Exam 20: Short-Term Financial Planning

Firms are often known to pay commitment fees to banks for the privilege of receiving a line of credit.Does it make sense for a firm to pay for something that,at least at the present time,it does not know whether it will use?

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Question 1

Correct Answer:

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It may make perfect sense for managers to pay in advance for the comfort of knowing that they can obtain up to a certain amount of funds automatically.This would especially make sense if the firm currently practiced the "relaxed" strategy of long- and short-term funding.For this firm the fee may be less than the amount of the permanent interest expense.This practice can be equally effective for other funding strategies.Thus,if an explicit payment "up front" can reduce either explicit or implicit costs of later borrowing,the practice makes sense.Of course,another way of analyzing the fee is that it may be unavoidable,and therefore a moot point.

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

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Question 2

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Permanent working capital requirements can be financed using commercial paper.

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Question 3

Correct Answer:

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False

Which of the following is least likely to be correct for a firm that repeatedly stretches its payables?

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Question 4

A firm sells its $1,000,000 receivables to a factor for $960,000.Average collection period is one month.The effective annual rate is:

(Multiple Choice)

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Question 5

A credit card company charges its customers an annual interest of 21.0% on the outstanding monthly balance.The effective annual rate for the customer will be:

(Multiple Choice)

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Question 6

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?

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Question 7

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

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Question 8

Keeping a large surplus of cash and investing it in Treasury bills will bring positive NPV to a firm.

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Question 9

Calculate the effective rate of 12% compounded quarterly.

(Multiple Choice)

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Question 10

The time interval between paying for raw materials and collecting on sales of finished goods is known as the:

(Multiple Choice)

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Question 11

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

(Multiple Choice)

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Question 12

Optimizing cash balances involves the equating of:

(Multiple Choice)

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Question 13

If a firm decided to speed up its collection from its customers by reducing the receivables period and kept the inventory period and payable period the same,then:

(Multiple Choice)

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Question 14

During the year the following changes were observed. (I.)Inventory period increased by 12 days (II))Receivables period decreased by 6 days (III.)Accounts payable period increased by 4 days Find the net change in cash conversion cycle.

(Multiple Choice)

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Question 15

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 monthly?

(Multiple Choice)

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Question 16

What is the cash conversion cycle for a firm with a receivables period of 40 days,a payables period of 30 days,and an inventory period of 60 days?

(Multiple Choice)

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Question 17

A firm's inventory period can be estimated by the ratio of average inventory to daily output.

(True/False)

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Question 18

A firm that follows a "relaxed strategy" towards the total capital requirement will be a:

(Multiple Choice)

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Question 19

How would you develop a model to analyze the benefits and costs of stretching payables? Assume that cash discounts will be forgone and that short-term bank funds are usually available.

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Question 20

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Exam 20: Short-Term Financial Planning

Firms are often known to pay commitment fees to banks for the privilege of receiving a line of credit.Does it make sense for a firm to pay for something that,at least at the present time,it does not know whether it will use?

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

Permanent working capital requirements can be financed using commercial paper.

Which of the following is least likely to be correct for a firm that repeatedly stretches its payables?

A firm sells its $1,000,000 receivables to a factor for $960,000.Average collection period is one month.The effective annual rate is:

A credit card company charges its customers an annual interest of 21.0% on the outstanding monthly balance.The effective annual rate for the customer will be:

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?

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

Keeping a large surplus of cash and investing it in Treasury bills will bring positive NPV to a firm.

Calculate the effective rate of 12% compounded quarterly.

The time interval between paying for raw materials and collecting on sales of finished goods is known as the:

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

Optimizing cash balances involves the equating of:

If a firm decided to speed up its collection from its customers by reducing the receivables period and kept the inventory period and payable period the same,then:

During the year the following changes were observed. (I.)Inventory period increased by 12 days (II))Receivables period decreased by 6 days (III.)Accounts payable period increased by 4 days Find the net change in cash conversion cycle.

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 monthly?

What is the cash conversion cycle for a firm with a receivables period of 40 days,a payables period of 30 days,and an inventory period of 60 days?

A firm's inventory period can be estimated by the ratio of average inventory to daily output.

A firm that follows a "relaxed strategy" towards the total capital requirement will be a:

How would you develop a model to analyze the benefits and costs of stretching payables? Assume that cash discounts will be forgone and that short-term bank funds are usually available.

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 and Payout Policy

Leasing

Payout Policy

Long-Term Financial Planning

Cash and Inventory Management

Credit Management and Collection

Mergers, Acquisitions, and Corporate Control

International Financial Management

Options

Risk Management

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