Exam 16: Short-Term Financial Planning

Kacie's has an average collection period of 23 days and factors all receivables immediately at a discount of .95percent.What is the effective cost of borrowing? Assume that default is extremely unlikely.

Midwest Candles has estimated quarterly sales for next year, starting with Quarter 1, of $50.020, $54,619, $105,403, and $46,510.The accounts receivable period is 15 days.What is the expected accounts receivable balance at the end of the second quarter? Assume each month has 30 days.

The Appliance Giant has annual credit sales of $2,846,334 and cost of goods sold of $2,112,882.The average accounts receivable balance is $47,280.How many days on average does it take the firm to collect its accounts receivable?

The cash cycle is equal to the:

Consider the following financial statement information: Assume all sales and purchases are on credit.How long is the cash cycle? (Use average balance sheet account balances.)

Tri-City Grocers is a chain of grocery stores that just hired a new CFO.Which of the following actions would you expect this CFO to adopt given her statement that she wants to implement a more flexible financing policy for the firm? I.Easing the credit terms given to customers II.Increasing the amount of inventory carried by each grocery store III.Borrowing funds to keep more cash available for store operations IV.Decreasing the firms' investments in marketable securities

Dexter Companies has a conventional factoring arrangement with its local bank.Which of these would be a common characteristic of that type of financing arrangement?

P&M Industries has projected quarterly sales for the coming year, starting with Quarter 1, of $6,200, $6,500, $6,300, and $6,700, respectively.Sales in the year following this one are projected to be 4 percent greater in each quarter.Assume the company places orders during each quarter equal to 74 percent of projected sales for the next quarter.How much will the firm pay its suppliers in Q3 if the firm has a 30-day payables period?

Alderson Metals is compiling a cash balance projection by quarter for next year.Which one of the following adjustments to this projection will decrease the cumulative surplus?

The operating cycle:

Palm Beach Yachts has a line of credit with a local bank that permits it to borrow up to $1.8 million at any time.The interest rate is .78 percent per month.The bank charges compound interest and also requires that 5 percent of the amount borrowed be deposited into a non-interest-bearing account.What is the effective annual interest rate on this loan?

Here are some important figures from the budget of Global Enterprises for the second quarter: The company predicts that 2 percent of its credit sales will never be collected, 45 percent of its sales will be collected in the month of sale, and the remaining 53 percent will be collected in the following month.Credit purchases will be paid in the month following the purchase.March credit sales were $487,900 and credit purchases were $349,500.What is the ending cash balance for April if the beginning cash balance was $39,500?

Which one of the following is directly related to increases in a firm's current assets?

H&H Companies has an average collection period of 43 days and factors all of its receivables immediately at a discount of 1.1 percent.Assume all accounts are collected in full.What is the firm's effective cost of borrowing?

Juno's has projected its Q1 sales at $46,000 and its Q2 sales at $48,000.Purchases equal 71 percent of the next quarter's sales.The accounts receivable period is 30 days and the accounts payable period is 45 days.At the beginning of Q1, the accounts receivable balance is $12,200 and the accounts payable balance is $14,800.The firm pays $1,500 a month in cash expenses and $400 a month in taxes.At the beginning Q1, the cash balance is $280 and the short-term loan balance is zero.The firm maintains a minimum cash balance of $250.Assume each month has 30 days.What is the cumulative cash surplus (deficit) at the end of the Q1, prior to any short-term borrowing?

Generally speaking, which of the following situations will occur if a seasonal company adopts a compromise financial policy? I.Periods where short-term financing is required II.Less long-term debt than if the firm followed a restrictive financial policy III.Periods of excess funds which can be invested in short-term marketable securities IV.Lower investment in fixed assets than if the firm adopted a flexible financial policy

The operating cycle is equal to the:

You've worked out a line of credit arrangement that allows you to borrow up to $2.1 million at any time.The interest rate is .72 percent per month.In addition, 3 percent of the amount you borrow must be deposited in a non-interest-bearing account.Assume your lender uses compound interest and that you need $1.3 million today which you will repay in five months.How much interest will you pay?

To ensure an unsecured line of credit is used solely for short-term purposes, the loan arrangement frequently includes which one of the following?

Which of these best describes a line of credit?