Question 1

If the Statement of Sources and Uses of Cash shows a decrease in cash balance,which of the following changes might have eliminated that decrease?

Accepted Answer

A)  increase in cash dividends paid 
B)  increase in accounts payable 
C)  increase in accounts receivable 
D)  increase in inventories 
A)  increase in cash dividends paid 
B)  increase in accounts payable 
C)  increase in accounts receivable 
D)  increase in inventories

Question 2

Company which sees a customer pay a $2,500 bill resulting from a previous sale will see no change in its net working capital.

Accepted Answer

A) True 
 B)False

Question 3

An increase in accounts payable is a source of cash.

Accepted Answer

A) True 
 B)False

Question 4

Working capital,correctly defined,includes both current assets and current liabilities.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Which of the following would not be considered a use of cash?

Accepted Answer

A)  dividends 
B)  decreased accounts payable 
C)  depreciation 
D)  increased accounts receivable 
A)  dividends 
B)  decreased accounts payable 
C)  depreciation 
D)  increased accounts receivable

Question 7

Which of the following situations will improve the current ratio if it is initially less than 1.0?

Accepted Answer

A)  using cash to repay accounts payable 
B)  purchasing inventory on credit terms 
C)  selling finished goods inventory on credit 
D)  purchasing marketable securities for cash 
A)  using cash to repay accounts payable 
B)  purchasing inventory on credit terms 
C)  selling finished goods inventory on credit 
D)  purchasing marketable securities for cash

Question 8

The longer the firm's accounts payable period,the:

Accepted Answer

A)  longer the firm's cash conversion cycle 
B)  shorter the firm's inventory period 
C)  more the delay in the accounts receivable period 
D)  less the firm must invest in working capital 
A)  longer the firm's cash conversion cycle 
B)  shorter the firm's inventory period 
C)  more the delay in the accounts receivable period 
D)  less the firm must invest in working capital

Question 9

An increase in current liabilities is a source of cash for the firm.

Accepted Answer

A) True 
 B)False

Question 10

Ignoring defaults,what is the approximate effective cost of factoring if receivables are sold at a 2% discount and the average collection period is 1 month?

Accepted Answer

A)  19.40% 
B)  24.00% 
C)  26.53% 
D)  27.43% 
A)  19.40% 
B)  24.00% 
C)  26.53% 
D)  27.43%

Question 11

The safety margin kept by the bank on loan against liquid assets is called:

Accepted Answer

A)  a haircut 
B)  a line of credit 
C)  factoring 
D)  filed warehousing 
A)  a haircut 
B)  a line of credit 
C)  factoring 
D)  filed warehousing

Question 12

A reduction in inventory levels from year-end to year-end would be considered a source of cash.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not a source of cash?

Accepted Answer

A)  net income 
B)  repayment of a bank loan 
C)  reduction in accounts receivable 
D)  depreciation 
A)  net income 
B)  repayment of a bank loan 
C)  reduction in accounts receivable 
D)  depreciation

Question 14

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 15

If the effective rate of interest if 15.55% based on monthly compounding,determine the nominal rate of interest.

Accepted Answer

A)  17.54% 
B)  16.54% 
C)  15.54% 
D)  14.54% 
A)  17.54% 
B)  16.54% 
C)  15.54% 
D)  14.54%

Question 16

As a firm's cash conversion cycle increases,the firm:

Accepted Answer

A)  becomes less profitable 
B)  increases its investment in working capital 
C)  reduces its accounts payable period 
D)  incurs more shortage costs 
A)  becomes less profitable 
B)  increases its investment in working capital 
C)  reduces its accounts payable period 
D)  incurs more shortage costs

Question 17

A firm faces a liquidity crunch and must decide between borrowing from a bank at 12% interest and stretching its payables for one quarter.If it stretches the payables it will forgo a 2% discount for timely payment.Based solely on cash flows,which would you suggest?

Accepted Answer

A)  stretching saves the firm approximately 8% per year 
B)  use the bank loan; forgoing a cash discount is costly 
C)  stretch the payables and finance at a savings of approximately 3.76% annually 
D)  use the bank loan because it represents simple interest 
A)  stretching saves the firm approximately 8% per year 
B)  use the bank loan; forgoing a cash discount is costly 
C)  stretch the payables and finance at a savings of approximately 3.76% annually 
D)  use the bank loan because it represents simple interest

Question 18

List and explain the four forecast uses of cash.

Accepted Answer

1.Payments of Accounts Payable

Question 19

The lower the average level of inventory,the more profitable the firm.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 20: Short-Term Financial Planning

If the Statement of Sources and Uses of Cash shows a decrease in cash balance,which of the following changes might have eliminated that decrease?

Company which sees a customer pay a $2,500 bill resulting from a previous sale will see no change in its net working capital.

An increase in accounts payable is a source of cash.

Working capital,correctly defined,includes both current assets and current liabilities.

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

Which of the following would not be considered a use of cash?

Which of the following situations will improve the current ratio if it is initially less than 1.0?

The longer the firm's accounts payable period,the:

An increase in current liabilities is a source of cash for the firm.

Ignoring defaults,what is the approximate effective cost of factoring if receivables are sold at a 2% discount and the average collection period is 1 month?

The safety margin kept by the bank on loan against liquid assets is called:

A reduction in inventory levels from year-end to year-end would be considered a source of cash.

Which of the following is not a source of cash?

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

If the effective rate of interest if 15.55% based on monthly compounding,determine the nominal rate of interest.

As a firm's cash conversion cycle increases,the firm:

A firm faces a liquidity crunch and must decide between borrowing from a bank at 12% interest and stretching its payables for one quarter.If it stretches the payables it will forgo a 2% discount for timely payment.Based solely on cash flows,which would you suggest?

List and explain the four forecast uses of cash.

The lower the average level of inventory,the more profitable the firm.

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

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

Filters