Question

(Bold or colour in your choice)

1)Which one of the following concerning a conservative financing strategy is correct?

      a. Short-term funds are used to a great extent.

      b. . Only non-spontaneous debt financing is used

      c. Long-term funds are only used to finance long-term needs.

      d. It is a relatively expensive strategy

     

2) A firm can manage its cash conversion cycle by …

      a. accelerating the collection of accounts receivable

      b. stretching accounts payable

      c. efficient inventory and production management

      d. all of the above

     

3)Credit is granted to customers in order to …

      a. ensure their loyalty

      b. increase the sales of the firm

      c. add value to the firm

      d. all of the above

     

4)If the firm’s cash discount period is decreased or cancelled, the sales volume can be expected to — the bad debt expenses can be expected to —, and the profit per unit can be expected to —

      a. increase; decrease; decrease

      b. increase; increase; decrease

      c. decrease; decrease; increase

      d. decrease; increase; increase

      e. none of the above

5)Which one of the following statements regarding inventory valuation is correct?

      a. During periods of inflation, first-in first-out (FIFO) leads to an overstatement of cost of sales and an understatement of gross profit.

      b. During periods of inflation, first-in first-out (FIFO) leads to an understatement of cost of sales and an overstatement of gross profit.

      c. During periods of inflation, last-in first-out (LIFO) leads to an understatement of cost of sales and an overstatement of gross profit.

      d. During periods of inflation, last-in first-out (LIFO) leads to an overstatement of cost of sales and an understatement of gross profit

      e. During periods of inflation, last-in first-out (LIFO) leads to an understatement of cost of sales and an understatement of gross profit.

6)Capital budgeting is the process used to determine the …

      a. feasibility of long-term investments consistent with owner wealth maximisation by applying the time value of money concept

      b. minimum rate of return a firm must earn in order to maintain its market value

      c. incremental, operating net cash flows associated with long-term investments of the firm

      d. profitability, liquidity and solvency of the firm

      e. difference between the cash flows of two mutually exclusive projects

7)Which one of the following is not an example of a capital expenditure motive?

      a. UWC has to decide between the Sharp EL733 or the HP12-C financial calculator for one of their lecturers.

      b. SAA is considering the replacement of three Boeing 747s.

      c. First National is evaluating the start-up of a new branch

      d. KPMG is considering upgrading its personal computers.

      e. H&RC has to consider the benefits of using management consultants to revise its business plans.

8) Naspers Ltd will purchase equipment worth R1 500 000. Installation costs will amount to R100 000. Depreciation will be written off over a 5-year period using the straight line method. If the maximum acceptable payback period is 2 years, what will the required

      profit per annum have to be?

      a. R480 000

      b. R320 000

      c. R750 000

      d. R800 000

      e. R850 000

9) Cargo Ventures has evaluated an investment in cargo containers. The NPV = 0 and the IRR = 12%. Which of the following is correct?

      a. If Cargo Ventures can earn a 16% return on a Syfrets investment, then the firm should not invest in containers.

      b. If Cargo Ventures can earn a 16% return on a Syfrets investment, then the firm should invest in containers.

      c. The cost of capital of Cargo Ventures is 12%.

4. a and b above

      e. a and c above

Answer 1

1. Use of non spontaneous debt financing means that some kind of long term debt financing which will be used for funding of all short term asset and it will be a kind of conservative strategy because the firm would be wanting to to stay safer in the long run by avoiding liquidity crisis.

Funding of short term liabilities with the short term capital, and long term liabilities with the long term capital are always an example with non conservative strategy and it is non conservative strategy which is expensive in nature.

Correct answer is option (B) only non spontaneous debt financing is used .