Working Capital Management Set 2
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This set of Working Capital Management Multiple Choice Questions & Answers (MCQs) focuses on Working Capital Management Set 2
Q1 | Your firm has a philosophy that is analogous to the hedging (maturitymatching) approach. Which of the following is the most appropriate form for financing a new capital investment in plant and equipment?
- trade credit.
- 6-month bank notes.
- accounts payable.
- common stock equity.
Q2 | Your firm has a philosophy that is analogous to the hedging (maturitymatching) approach. Which of the following is the most appropriate non- spontaneous form for financing the excess seasonal current asset needs?
- trade credit.
- 6-month bank notes.
- accounts payable.
- common stock equity.
Q3 | -Under a conservative financing policy a firm would use long-term financing tofinance some of the temporary current assets. What should the firm do when a "dip" in temporary current assets causes total assets to fall below the total longterm financing?
- use the excess funds to pay down long-term debt.
- invest the excess long-term financing in marketable securities.
- use the excess funds to repurchase common stock.
- purchase additional plant and equipment.
Q4 | -Which of the following statements is correct for a conservative financing policyfor a firm relative to a former aggressive policy?
- the firm uses long-term financing to finance all fixed and current assets.
- the firm will see an increase in its expected profits.
- the firm will see an increase in its risk profile.
- the firm will increase its dividends per share (dps) this period.
Q5 | Which of the following statements is correct for an aggressive financing policyfor a firm relative to a former conservative policy?
- the firm will use long-term financing to finance all fixed and current assets.
- the firm will see an increase in its expected profits.
- the firm will see a decline in its risk profile.
- the firm will need to issue additional common stock this period to finance the assets.
Q6 | How can a firm provide a margin of safety if it cannot borrow on short notice tomeet its needs?
- maintain a low level of current assets (especially cash and marketable securities).
- shorten the maturity schedule of financing.
- increasing the level of fixed assets (especially plant and equipment).
- lengthening the maturity schedule of financing.
Q7 | Risk, as it relates to working capital, means that there is jeopardy to the firm for not maintaining sufficient current assets to __________.
- meet its cash obligations as they occur and take advantage of prompt payment discounts
- support the proper level of sales and take prompt payment discounts
- maintain current and acid-test ratios at or above industry norms
- meet its cash obligations as they occur and support the proper level of sales
Q8 | If a company moves from a "conservative" working capital policy to an"aggressive" policy, it should expect __________.
- liquidity to decrease, whereas expected profitability would increase
- expected profitability to increase, whereas risk would decrease
- liquidity would increase, whereas risk would also increase
- risk and profitability to decrease
Q9 | To financial analysts, "net working capital" means the same thing as __________.
- total assets
- fixed assets
- current assets
- current assets minus current liabilities.
Q10 | Working Capital Turnover measures the relationship of Working Capital with:
- fixed assets,
- sales,
- purchases,
- stock.
Q11 | Dividend Payout Ratio is:
- pat capital,
- dps ÷ eps,
- pref. dividend ÷ pat,
- pref. dividend ÷ equity dividend.
Q12 | Inventory Turnover measures the relationship of inventory with:
- average sales,
- cost of goods sold,
- total purchases,
- total assets.
Q13 | The term 'EVA' is used for:
- extra value analysis,
- economic value added,
- expected value analysis,
- engineering value analysis.
Q14 | In Current Ratio, Current Assets are compared with:
- current profit,
- current liabilities,
- fixed assets,
- equity share capital.
Q15 | There is deterioration in the management of working capital of XYZ Ltd. Whatdoes it refer to?
- that the capital employed has reduced,
- that the profitability has gone up,
- that debtors collection period has increased,
- that sales has decreased.
Q16 | Which of the following statements is correct?
- a higher receivable turnover is not desirable,
- interest coverage ratio depends upon tax rate,
- increase in net profit ratio means increase in sales,
- lower debt-equity ratio means lower financial risk.
Q17 | Debt to Total Assets of a firm is .2. The Debt to Equity boo would be:
- 0.80,
- 0.25,
- 1.00,
- 0.75
Q18 | In Inventory Turnover calculation, what is taken in the numerator?
- sales,
- cost of goods sold,
- opening stock,
- closing stock.
Q19 | Walter’s Model suggests that a firm can always increase i.e. of the share by
- increasing dividend ,
- decreasing dividend,
- constant dividend,
- none of the above
Q20 | ‘Bird in hand' argument is given by
- walker's model,
- gordon's model,
- mm mode,
- residuals theory
Q21 | Residuals Theory argues that dividend is a
- relevant decision ,
- active decision,
- passive decision,
- irrelevant decision
Q22 | Dividend irrelevance argument of MM Model is based on:
- issue of debentures,
- issue of bonus share,
- arbitrage ,
- hedging
Q23 | Which of the following is not true for MM Model?
- share price goes up if dividend is paid
- share price goes down if dividend is not paid,
- market value is unaffected by dividend policy,
- all of the above.
Q24 | Which of the following stresses on investor's preference reorient dividend thanhigher future capital gains ?
- walter's model,
- residuals theory,
- gordon's model,
- mm model.
Q25 | MM Model of Dividend irrelevance uses arbitrage between
- dividend and bonus,
- dividend and capital issue,
- profit and investment,
- none of the above