Exam 26: Short-Term Finance and Planning

ABC,Inc. has a beginning receivables balance on January 1^st of $430. Sales for January through April are $240,$250,$330 and $350,respectively. The accounts receivable period is 60 days. How much did the firm collect in the month of March? Assume that a year has 360 days.

D & F,Inc. expects sales of $620,$650,$730 and $780 for the months of April through July,respectively. The firm collects 20% of sales in the month of sale,50% in the month following the month of sale and 28% in the second month following the month of sale. The remaining 2% of sales is never collected. How much money does the firm expect to collect in the month of July?

Which of the following actions will tend to decrease the accounts receivable period? I. loosening the standards for granting credit to customers II. increasing the discount for early payment by credit customers III. increasing the finance charges applied to all customer balances outstanding over thirty days IV. granting discounts for cash sales

An increase in which one of the following is most apt to be an indicator of an accounts receivable policy that is too restrictive?

A firm currently has a 36 day cash cycle. Assume that the firm changes its operations such that it decreases its receivables period by 4 days,increases its inventory period by 1 day and decreases its payables period by 2 days. What will the length of the cash cycle be after these changes?

A restrictive short-term financial policy,as compared to a more flexible policy,tends to: I. cause a firm to lose sales due to a lack of inventory on hand. II) increase the sales of a firm due to the firm's credit availability and terms. III) increase the probability that a firm will face a cash-out situation. IV) increase the ability of a firm to charge premium prices.

Cash cycle equals:

A cumulative cash deficit indicates that a firm:

A prearranged credit agreement with a bank typically open for two or more years is called a:

Which one of the following will increase the accounts payable period,all else constant?

Your bank offers you a $40,000 line of credit with an interest rate of 2.35% per quarter. The loan agreement also requires that 5% 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 1.75% per quarter. What is your effective annual interest rate if you borrow the whole $40,000 for the entire year? Assume that both the funds you borrow and the funds you invest use compound interest.

A prearranged,short-term bank loan made on a formal or informal basis,and typically reviewed for renewal annually,is called a:

Your firm currently has an operating cycle of 64 days. You are analyzing some operational changes which are expected to decrease the accounts receivable period by 3 days and decrease the inventory period by 2 days. The accounts payable turnover rate is expected to increase from 7 to 9 times per year. If all of these changes are adopted,what will your firm's new operating cycle be?

Blue Moon Corporation's Balance Sheet and Income Statement as shown below: Blue Moon Corporation's cash cycle for 2011 is:

Your firm has a line of credit with your local bank for $50,000. The loan agreement calls for interest of 9% with a 5% compensating balance requirement which is based on the total amount borrowed. What is the effective interest rate if you need $42,750 for one year to cover your operating expenses?

On April 1^st,your firm had a beginning cash balance of $280. Your sales for March were $460 and your April sales were $510. During April you had cash expenses of $130 and payments on your accounts payable of $210. Your accounts receivable period is 30 days. What is your firm's beginning cash balance on May 1^st?

Blue Moon Corporation's Balance Sheet and Income Statement as shown below: The operating cycle for 2011 for Blue Moon Corporation is:

The primary difference between a line of credit and a revolving credit arrangement is the:

A compensating balance: I. is required when a firm acquires bank financing other than a line of credit. II) increases the cost of short-term bank financing. III) represents an opportunity cost to the lending institution. IV) is often used as a means of paying for banking services received.

Your bank offers you a $100,000 line of credit with an interest rate of 2.5% per quarter. The loan agreement also requires that 4% 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 1.25% per quarter. What is your effective annual interest rate if you borrow the whole $100,000 for the entire year? Assume that both the funds you borrow and the funds you invest use compound interest.