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Unformatted text preview: ch27 Student: _______________________________________________________________________________________ Multiple Choice Questions 1. Financial managers broaden their definition of cash to include: A. currency, bank deposits, stocks and bonds. B. currency, checking deposits, undeposited checks, and bonds. C. cash, bonds, bank deposits and short-term marketable securities. D. currency, checking deposits, undeposited checks and short-term marketable securities. E. None of the above. 2. Examples of cash disbursements do not include: A. wages. B. payment for raw materials. C. taxes. D. dividends. E. sales of assets. 3. The Baumol model determines the optimal cash balance by: A. balancing total costs against opportunity costs. B. minimizing total costs of holding cash against trading securities costs. C. balancing trading securities costs against total costs. D. minimizing total costs less trading costs. E. None of the above. 4. Which of the following is not an important characteristic of short-term marketable securities? A. Maturity risk B. Marketability C. Taxability D. Default risk E. All of the above are important. 5. Marketability risk is synonymous with: A. maturity risk. B. default risk. C. liquidity risk. D. interest rate risk. E. None of the above. 6. Which of the following money-market securities has no active secondary market? A. Certificates of deposit (CD's) B. Commercial paper C. Banker's acceptances D. Treasury bills E. All money-market securities have active secondary markets. 7. If a firm has achieved its target cash balance the net present value is: A. positive because the cash balance is positive. B. zero because increasing the cash balance increases the interest cost. C. negative because the cash balance has a financing cost. D. positive because decreasing the cash decreases the cost of illiquidity. E. None of the above. 8. Determining the appropriate target cash balance involves assessing the trade-off between: A. income and diversification. B. the benefit and cost of liquidity. C. of balance sheet strength and transaction needs. D. All of the above. E. None of the above. 9. The target cash balance is reached when: A. the interest on any marketable security throw-off is maximized. B. the interest foregone from not investing in an equivalent amount of Treasury bills is minimized. C. the value of cash liquidity equals interest foregone on an equivalent amount of Treasury bills. D. the liquidity value is greater than interest foregone on an equivalent amount of Treasury bills. E. None of the above. 10. Firms would need to hold zero cash when transactions related needs are: A. greater than cash inflows. B. less than cash inflows. C. not perfectly synchronized with cash inflows....
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This note was uploaded on 12/21/2011 for the course NIKA 101 taught by Professor Temur during the Spring '11 term at Acton School of Business.
- Spring '11