Question 1

The use of cash budgeting procedures

Accepted Answer

Cash budgeting procedures can help in all of the mentioned ways – planning current asset levels, managing inventory under season production, and illustrating fluctuating levels of current assets for a given production plan.

Question 2

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

Accepted Answer

The theory described is the expectations hypothesis, which states that long-term interest rates are determined by the expected average of short-term rates over the same period, assuming that the bonds are free of default risk.

Question 3

When the term structure of interest rates is downward sloping and interest rates are expected to decline, the

Accepted Answer

The answer of When the term structure of interest rates...

Question 4

Which of the following is a true statement concerning interest rates?

Accepted Answer

The answer of Which of the following is a true...

Question 5

The term structure of interest rates

Accepted Answer

The answer of The term structure of interest rates
...

Question 6

The belief that investors require a higher return to entice them into holding long-term securities is the viewpoint of the

Accepted Answer

The liquidity premium theory states that investors demand a premium for holding long-term securities because they are less liquid than short-term securities. This premium reflects the fact that investors are taking on more risk by holding a security for a longer period of time, and therefore require a higher return to be compensated for that risk.

Question 7

Yield curves change daily to reflect

Accepted Answer

Yield curves are affected by various factors such as economic conditions, inflation expectations, and market conditions. Therefore, all of the given options are correct.

Question 8

An inverted yield curve would suggest that

Accepted Answer

An inverted yield curve is when long-term interest rates are lower than short-term interest rates. This suggests that investors expect interest rates to fall in the future, which would result in lower yields on long-term investments.

Question 9

Which of the following yield curves would be characteristic at peak periods of economic expansions?

Accepted Answer

The answer of Which of the following yield curves would...

Question 10

Retail companies like Sears and Chapters exhibit sales patterns that are mostly influenced by

Accepted Answer

The sales patterns of retail companies like Sears and Chapters are significantly influenced by seasonality. Seasonal patterns can affect sales, depending on the type of retailer and time of year. For example, seasonal sales such as back-to-school or holiday shopping can impact sales.

Question 11

Some analysts believe that the term structure of interest rates is determined by the behaviour of various types of financial institutions. This theory is called the

Accepted Answer

The segmentation theory posits that the term structure of interest rates is determined by the behavior of different types of financial institutions, such as banks, insurance companies, and pension funds, who have different preferences and requirements for maturities of bonds. This theory argues that interest rates are determined by supply and demand within each segment of the market, leading to different yield curves for different types of bonds.

Question 12

A conservatively financed firm would

Accepted Answer

A conservatively financed firm would rely primarily on long-term financing for its permanent assets and capital assets, as these are the most important and stable aspects of the business. However, some short-term financing may be used for a portion of the short-term fluctuating assets, such as inventory or accounts receivable. This approach balances the need for stability with the flexibility to react to changing market conditions. Choice A is too simplistic and does not consider the impact of short-term debt on long-term assets. Choice B is too risky and could lead to liquidity problems if short-term debt cannot be refinanced. Choice C is also too complex and may not reflect the true financial needs of the business.

Question 13

Publishing companies are characterized by

Accepted Answer

The answer of Publishing companies are characterized by
...

Question 14

The cash flow cycle has a major bearing on the firm's

Accepted Answer

The answer of The cash flow cycle has a major...

Question 15

The cash conversion cycle is equal to

Accepted Answer

The cash conversion cycle (CCC) is a metric that illustrates the amount of time it takes for a company to convert its investments in inventory and other resources into cash flow from sales. The formula for CCC is:
CCC = Inventory holding period + Average collection period - Accounts payable period
Inventory holding period is the amount of time that inventory sits on the shelves before being sold. Average collection period is the time period required for a company to collect the cash from the sale of products after delivery. Accounts payable period is the time period from the purchase of goods and services to payment to the supplier. Therefore, Option D, "inventory holding period plus the average collection period less the accounts payable period," is the correct answer.

Question 16

The concept of a self-liquidating asset implies that

Accepted Answer

Self-liquidating assets refer to those assets whose sale generates enough cash inflows to cover the cost of acquisition, production, or financing. In other words, the asset pays for itself over time. Thus, option B correctly describes the concept by stating that all the product will be sold, receivables collected, and bills paid over the time period specified. Option A is incorrect because the time period specified can vary, and there is no fixed time limit of one year. Option C is incorrect as it refers to a different concept of asset amortization. Option D is also incorrect because self-liquidating assets are typically financed by short-term sources of capital.

Question 17

The term structure of interest rates

Accepted Answer

All of the listed options are correct. The term structure of interest rates is often referred to as the yield curve and depicts the relative level of short and long-term interest rates. It is usually constructed with Government of Canada securities of varying maturities.

Question 18

The term structure of interest rates or the yield curve

Accepted Answer

The answer of The term structure of interest rates or...

Question 19

As the economy moves through a business cycle, which of the following term structure of interest rates theories dominate the shape of the yield curve?

Accepted Answer

The answer of As the economy moves through a business...

Question 20

Government of Canada securities are used to construct yield curves because

Accepted Answer

Government of Canada securities are considered to be risk-free, as they are not likely to default on their payments. Additionally, there are a wide range of maturities for these securities, making it possible to create a continuous yield curve that accurately reflects the prevailing interest rates in the economy.

Quiz 6: Working Capital and the Financing Decision

The use of cash budgeting procedures

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

When the term structure of interest rates is downward sloping and interest rates are expected to decline, the

Which of the following is a true statement concerning interest rates?

The term structure of interest rates

The belief that investors require a higher return to entice them into holding long-term securities is the viewpoint of the

Yield curves change daily to reflect

An inverted yield curve would suggest that

Which of the following yield curves would be characteristic at peak periods of economic expansions?

Retail companies like Sears and Chapters exhibit sales patterns that are mostly influenced by

Some analysts believe that the term structure of interest rates is determined by the behaviour of various types of financial institutions. This theory is called the

A conservatively financed firm would

Publishing companies are characterized by

The cash flow cycle has a major bearing on the firm's

The cash conversion cycle is equal to

The concept of a self-liquidating asset implies that

The term structure of interest rates

The term structure of interest rates or the yield curve

As the economy moves through a business cycle, which of the following term structure of interest rates theories dominate the shape of the yield curve?

Government of Canada securities are used to construct yield curves because