Exam 20: Short-Term Financial Planning

Ignoring defaults, what is the approximate effective cost of factoring if receivables are sold at a 4% discount and the average collection period is 2 months?

A firm can reduce the cash conversion cycle by selling fewer goods on credit.

A firm has borrowed $1 million and assigned its receivables to the lender.Because of defaults, the receivables prove insufficient to cover the debt.In this case, the:

Which of the following would act to reduce the carrying costs of inventory?

The text suggests that, of the three financing strategies shown, the relaxed strategy is probably the worst from the standpoint of managerial evaluation.Why is this thought to be the case, and when may it be an acceptable practice?

Ignoring the risk of theft, cash balances cannot spoil, yet managers are concerned with carrying costs.Why?

What is the length of the cash conversion cycle for a firm with $50,000 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 no change in its net working capital.

Your accountant suspects a mistake in the computation of the payables period, which has been reported at 54.75 days.Calculate the correct payables period, given the following: annual sales = $1,200,000, annual cost of goods sold = $700,000, average accounts payable = $105,000.

Bank lines of credit must be judiciously requested because the lines often:

What is the inventory period for a firm with an annual cost of goods sold of $8 million, $1.5 million in average inventory, and a cash conversion cycle of 75 days?

What motivation is provided for managers not to follow the relaxed strategy of long- versus short-term financing?

Which of the following would not be included in a cash budget?

Select the best loan terms from the banks below.The firm needs to obtain $500,000 in cash: Bank A: 10% stated rate, 20% compensating balance that earns no interest. Bank B: 12.5% stated rate, no compensating balance. Bank C: 11% stated rate, 15% compensating balance that earns 2.5% interest.

Firms that continually invest in non-trivial amounts of marketable securities may be guilty of:

Issuing additional long-term debt of $5 million and buying new long-term assets worth $5 million will result in a net cash flow of:

Which of the following statements is correct concerning marketable securities on a firm's balance sheet?

When the length of the financing is directly related to the life of the asset being financed, the firm is said to follow a:

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 quarterly?

Which of the following situations should provide managers with the most comfort if accounts receivable balances are increasing each quarter?