Answer Options:
a. True
b. False
Answer: False
Question: If a firm sold some inventory for cash and left the funds in its bank account, its current ratio would probably not change much, but its quick ratio would decline.
a. True
b. False
Answer Options:
for Question 564
a. True
b. False
Answer: False
Question: A decline in a firm’s inventory turnover ratio suggests that it is improving both its inventory management and its liquidity position, i.e., that it is becoming more liquid.
a. True
b. False
Answer: False
Question: In general, it’s better to have a low inventory turnover ratio than a high one, as a low ratio indicates that the firm has an adequate stock of inventory relative to sales and thus will not lose sales as a result of running out of stock.
a. True
b. False
Answer: b. False
Question: If a firm sold some inventory on credit, its current ratio would probably not change much, but its quick ratio would increase.
a. True
b. False
Answer Options:
for Question 566
a. True
b. False
Answer: True
Question: If a firm sold some inventory on credit as opposed to cash, there is no reason to think that either its current or quick ratio would change.
a. True
b. False
Answer: False
Question: If the CEO of a large, diversified, firm were filling out a fitness report on a division manager (i.e., “grading” the manager), which of the following situations would be likely to cause the manager to receive a better grade? In all cases, assume that other things are held constant.
a. The division’s basic earning power ratio is above the average for other firms in its industry.
b. The division’s total assets turnover ratio is below the average for other firms in its industry.
c. The division’s total debt to total capital ratio is above the average for other firms in the industry.
d. The division’s inventory turnover is 6x, whereas the average for its competitors is 8x.
e. The division’s DSO (days’ sales outstanding) is 40 days, whereas the average for its competitors is 30 days.
Answer: a. The division’s basic earning power ratio is above the average for other firms in its industry.
Question: Which of the following is NOT a situation that might lead a firm to increase its holdings of short-term marketable securities?
a. The firm must make a known future payment, such as paying for a new plant that is under construction.
b. The firm is going from its peak sales season to its slack season, so its receivables and inventories will experience a seasonal decline.
c. The firm is going from its slack season to its peak sales season, so its receivables and inventories will experience seasonal increases.
Answer Options:
a. The firm must make a known future payment, such as paying for a new plant that is under construction.
b. The firm is going from its peak sales season to its slack season, so its receivables and inventories will experience a seasonal decline.
c. The firm is going from its slack season to its peak sales season, so its receivables and inventories will experience seasonal increases.
Answer: c
Question: Which of the following is an example of a capital market instrument?
a. Commercial paper.
b. Preferred stock.
c. U.S. Treasury bills.
d. Banker’s acceptances.
e. Money market mutual funds.
Answer: b
Question: Net operating working capital is equal to current assets minus the difference between current liabilities and notes payable. This definition assumes that the firm has no “excess” cash.
Answer Options:
a. True
b. False
Answer: True
Question: Net operating working capital is equal to current assets minus the difference between current liabilities and notes payable. This definition assumes that the firm has no “excess” cash.
Answer Options:
a. True
b. False
Answer: a. True
Question: If a firm sold some inventory on credit as opposed to cash, there is no reason to think that either its current or quick ratio would change.
a. True
b. False
Answer: b. False