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When a firm finances each asset with a financial instrument of the same approximate maturity as the life of the asset, it is applying:
Working capital management matches the maturity life of each asset with the length of the financial instrument used to finance that asset.
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If a firm increases its cash balance by issuing additional shares of common stock, working capital:
An increase in cash balance by issuing more common stock would increase assets and equity, thus increasing working capital and current ratio.
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The main reason that a firm would strive to reduce the days sales in accounts receivable is to increase:
Reducing the A/R cycle increases cash collected and on hand.
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Which of the following would increase the working capital of a firm?
This answer would increase the working capital of a firm as the amount of this current liability is transferred to a long term liability.
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The working capital financing policy that subjects the firm to the greatest risk of being unable to meet the firm's maturing obligations is the policy that finances:
The working capital financing policy that finances permanent current assets with short term debt subjects the firm to the greatest risk of being unable to meet the firm's maturing obligations.
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Fewer days sales in accounts receivable are:
Reducing the number of days it takes to collect cash is ideal for a company, as long as it does not reduce the number of sales to customers. Customers may not like this shortened receivable policy.
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A financial institution is looking to assess its investment portfolio's exposure to price changes. Which of the following techniques would most likely be employed by the institution?
Price risk is the exposure that an investor has to a decline in the value of a portfolio or individual securities. Being able to understand the value at risk is an important step in managing price risk.
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Portfolio managers develop portfolios of different investments to combine, offset, and thereby reduce overall risk. However, not all risks can be eliminated by development of a portfolio. Risks that cannot be eliminated through diversification are called:
Risk that cannot be mitigated by diversification is known as systematic risk.
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Which of the following types of risk can be reduced by diversification?
This risk can be mitigated by diversification. This form of risk is also known as unsystematic risk.
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Managers who anticipate greater return for greater risk are referred to as having what attitude toward risk?
This behavior describes managers who demand more return on an investment as risk increases.
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If an investor's certainty equivalent is greater than the expected value of an investment alternative, the investor is said to be:
If an investor is seeking lower return for higher risk, he is risk seeking.
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The numerator for the inventory turnover formula is:
The inventory turnover ratio is used to determine how effectively an entity can manage its inventory. COGS is relevant to determine this.
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An audit committee members of an issuer is required under SOX 2002 to maintain which of the following attributes:
SOX 2002 states that members of the audit committee are to be members of the board of directors but otherwise independent. To be independent, the members may not accept compensation or be an affiliated person.
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Which of the following criteria is necessary to be an audit committee financial expert, specified in SOX 2002?
The issuer's audit committee's financial expert must have experience with internal controls. The may be through past experience or education.
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The Sarbanes-Oxley Act of 2002 seeks to improve investor confidence by allowing for greater transparency for all of the following issues except:
ERM concepts specifically address investor issues surrounding risk and growth however SOX 2002 focuses on less strategic operations and more on financial reporting issues including ethics.
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According to the Sarbanes-Oxley Act of 2002, a chief executive officer who misrepresents the company's finances may be penalized by being:
An individual who knowingly executes securities fraud will be both fined or imprisoned not more than 20 years or both.
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According to SOX 2002, anyone who knowingly alters, destroys, covers up, or makes false entry in a document with the intent to obstruct an investigation within any agency of the United States may be fined and/or imprisoned for up to:
The penalty for altering documents is punished up to 20 years.
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The SOX 2002 code of ethics for senior officers includes and promotes:
SOX 2002 does not involve or necessitate fair pay for members of a company. It promotes the ethical and legal promotion of business.
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When a firm finances each asset with a financial instrument of the same approximate maturity as the life of the asset, it is applying:
Working capital management matches the maturity life of each asset with the length of the financial instrument used to finance that asset.
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If a firm increases its cash balance by issuing additional shares of common stock, working capital:
An increase in cash balance by issuing more common stock would increase assets and equity, thus increasing working capital and current ratio.
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