Choice

Review LaterAdd Note

The yield on a 2 year security is 7.8%. If the yield of a security maturing in 1 year is 7.2%, what is the expected yield on a 1 year security maturing at the end of year 2?

The concept of a self-liquidating asset implies that:

A yield curve is also referred to as the term structure of interest rates.

Expected value is a representative quantity from a probability distribution arrived at by multiplying each outcome times the associated probability and summing up the products.

The "term structure of interest rates" depicts the competitive cost of funds for the various types of short-term sources of funds such as Treasury bills, commercial paper, and bankers' acceptances.

Ideally, permanent current assets should be financed with short-term borrowings.

When using level production, inventory will peak in the month where unit sales trend above the production level.

A risky financial plan will use long-term financing for capital assets, permanent current assets, and a portion of temporary current assets.

Ideally, which of the following types of assets should be financed with long-term financing?

Short-term interest rates are more dependent upon inflation than on current demand for money.

Yield curves change very little in the short run (3 months).

Retail companies like Canadian Tire and Indigo exhibit sales patterns that are mostly influenced by:

Generally, more use is made of short-term financing because:

The key to current asset planning is the ability of management to forecast sales accurately and then match production schedules with the sales forecast.

Cash, accounts receivables, and inventory all move monthly in the same direction under level production.

If a firm uses level production with seasonal sales:

Heavy use of long-term debt will allow a firm to carry less liquid, more profitable assets.

A normal yield curve is downward sloping to the right.