Question 1

Which one of these actions will increase the operating cycle? Assume all else held constant.

Accepted Answer

A)  Decreasing the payables period 
B)  Decreasing the receivables turnover rate 
C)  Increasing the payables period 
D)  Decreasing the average inventory level 
E)  Increasing the inventory turnover rate 
A)  Decreasing the payables period 
B)  Decreasing the receivables turnover rate 
C)  Increasing the payables period 
D)  Decreasing the average inventory level 
E)  Increasing the inventory turnover rate

Question 2

Which one of the following actions represents a source of cash?

Accepted Answer

A)  Granting credit to a customer 
B)  Purchasing new machinery 
C)  Making a payment on a bank loan 
D)  Purchasing inventory 
E)  Accepting credit from a supplier 
A)  Granting credit to a customer 
B)  Purchasing new machinery 
C)  Making a payment on a bank loan 
D)  Purchasing inventory 
E)  Accepting credit from a supplier

Question 3

Costs that decrease as a company acquires additional current assets are called ________ costs.

Accepted Answer

A)  carrying 
B)  shortage 
C)  debt 
D)  equity 
E)  payables 
A)  carrying 
B)  shortage 
C)  debt 
D)  equity 
E)  payables

Question 4

Which one of the following managers determines which customers must pay cash and which can charge their purchases?

Accepted Answer

A)  Purchasing manager 
B)  Credit manager 
C)  Controller 
D)  Production manager 
E)  Payables manager 
A)  Purchasing manager 
B)  Credit manager 
C)  Controller 
D)  Production manager 
E)  Payables manager

Question 5

Which one of the following actions will tend to increase the accounts receivable period from its current 14 days?

Accepted Answer

A)  Tightening the standards for granting credit to customers 
B)  Refusing to grant additional credit to any customer who pays late 
C)  Increasing the finance charges applied to all customer balances outstanding over 30 days 
D)  Granting discounts for cash sales 
E)  Eliminating the discount for early payment by credit customers 
A)  Tightening the standards for granting credit to customers 
B)  Refusing to grant additional credit to any customer who pays late 
C)  Increasing the finance charges applied to all customer balances outstanding over 30 days 
D)  Granting discounts for cash sales 
E)  Eliminating the discount for early payment by credit customers

Question 6

A firm with a flexible short-term financial policy will:

Accepted Answer

A)  maintain a low balance in accounts receivables. 
B)  only have minimal amounts, if any, invested in marketable securities. 
C)  invest heavily in inventory. 
D)  have low cash balances. 
E)  have tight restrictions on granting credit to customers. 
A)  maintain a low balance in accounts receivables. 
B)  only have minimal amounts, if any, invested in marketable securities. 
C)  invest heavily in inventory. 
D)  have low cash balances. 
E)  have tight restrictions on granting credit to customers.

Question 7

AC Corporation has beginning inventory of $11,062, accounts payable of $8,010, and accounts receivable of $7,844. The end of year values are $11,362 for inventory, $7,898 for accounts payable, and $8,029 for accounts receivable. Net sales are $109,100 and costs of goods sold are $56,220. How many days are in the cash cycle?

Accepted Answer

A)  47.7 days 
B)  80.2 days 
C)  55.8 days 
D)  97.9 days 
E)  67.8 days 
A)  47.7 days 
B)  80.2 days 
C)  55.8 days 
D)  97.9 days 
E)  67.8 days

Question 8

S&S Sporting Goods has expected sales of $970, $910, $840, and $920 for the months of January through April, respectively. The accounts receivable period is 33 days. What is the accounts receivable balance at the end of February? Assume each month has 30 days.

Accepted Answer

A)  $1,007 
B)  $989 
C)  $1,102 
D)  $910 
E)  $1,068 
A)  $1,007 
B)  $989 
C)  $1,102 
D)  $910 
E)  $1,068

Question 9

The Lumber Mart recently replaced its management team. As a result, they are implementing a restrictive short-term financial policy in place of the flexible policy under which they had been operating. Which one of the following should the employees expect as a result of this policy change?

Accepted Answer

A)  Increasing monthly sales as compared to the prior year 
B)  Greater inventory selection 
C)  Fewer out-of-stock occurrences 
D)  Loss of credit customers 
E)  More liberal credit terms 
A)  Increasing monthly sales as compared to the prior year 
B)  Greater inventory selection 
C)  Fewer out-of-stock occurrences 
D)  Loss of credit customers 
E)  More liberal credit terms

Question 10

Which one of the following statements is correct concerning a company's cash balance?

Accepted Answer

A)  Most firms attempt to maintain a zero cash balance at all times. 
B)  The cumulative cash surplus shown on a cash budget is equal to the ending cash balance plus the minimum desired cash balance. 
C)  On a cash balance report, the cumulative cash surplus at the end of May is used as June's beginning cash balance. 
D)  A cumulative cash deficit indicates a borrowing need. 
E)  The ending cash balance must equal the minimum desired cash balance. 
A)  Most firms attempt to maintain a zero cash balance at all times. 
B)  The cumulative cash surplus shown on a cash budget is equal to the ending cash balance plus the minimum desired cash balance. 
C)  On a cash balance report, the cumulative cash surplus at the end of May is used as June's beginning cash balance. 
D)  A cumulative cash deficit indicates a borrowing need. 
E)  The ending cash balance must equal the minimum desired cash balance.

Question 11

Which type of arrangement is a hardware store most apt to use to finance its inventory?

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 12

Rossiter's currently has a cash cycle of 43.4 days. Assume the operations are changed such that the receivables period decreases by 2.6 days, the inventory period by increases by 1.3 days, and the payables period increases by 3.4 days. What will be the length of the cash cycle after these changes?

Accepted Answer

A)  39.2 days 
B)  45.5 days 
C)  38.7 days 
D)  41.3 days 
E)  48.1 days 
A)  39.2 days 
B)  45.5 days 
C)  38.7 days 
D)  41.3 days 
E)  48.1 days

Question 13

Metal Designs historically produced products for inventory. Now, they only produce a product when an actual order is received from a customer. All else equal, this change will:

Accepted Answer

A)  increase the operating cycle. 
B)  lengthen the accounts receivable period. 
C)  shorten the accounts payable period. 
D)  decrease the cash cycle. 
E)  decrease the inventory turnover rate. 
A)  increase the operating cycle. 
B)  lengthen the accounts receivable period. 
C)  shorten the accounts payable period. 
D)  decrease the cash cycle. 
E)  decrease the inventory turnover rate.

Question 14

The length of time between the day an item is purchased from a supplier until the day that supplier is paid for that purchase is called the:

Accepted Answer

A)  operating cycle. 
B)  inventory period. 
C)  accounts receivable period. 
D)  accounts payable period. 
E)  cash cycle. 
A)  operating cycle. 
B)  inventory period. 
C)  accounts receivable period. 
D)  accounts payable period. 
E)  cash cycle.

Question 15

A decrease in which one of the following will increase the cash cycle, all else held constant?

Accepted Answer

A)  Payables turnover 
B)  Days sales in inventory 
C)  Operating cycle 
D)  Inventory turnover rate 
E)  Accounts receivable period 
A)  Payables turnover 
B)  Days sales in inventory 
C)  Operating cycle 
D)  Inventory turnover rate 
E)  Accounts receivable period

Question 16

Your bank offers you a line of credit of $35,000 with an interest rate of 1.95 percent per quarter. The loan agreement also requires that 2 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Your short-term investments are paying .17 percent per month. What is your effective annual interest rate on this arrangement if you do not borrow any money during the year? Assume any funds borrowed or invested use compound interest.

Accepted Answer

A)  8.19 percent 
B)  2.06 percent 
C)  2.18 percent 
D)  8.03 percent 
E)  8.11 percent 
A)  8.19 percent 
B)  2.06 percent 
C)  2.18 percent 
D)  8.03 percent 
E)  8.11 percent

Question 17

Mid-Western Markets has sales of $1,389,400 and costs of goods sold of $892,700. Beginning inventory is $94,300 and ending inventory is $110,200. What is the inventory turnover rate?

Accepted Answer

A)  8.73 times 
B)  10.78 times 
C)  13.59 times 
D)  11.37 times 
E)  12.64 times 
A)  8.73 times 
B)  10.78 times 
C)  13.59 times 
D)  11.37 times 
E)  12.64 times

Question 18

As of the beginning of the quarter, Callahan's had a cash balance of $710. During the quarter, the company collected $1,860 from customers and paid suppliers $1,520. The company also paid a loan payment of $320 and a tax payment of $510. What is Callahan's cash balance at the end of the quarter?

Accepted Answer

A)  $110 
B)  $290 
C)  $220 
D)  $150 
E)  $90 
A)  $110 
B)  $290 
C)  $220 
D)  $150 
E)  $90

Question 19

DM Electronics has projected sales of $1,700, $1,900, $2,400, and $4,200 for Quarters 1 to 4, respectively. Sales in the following year are projected to be 4 percent greater in each quarter. Assume purchases during each quarter equal 48 percent of projected sales for the following quarter. How much will be paid to suppliers in Quarter 2 if its accounts payable period is 30 days?

Accepted Answer

A)  $1,146 
B)  $1,108 
C)  $1,072 
D)  $1,251 
E)  $984 
A)  $1,146 
B)  $1,108 
C)  $1,072 
D)  $1,251 
E)  $984

Question 20

Wake-Up Coffee has projected next year's quarterly sales at $960, $890, $980, and $1,050 for Quarters 1 to 4, respectively. Accounts receivable at the beginning of the year are $212 and the collection period is 18 days. What is the amount of the accounts receivable balance at the end of Quarter 2? Assume a year has 360 days.

Accepted Answer

A)  $212 
B)  $207 
C)  $178 
D)  $184 
E)  $167 
A)  $212 
B)  $207 
C)  $178 
D)  $184 
E)  $167

Exam 18: Short Term Finance and Planning

Which one of these actions will increase the operating cycle? Assume all else held constant.

Which one of the following actions represents a source of cash?

Costs that decrease as a company acquires additional current assets are called ________ costs.

Which one of the following managers determines which customers must pay cash and which can charge their purchases?

Which one of the following actions will tend to increase the accounts receivable period from its current 14 days?

A firm with a flexible short-term financial policy will:

S&S Sporting Goods has expected sales of $970, $910, $840, and $920 for the months of January through April, respectively. The accounts receivable period is 33 days. What is the accounts receivable balance at the end of February? Assume each month has 30 days.

The Lumber Mart recently replaced its management team. As a result, they are implementing a restrictive short-term financial policy in place of the flexible policy under which they had been operating. Which one of the following should the employees expect as a result of this policy change?

Which one of the following statements is correct concerning a company's cash balance?

Which type of arrangement is a hardware store most apt to use to finance its inventory?

Rossiter's currently has a cash cycle of 43.4 days. Assume the operations are changed such that the receivables period decreases by 2.6 days, the inventory period by increases by 1.3 days, and the payables period increases by 3.4 days. What will be the length of the cash cycle after these changes?

Metal Designs historically produced products for inventory. Now, they only produce a product when an actual order is received from a customer. All else equal, this change will:

The length of time between the day an item is purchased from a supplier until the day that supplier is paid for that purchase is called the:

A decrease in which one of the following will increase the cash cycle, all else held constant?

Mid-Western Markets has sales of $1,389,400 and costs of goods sold of $892,700. Beginning inventory is $94,300 and ending inventory is $110,200. What is the inventory turnover rate?

As of the beginning of the quarter, Callahan's had a cash balance of $710. During the quarter, the company collected $1,860 from customers and paid suppliers $1,520. The company also paid a loan payment of $320 and a tax payment of $510. What is Callahan's cash balance at the end of the quarter?

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

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