Managerial Finance – Final Exam Study Guide and
Practice Questions
Delaying the payment of accounts payable in order to improve cash management is known as
________. - ANS✔✔ Stretching payables
________ are obligations of the U.S. Treasury with common maturities of 4 to 52 weeks and
that have a strong secondary market. - ANS✔✔ Treasury bills
________ are obligations of the U.S. Treasury with common maturities of one to ten years. -
ANS✔✔ Treasury notes
________ float is the time delay between when payment is placed in the mail and when it is
received. - ANS✔✔ Mail
Current liabilities can be viewed as ________. - ANS✔✔ debts that mature in a period of one
year or less
If a firm uses an aggressive financing strategy, ________. - ANS✔✔ it increases return and
increases risk
A firm has a cash conversion cycle of 120 days, an average collection period of 25 days, and an
average payment period of 50 days. The firm's average age of inventory is ________ days. -
ANS✔✔ 145
A firm has a cash conversion cycle of 80 days, an average collection period of 25 days, and an
average age of inventory of 70 days. Its operating cycle is ________ days. - ANS✔✔ 95
, The ________ is the time period that elapses from the point when a firm sells a finished good
on account to the point when the receivable is collected. - ANS✔✔ average collection period
As credit standards are tightened, sales are expected to ________ and the investment in
accounts receivable is expected to ________. - ANS✔✔ decrease; decrease
A financial lease is often referred as a capital lease. - ANS✔✔ True
A firm undertakes a merger in order to eliminate redundant functions or increase market share.
This is an example of ________. - ANS✔✔ strategic merger
The selling of some of a firm's assets is called ________. - ANS✔✔ divestiture
A white knight is a takeover defense in which a firm issues securities that give their holders
certain rights that become effective when a takeover is attempted and that make the target firm
less desirable to a hostile acquirer. - ANS✔✔ False
If an investor buys a 100-share call option for $300 with an exercise price of $30 and the
underlying price per share of the stock at expiration is $32, what is the amount of profit or loss,
ignoring brokerage fees? - ANS✔✔ There would be a loss of $100.
A financial merger is undertaken to ________. - ANS✔✔ improve raw material sourcing and
finished product distribution
increase profit margin to enhance the retained earnings of the merged firm
increase cash flows to service the debt incurred to finance the merger
LBOs are an example of a financial merger undertaken to create a high-debt private corporation
with improved cash flow and value. - ANS✔✔ True
Practice Questions
Delaying the payment of accounts payable in order to improve cash management is known as
________. - ANS✔✔ Stretching payables
________ are obligations of the U.S. Treasury with common maturities of 4 to 52 weeks and
that have a strong secondary market. - ANS✔✔ Treasury bills
________ are obligations of the U.S. Treasury with common maturities of one to ten years. -
ANS✔✔ Treasury notes
________ float is the time delay between when payment is placed in the mail and when it is
received. - ANS✔✔ Mail
Current liabilities can be viewed as ________. - ANS✔✔ debts that mature in a period of one
year or less
If a firm uses an aggressive financing strategy, ________. - ANS✔✔ it increases return and
increases risk
A firm has a cash conversion cycle of 120 days, an average collection period of 25 days, and an
average payment period of 50 days. The firm's average age of inventory is ________ days. -
ANS✔✔ 145
A firm has a cash conversion cycle of 80 days, an average collection period of 25 days, and an
average age of inventory of 70 days. Its operating cycle is ________ days. - ANS✔✔ 95
, The ________ is the time period that elapses from the point when a firm sells a finished good
on account to the point when the receivable is collected. - ANS✔✔ average collection period
As credit standards are tightened, sales are expected to ________ and the investment in
accounts receivable is expected to ________. - ANS✔✔ decrease; decrease
A financial lease is often referred as a capital lease. - ANS✔✔ True
A firm undertakes a merger in order to eliminate redundant functions or increase market share.
This is an example of ________. - ANS✔✔ strategic merger
The selling of some of a firm's assets is called ________. - ANS✔✔ divestiture
A white knight is a takeover defense in which a firm issues securities that give their holders
certain rights that become effective when a takeover is attempted and that make the target firm
less desirable to a hostile acquirer. - ANS✔✔ False
If an investor buys a 100-share call option for $300 with an exercise price of $30 and the
underlying price per share of the stock at expiration is $32, what is the amount of profit or loss,
ignoring brokerage fees? - ANS✔✔ There would be a loss of $100.
A financial merger is undertaken to ________. - ANS✔✔ improve raw material sourcing and
finished product distribution
increase profit margin to enhance the retained earnings of the merged firm
increase cash flows to service the debt incurred to finance the merger
LBOs are an example of a financial merger undertaken to create a high-debt private corporation
with improved cash flow and value. - ANS✔✔ True
