Question 1

The goal of managing working capital, such as inventory, should be to minimize the:

Accepted Answer

A) costs of carrying inventory 
B) opportunity cost of capital 
C) aggregate of carrying and shortage costs 
D) amount of spoilage or pilferage 
A) costs of carrying inventory 
B) opportunity cost of capital 
C) aggregate of carrying and shortage costs 
D) amount of spoilage or pilferage

Question 2

How does the firm's sources and uses of cash relate to its need for short-term borrowing?

Accepted Answer

The starting point for short-term financ

Question 3

A firm's inventory and accounts payable periods are 80 and 42 days respectively.How long can the firm's receivables period be in order to have no longer than a 65 day cash conversion cycle?

Accepted Answer

A) 27 days 
B) 38 days 
C) 57 days 
D) 103 days 
A) 27 days 
B) 38 days 
C) 57 days 
D) 103 days

Question 4

Optimizing cash balances involves the equating of:

Accepted Answer

A) total benefits and total opportunity costs 
B) average benefits and average opportunity costs 
C) accounts receivable and accounts payable 
D) marginal benefits and marginal opportunity costs 
A) total benefits and total opportunity costs 
B) average benefits and average opportunity costs 
C) accounts receivable and accounts payable 
D) marginal benefits and marginal opportunity costs

Question 5

Which of the following is correct for a firm that reduces its accounts receivable balance from the previous quarter?

Accepted Answer

A) collections exceeded beginning receivables balance 
B) sales exceeded collections 
C) beginning receivables balance exceeded sales 
D) collections exceeded sales 
A) collections exceeded beginning receivables balance 
B) sales exceeded collections 
C) beginning receivables balance exceeded sales 
D) collections exceeded sales

Question 6

Net working capital will decrease when a firm buys raw materials on credit.

Accepted Answer

A) True 
 B)False

Question 7

If managers could automatically change each term in the equation of the cash conversion cycle, which of the following would be expected to provide the most benefit?

Accepted Answer

A) decrease numerator of each term by 10% 
B) decrease denominator of each term by 10% 
C) increase numerator of each term by 10% 
D) increase denominator of each term by 10% 
A) decrease numerator of each term by 10% 
B) decrease denominator of each term by 10% 
C) increase numerator of each term by 10% 
D) increase denominator of each term by 10%

Question 8

What is the length of the cash conversion cycle for a firm with $55,000 in average inventory, $60,000 in average receivables, $30,000 in average payables, annual sales of $700,000, and a cost of goods sold of 75%?

Accepted Answer

Cash conversion cycl

Question 9

Company that pays $5,000 previously owed to one of its suppliers will see a $5,000 decrease in cash.

Accepted Answer

A) True 
 B)False

Question 10

How does long-term financing policy affect short-term financing requirements?

Accepted Answer

The nature of the firm's short-term fina

Question 11

When product demand is high, firms following a "middle of the road policy" for long- versus short-term financing will:

Accepted Answer

A) borrow short-term 
B) borrow long-term 
C) hold marketable securities 
D) sell marketable securities 
A) borrow short-term 
B) borrow long-term 
C) hold marketable securities 
D) sell marketable securities

Question 12

With a line of credit, a firm can borrow and repay whenever it wants so long as the balance does not exceed the credit limit.

Accepted Answer

A) True 
 B)False

Question 13

The factoring firm, under the terms recourse, bears responsibility for default on accounts receivable purchased from a firm.

Accepted Answer

A) True 
 B)False

Question 14

A firm borrows $100,000 from the bank, but has to maintain a compensating balance of $20,000 with the bank.The annual interest rate for the loan is 12%.What is the effective annual rate if the interest is compounded semi-annually?

Accepted Answer

A) 12.03% 
B) 13.00% 
C) 14.05% 
D) 15.56% 
A) 12.03% 
B) 13.00% 
C) 14.05% 
D) 15.56%

Question 15

Describe a firm's cash conversion cycle and its uses.

Accepted Answer

The cash conversion cycle is measured by

Question 16

Customers may change firms when faced with minimal inventory selection.Sales lost in this manner illustrate the:

Accepted Answer

A) costs of carrying inventory 
B) lack of customer loyalty 
C) need to maintain a high current ratio 
D) impact of shortage costs 
A) costs of carrying inventory 
B) lack of customer loyalty 
C) need to maintain a high current ratio 
D) impact of shortage costs

Question 17

When accounts payable exceed the sum of inventory and accounts receivable, net working capital is negative.

Accepted Answer

A) True 
 B)False

Question 18

What is the annual cost of goods for a firm, with accounts payable period of 35 days and average accounts payable of $600,000.

Accepted Answer

A) $5,753,425 
B) $6,171,429 
C) $6,257,143 
D) $17,142,857 
A) $5,753,425 
B) $6,171,429 
C) $6,257,143 
D) $17,142,857

Question 19

A firm's permanent working capital refers to the:

Accepted Answer

A) difference between current assets and current liabilities 
B) minimum difference between current assets and current liabilities 
C) portion of net working capital that is financed from long-term sources 
D) amounts that must be held to meet debt covenants 
A) difference between current assets and current liabilities 
B) minimum difference between current assets and current liabilities 
C) portion of net working capital that is financed from long-term sources 
D) amounts that must be held to meet debt covenants

Question 20

The following information is for the month of January. $$\begin{array} { | l | l | c | } 
\hline \text { (I.) } & \text { Beginning accounts receivable } & = \$ 40 \text { million } \
\hline \text { (II) } & \text { Sales for January } & = \$ 160 \text { million } \
\hline \text { (III) } & \text { Collection for January } & = \$ 145 \text { million } \
\hline
\end{array}$$ Find the ending accounts receivable for January.

Accepted Answer

A) $25 million 
B) $55 million 
C) $75 million 
D) $265 million 
A) $25 million 
B) $55 million 
C) $75 million 
D) $265 million

Exam 20: Short-Term Financial Planning

The goal of managing working capital, such as inventory, should be to minimize the:

How does the firm's sources and uses of cash relate to its need for short-term borrowing?

A firm's inventory and accounts payable periods are 80 and 42 days respectively.How long can the firm's receivables period be in order to have no longer than a 65 day cash conversion cycle?

Optimizing cash balances involves the equating of:

Which of the following is correct for a firm that reduces its accounts receivable balance from the previous quarter?

Net working capital will decrease when a firm buys raw materials on credit.

If managers could automatically change each term in the equation of the cash conversion cycle, which of the following would be expected to provide the most benefit?

What is the length of the cash conversion cycle for a firm with $55,000 in average inventory, $60,000 in average receivables, $30,000 in average payables, annual sales of $700,000, and a cost of goods sold of 75%?

Company that pays $5,000 previously owed to one of its suppliers will see a $5,000 decrease in cash.

How does long-term financing policy affect short-term financing requirements?

When product demand is high, firms following a "middle of the road policy" for long- versus short-term financing will:

With a line of credit, a firm can borrow and repay whenever it wants so long as the balance does not exceed the credit limit.

The factoring firm, under the terms recourse, bears responsibility for default on accounts receivable purchased from a firm.

A firm borrows $100,000 from the bank, but has to maintain a compensating balance of $20,000 with the bank.The annual interest rate for the loan is 12%.What is the effective annual rate if the interest is compounded semi-annually?

Describe a firm's cash conversion cycle and its uses.

Customers may change firms when faced with minimal inventory selection.Sales lost in this manner illustrate the:

When accounts payable exceed the sum of inventory and accounts receivable, net working capital is negative.

What is the annual cost of goods for a firm, with accounts payable period of 35 days and average accounts payable of $600,000.

A firm's permanent working capital refers to the:

The following information is for the month of January. (I.) Beginning accounts receivable =\ 40 million (II) Sales for January =\ 160 million (III) Collection for January =\ 145 million Find the ending accounts receivable for January.

Goals and Governance of the Firm

Financial Markets and Institutions

Accounting and Finance

Measuring Corporate Performance

The Time Value of Money

Valuing Bonds

Valuing Stocks

Net Present Value and Other Investment Criteria

Using Discounted Cash Flow Analysis to Make Investment Decisions

Project Analysis

Introduction to Risk, Return, and the Opportunity Cost of Capital

Risk, Return, and Capital Budgeting

The Weighted-Average Cost of Capital and Company Valuation

Introduction to Corporate Financing and Governance

Venture Capital, Ipos, and Seasoned Offerings

Debt Policy

Leasing

Payout Policy

Long-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

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