Question 1

Costs that increase as a firm acquires additional current assets are called ________ costs.

Accepted Answer

A)  carrying 
B)  shortage 
C)  order 
D)  safety 
E)  trading 
A)  carrying 
B)  shortage 
C)  order 
D)  safety 
E)  trading

Question 2

Which one of these activities represents a source of cash?

Accepted Answer

A)  Increasing accounts receivable 
B)  Decreasing inventory 
C)  Increasing fixed assets 
D)  Decreasing accounts payable 
E)  Decreasing common stock 
A)  Increasing accounts receivable 
B)  Decreasing inventory 
C)  Increasing fixed assets 
D)  Decreasing accounts payable 
E)  Decreasing common stock

Question 3

On May 1, Jensen's had a beginning cash balance of $284. April sales were $810 and May sales were $960. During May, cash expenses were $360 and payments on accounts payable were $630. The accounts receivable period is 30 days. What is the beginning cash balance on June 1?

Accepted Answer

A)  $145 
B)  $254 
C)  $104 
D)  $183 
E)  $265 
A)  $145 
B)  $254 
C)  $104 
D)  $183 
E)  $265

Question 4

An orange grower is most apt to use which type of financing for its crop?

Accepted Answer

A)  Accounts receivable assignment 
B)  Blanket inventory lien 
C)  Trust receipt 
D)  Commercial paper 
E)  Field warehouse financing 
A)  Accounts receivable assignment 
B)  Blanket inventory lien 
C)  Trust receipt 
D)  Commercial paper 
E)  Field warehouse financing

Question 5

Juno Industrial Supply has a line of credit of $200,000 with an interest rate of 7.1 percent. The loan agreement requires a compensating balance of 3.3 percent of the total amount borrowed, which will be held in an interest-free account. What is the effective interest rate if the company requires $132,000 for operations for one year?

Accepted Answer

A)  7.27 percent 
B)  7.21 percent 
C)  7.38 percent 
D)  7.53 percent 
E)  7.34 percent 
A)  7.27 percent 
B)  7.21 percent 
C)  7.38 percent 
D)  7.53 percent 
E)  7.34 percent

Question 6

Meryl Enterprises currently has an operating cycle of 76.4 days. The company is implementing some operational changes that are expected to increase the accounts receivable period by 2.2 days, decrease the inventory period by 5.3 days, and increase the accounts payable period by 1.5 days. What is the new operating cycle expected to be?

Accepted Answer

A)  78.0 days 
B)  74.8 days 
C)  73.3 days 
D)  79.5 days 
E)  71.8 days 
A)  78.0 days 
B)  74.8 days 
C)  73.3 days 
D)  79.5 days 
E)  71.8 days

Question 7

A flexible short-term financial policy:

Accepted Answer

A)  increases the need for long-term financing. 
B)  minimizes net working capital. 
C)  avoids bad debts by only selling items for cash. 
D)  maximizes fixed assets and minimizes current assets. 
E)  is most appropriate when carrying costs are high and shortage costs are low. 
A)  increases the need for long-term financing. 
B)  minimizes net working capital. 
C)  avoids bad debts by only selling items for cash. 
D)  maximizes fixed assets and minimizes current assets. 
E)  is most appropriate when carrying costs are high and shortage costs are low.

Question 8

The Dog House expects sales of $770, $860, $950, and $960 for the months of May through August, respectively. The company collects 84 percent of sales in the month of sale, 13 percent in the month following the month of sale, and 1 percent in the second month following the month of sale. The remaining sales are never collected. How much money does the company expect to collect in the month of July?

Accepted Answer

A)  $918 
B)  $856 
C)  $876 
D)  $874 
E)  $943 
A)  $918 
B)  $856 
C)  $876 
D)  $874 
E)  $943

Question 9

The most common way to finance a temporary cash deficit is with a:

Accepted Answer

A)  long-term secured bank loan. 
B)  short-term secured bank loan. 
C)  short-term issue of corporate bonds. 
D)  long-term unsecured bank loan. 
E)  short-term unsecured bank loan. 
A)  long-term secured bank loan. 
B)  short-term secured bank loan. 
C)  short-term issue of corporate bonds. 
D)  long-term unsecured bank loan. 
E)  short-term unsecured bank loan.

Question 10

Which one of the following will decrease net working capital? Assume the current ratio is greater than 1.0.

Accepted Answer

A)  Selling inventory at cost 
B)  Collecting payment from a customer 
C)  Paying a dividend to shareholders 
D)  Selling a fixed asset for less than book value 
E)  Paying a supplier for prior purchases 
A)  Selling inventory at cost 
B)  Collecting payment from a customer 
C)  Paying a dividend to shareholders 
D)  Selling a fixed asset for less than book value 
E)  Paying a supplier for prior purchases

Question 11

Rose's Gift Shop borrows money on a short-term basis by pledging its inventory as collateral. This is an example of a(n):

Accepted Answer

A)  debenture. 
B)  line of credit. 
C)  banker's acceptance. 
D)  working loan. 
E)  inventory loan. 
A)  debenture. 
B)  line of credit. 
C)  banker's acceptance. 
D)  working loan. 
E)  inventory loan.

Question 12

Assume all else held constant. If you pay your suppliers three days sooner, then:

Accepted Answer

A)  your payables turnover rate will decrease. 
B)  you may require additional funds from other sources to fund the cash cycle. 
C)  the cash cycle will decrease. 
D)  your operating cycle will decrease. 
E)  the accounts receivable period will decrease. 
A)  your payables turnover rate will decrease. 
B)  you may require additional funds from other sources to fund the cash cycle. 
C)  the cash cycle will decrease. 
D)  your operating cycle will decrease. 
E)  the accounts receivable period will decrease.

Question 13

Timko has a 90-day collection period and produces seasonal merchandise. Sales are lowest during the first calendar quarter of a year and the highest during the third quarter. The company maintains a relatively steady level of production which means that its cash disbursements are fairly equal in all quarters. This company is most apt to face a cash-out situation in:

Accepted Answer

A)  the first quarter. 
B)  the second quarter. 
C)  the third quarter. 
D)  the fourth quarter. 
E)  any quarter with equal probabilities of occurrence. 
A)  the first quarter. 
B)  the second quarter. 
C)  the third quarter. 
D)  the fourth quarter. 
E)  any quarter with equal probabilities of occurrence.

Question 14

Which one of these statements is correct? Assume all else held constant.

Accepted Answer

A)  A decrease in the accounts receivable turnover rate decreases the cash cycle. 
B)  The cash cycle is equal to the operating cycle minus the inventory period. 
C)  A negative cash cycle is preferable to a positive cash cycle. 
D)  A decrease in the accounts payable period shortens the cash cycle. 
E)  The cash cycle plus the accounts receivable period is equal to the operating cycle. 
A)  A decrease in the accounts receivable turnover rate decreases the cash cycle. 
B)  The cash cycle is equal to the operating cycle minus the inventory period. 
C)  A negative cash cycle is preferable to a positive cash cycle. 
D)  A decrease in the accounts payable period shortens the cash cycle. 
E)  The cash cycle plus the accounts receivable period is equal to the operating cycle.

Question 15

Foods Galore has a line of credit of $325,000 with an interest rate of 1.85 percent per quarter. The credit line also requires that 2.5 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Food Galore's short-term investments are earning .48 percent per quarter. What is the effective annual interest rate on this arrangement if the line of credit goes unused all year? Assume any funds borrowed or invested use compound interest.

Accepted Answer

A)  7.61 percent 
B)  10.38 percent 
C)  1.93 percent 
D)  2.14 percent 
E)  3.47 percent 
A)  7.61 percent 
B)  10.38 percent 
C)  1.93 percent 
D)  2.14 percent 
E)  3.47 percent

Question 16

Craft Shack has a beginning cash balance for the quarter of $1,213. The store has a policy of maintaining a minimum cash balance of $1,000 and is willing to borrow funds as needed to maintain that balance. Currently, the firm has a loan balance of $410. How much will the store borrow or repay if the net cash flow for the quarter is −$260?

Accepted Answer

A)  Neither borrow nor repay 
B)  Repay $47 
C)  Repay $26 
D)  Borrow $47 
E)  Borrow $20 
A)  Neither borrow nor repay 
B)  Repay $47 
C)  Repay $26 
D)  Borrow $47 
E)  Borrow $20

Question 17

New Town Bank offers you a line of credit of $50,000 with an interest rate of 2.1 percent per quarter. The loan agreement also requires that 2.5 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Short-term investments are currently paying .68 percent per quarter. What is the effective annual interest rate on the line of credit if you borrow the entire amount for one year? Assume any funds borrowed or invested use compound interest.

Accepted Answer

A)  8.40 percent 
B)  8.89 percent 
C)  8.67 percent 
D)  8.51 percent 
E)  8.62 percent 
A)  8.40 percent 
B)  8.89 percent 
C)  8.67 percent 
D)  8.51 percent 
E)  8.62 percent

Question 18

Auto Detailers has a book net worth of $29,700. Long-term debt is $4,800. Net working capital, other than cash, is $3,700 and fixed assets are $27,400. How much cash does the company have?

Accepted Answer

A)  $3,900 
B)  $4,800 
C)  $4,300 
D)  $3,400 
E)  $3,700 
A)  $3,900 
B)  $4,800 
C)  $4,300 
D)  $3,400 
E)  $3,700

Question 19

An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?

Accepted Answer

A)  Bad debts 
B)  Accounts receivable turnover rate 
C)  Accounts receivable period 
D)  Credit sales 
E)  Operating cycle 
A)  Bad debts 
B)  Accounts receivable turnover rate 
C)  Accounts receivable period 
D)  Credit sales 
E)  Operating cycle

Question 20

A flexible short-term financial policy:

Accepted Answer

A)  maximizes cashouts. 
B)  increases shortage costs due to frequent cash-outs. 
C)  tends to decrease sales as compared to a restrictive policy. 
D)  incurs more carrying costs than a restrictive policy. 
E)  requires only a minimum investment in current assets. 
A)  maximizes cashouts. 
B)  increases shortage costs due to frequent cash-outs. 
C)  tends to decrease sales as compared to a restrictive policy. 
D)  incurs more carrying costs than a restrictive policy. 
E)  requires only a minimum investment in current assets.

Costs that increase as a firm acquires additional current assets are called ________ costs.

Which one of these activities represents a source of cash?

On May 1, Jensen's had a beginning cash balance of $284. April sales were $810 and May sales were $960. During May, cash expenses were $360 and payments on accounts payable were $630. The accounts receivable period is 30 days. What is the beginning cash balance on June 1?

An orange grower is most apt to use which type of financing for its crop?

A flexible short-term financial policy:

The most common way to finance a temporary cash deficit is with a:

Which one of the following will decrease net working capital? Assume the current ratio is greater than 1.0.

Rose's Gift Shop borrows money on a short-term basis by pledging its inventory as collateral. This is an example of a(n):

Assume all else held constant. If you pay your suppliers three days sooner, then:

Which one of these statements is correct? Assume all else held constant.

Auto Detailers has a book net worth of $29,700. Long-term debt is $4,800. Net working capital, other than cash, is $3,700 and fixed assets are $27,400. How much cash does the company have?

An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?

A flexible short-term financial policy:

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working with Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons from Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters

Exam 18: Short Term Finance and Planning

Costs that increase as a firm acquires additional current assets are called ________ costs.

Which one of these activities represents a source of cash?

On May 1, Jensen's had a beginning cash balance of $284. April sales were $810 and May sales were $960. During May, cash expenses were $360 and payments on accounts payable were $630. The accounts receivable period is 30 days. What is the beginning cash balance on June 1?

An orange grower is most apt to use which type of financing for its crop?

A flexible short-term financial policy:

The most common way to finance a temporary cash deficit is with a:

Which one of the following will decrease net working capital? Assume the current ratio is greater than 1.0.

Rose's Gift Shop borrows money on a short-term basis by pledging its inventory as collateral. This is an example of a(n):

Assume all else held constant. If you pay your suppliers three days sooner, then:

Which one of these statements is correct? Assume all else held constant.

Auto Detailers has a book net worth of $29,700. Long-term debt is $4,800. Net working capital, other than cash, is $3,700 and fixed assets are $27,400. How much cash does the company have?

An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?

A flexible short-term financial policy:

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working with Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons from Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters