Question 1

Flexible short-term financial policies tend to

Accepted Answer

A) support few investments in marketable securities. 
B) maintain large cash balances. 
C) tightly restrict credit sales. 
D) maintain low accounts receivable balances. 
E) minimize the investment in inventory. 
A) support few investments in marketable securities. 
B) maintain large cash balances. 
C) tightly restrict credit sales. 
D) maintain low accounts receivable balances. 
E) minimize the investment in inventory.

Question 2

Prudoe Fuels factors its accounts receivable immediately at a discount of 1.65 percent.The average collection period is 43 days.Assume all accounts are collected in full.What is the effective annual interest rate on this arrangement? Assume a 365-day year.

Accepted Answer

A) 14.97% 
B) 15.17 % 
C) 16.09% 
D) 16.67% 
E) 18.51% 
A) 14.97% 
B) 15.17 % 
C) 16.09% 
D) 16.67% 
E) 18.51%

Question 3

As of the beginning of the quarter,a firm has a cash balance of $318.During the quarter,the firm pays its suppliers $297 and collects $398 from customers.It also pays an interest payment of $32 and a tax bill of $164.In addition,the firm borrows $125.What is the cash balance at the end of the quarter?

Accepted Answer

A) $98 
B) $145 
C) $253 
D) $348 
E) $305 
A) $98 
B) $145 
C) $253 
D) $348 
E) $305

Question 4

On April 1st,a firm had a beginning cash balance of $239.March sales were $474 and April sales were $463.During April,the firm had cash expenses of $135 and payments on accounts payable of $212.The accounts receivable period is 30 days.What is the firm's beginning cash balance on May 1st? Assume a 360-day year.

Accepted Answer

A) $397 
B) $366 
C) $419 
D) $382 
E) $355 
A) $397 
B) $366 
C) $419 
D) $382 
E) $355

Question 5

A fraction of the available credit on a loan agreement deposited by the borrower with the bank in a low or non-interest-bearing account is called a

Accepted Answer

A) rollover. 
B) cleanup loan. 
C) letter of credit. 
D) factored loan. 
E) compensating balance. 
A) rollover. 
B) cleanup loan. 
C) letter of credit. 
D) factored loan. 
E) compensating balance.

Question 6

The Babco Co.has a $225,000 line of credit with an interest rate of 6.5 percent and a compensating balance requirement of 4 percent that is based on the total amount borrowed.What is the effective interest rate if the firm needs $163,000 to finance some expenses? The company plans on repaying the loan in a lump sum at the end of 1 year.

Accepted Answer

A) 7.20% 
B) 7.27% 
C) 7.08% 
D) 5.80% 
E) 6.77% 
A) 7.20% 
B) 7.27% 
C) 7.08% 
D) 5.80% 
E) 6.77%

Question 7

A restrictive short-term financial policy tends to

Accepted Answer

A) grant credit to more customers. 
B) reduce total ordering costs as compared to a more flexible policy. 
C) encourage credit sales over cash sales. 
D) incur more carrying costs than a flexible policy does. 
E) reduce future sales more so than a flexible policy. 
A) grant credit to more customers. 
B) reduce total ordering costs as compared to a more flexible policy. 
C) encourage credit sales over cash sales. 
D) incur more carrying costs than a flexible policy does. 
E) reduce future sales more so than a flexible policy.

Question 8

Midwest Meats has a net cash inflow,excluding long-term financing expenses,for the quarter of $248.The minimum and beginning cash balance is $300,and the firm has $2,300 in short-term debt.The quarterly interest on the loan is $37.How much does the firm need to borrow or how much can it repay on its loans to have a zero cumulative surplus for the quarter?

Accepted Answer

A) Repay $89 
B) Borrow and repay $0 
C) Repay $211 
D) Borrow $89 
E) Repay $164 
A) Repay $89 
B) Borrow and repay $0 
C) Repay $211 
D) Borrow $89 
E) Repay $164

Question 9

Which one of these statements is correct?

Accepted Answer

A) A firm might be able to charge higher prices if it switches from a flexible to a restrictive short-term financial policy. 
B) If a firm adopts a restrictive short-term financial policy,its current assets will be greater than if it adopts a flexible policy. 
C) If a firm switches from a flexible short-term financial policy to a restrictive policy,it is likely to see an increase in its uncollectible accounts receivable. 
D) If a firm switches from a restrictive short-term financial policy to a flexible policy,its operating cycle will most likely decrease. 
E) Future cash flows are expected to be higher if a firm adopts a flexible,rather than a restrictive,short-term financial policy. 
A) A firm might be able to charge higher prices if it switches from a flexible to a restrictive short-term financial policy. 
B) If a firm adopts a restrictive short-term financial policy,its current assets will be greater than if it adopts a flexible policy. 
C) If a firm switches from a flexible short-term financial policy to a restrictive policy,it is likely to see an increase in its uncollectible accounts receivable. 
D) If a firm switches from a restrictive short-term financial policy to a flexible policy,its operating cycle will most likely decrease. 
E) Future cash flows are expected to be higher if a firm adopts a flexible,rather than a restrictive,short-term financial policy.

Question 10

A flexible short-term financial policy

Accepted Answer

A) is associated with firms where the carrying costs are considered to be less than the shortage costs. 
B) applies mostly to firms that factor their accounts receivable. 
C) applies only to firms that strictly limit their credit sales. 
D) tends to decrease the amount of current assets held by a firm. 
E) is designed to utilize short-term external financing to fund seasonal increases in current assets. 
A) is associated with firms where the carrying costs are considered to be less than the shortage costs. 
B) applies mostly to firms that factor their accounts receivable. 
C) applies only to firms that strictly limit their credit sales. 
D) tends to decrease the amount of current assets held by a firm. 
E) is designed to utilize short-term external financing to fund seasonal increases in current assets.

Question 11

Dixie's has a net cash inflow for the quarter of -$108.The beginning cash balance is $212.Company policy is to maintain a minimum cash balance of $75 and borrow only the amount that is necessary to maintain that balance.How much does the firm need to borrow to have a zero cumulative surplus?

Accepted Answer

A) $0 
B) $104 
C) $179 
D) $132 
E) $29 
A) $0 
B) $104 
C) $179 
D) $132 
E) $29

Question 12

Duke's Auto Parts has a beginning receivables balance on January 1st of $398.Quarterly sales for the year are $427,$502,$479,and $525,starting with the first quarter.The accounts receivable period is 60 days.How much did the firm collect in the second quarter? Assume a 360-day year.

Accepted Answer

A) $458.50 
B) $452.00 
C) $477.00 
D) $464.50 
E) $479.50 
A) $458.50 
B) $452.00 
C) $477.00 
D) $464.50 
E) $479.50

Question 13

Smithfield's has a line of credit with a local bank of $75,000.The loan agreement calls for interest of 6 percent with a compensating balance requirement of 3 percent that is based on the total amount borrowed.What is the effective interest rate if the firm needs $58,000 for 1 year to finance a fixed asset purchase?

Accepted Answer

A) 8.55% 
B) 6.34% 
C) 7.13% 
D) 7.38% 
E) 6.19% 
A) 8.55% 
B) 6.34% 
C) 7.13% 
D) 7.38% 
E) 6.19%

Question 14

The cash cycle includes the time period between the time when

Accepted Answer

A) inventory is sold and the cash from that sale is received. 
B) inventory is purchased and the cash from the sale of that inventory is received. 
C) inventory is purchased and when the cash for that purchase is paid to the supplier. 
D) the bill for the inventory purchase is received and the payment is made to the supplier. 
E) the bill for the inventory is paid and the money from the sale of that inventory is received. 
A) inventory is sold and the cash from that sale is received. 
B) inventory is purchased and the cash from the sale of that inventory is received. 
C) inventory is purchased and when the cash for that purchase is paid to the supplier. 
D) the bill for the inventory purchase is received and the payment is made to the supplier. 
E) the bill for the inventory is paid and the money from the sale of that inventory is received.

Question 15

Under which type of credit arrangement does a public warehouse act as a control agent?

Accepted Answer

A) Blanket inventory liens 
B) Factored liens 
C) Trust receipt financing 
D) Field warehouse financing 
E) Commercial paper arrangements 
A) Blanket inventory liens 
B) Factored liens 
C) Trust receipt financing 
D) Field warehouse financing 
E) Commercial paper arrangements

Question 16

Which one of the following will decrease the operating cycle?

Accepted Answer

A) Decreasing the speed at which inventory is sold 
B) Decreasing the accounts receivable turnover rate 
C) Decreasing the cash cycle by increasing the accounts payable period 
D) Decreasing the accounts payable period 
E) Decreasing the days' sales in inventory 
A) Decreasing the speed at which inventory is sold 
B) Decreasing the accounts receivable turnover rate 
C) Decreasing the cash cycle by increasing the accounts payable period 
D) Decreasing the accounts payable period 
E) Decreasing the days' sales in inventory

Question 17

Assume you are completing a short-term financial plan spreadsheet.The cumulative surplus will be equal to the

Accepted Answer

A) ending cash balance minus the minimum cash balance plus the change in short-term debt. 
B) minimum cash balance plus the ending cash balance. 
C) ending cash balance plus the beginning short-term borrowing plus the change in short-term debt. 
D) ending cash balance minus the minimum cash balance. 
E) ending cash balance. 
A) ending cash balance minus the minimum cash balance plus the change in short-term debt. 
B) minimum cash balance plus the ending cash balance. 
C) ending cash balance plus the beginning short-term borrowing plus the change in short-term debt. 
D) ending cash balance minus the minimum cash balance. 
E) ending cash balance.

Question 18

Smiley and Sons has an inventory period of 42 days,an accounts payable period of 33 days,and an accounts receivable period of 38 days.Management is considering offering a 2 percent discount if its credit customers pay for their purchases within 10 days.If the new discount is offered,the accounts receivable period is expected to decline by 19 days.If the new discount is offered,the cash cycle will change from ________ days to ________ days.

Accepted Answer

A) 47; 28 
B) 80; 61 
C) 80; 28 
D) 61; 47 
E) 61; 28 
A) 47; 28 
B) 80; 61 
C) 80; 28 
D) 61; 47 
E) 61; 28

Question 19

Dewey's expects sales of $780,$830,$870,and $790 for the months of April through July,respectively.The firm collects 31 percent of sales in the month of sale,63 percent in the month following the month of sale,and 5 percent in the second month following the month of sale.The remaining 1 percent of sales is never collected.How much money does the firm expect to collect in the month of June?

Accepted Answer

A) $831.60 
B) $801.40 
C) $808.20 
D) $788.20 
E) $852.40 
A) $831.60 
B) $801.40 
C) $808.20 
D) $788.20 
E) $852.40

Flexible short-term financial policies tend to

Prudoe Fuels factors its accounts receivable immediately at a discount of 1.65 percent.The average collection period is 43 days.Assume all accounts are collected in full.What is the effective annual interest rate on this arrangement? Assume a 365-day year.

A fraction of the available credit on a loan agreement deposited by the borrower with the bank in a low or non-interest-bearing account is called a

A restrictive short-term financial policy tends to

Which one of these statements is correct?

A flexible short-term financial policy

Dixie's has a net cash inflow for the quarter of -$108.The beginning cash balance is $212.Company policy is to maintain a minimum cash balance of $75 and borrow only the amount that is necessary to maintain that balance.How much does the firm need to borrow to have a zero cumulative surplus?

Duke's Auto Parts has a beginning receivables balance on January 1^st of $398.Quarterly sales for the year are $427,$502,$479,and $525,starting with the first quarter.The accounts receivable period is 60 days.How much did the firm collect in the second quarter? Assume a 360-day year.

The cash cycle includes the time period between the time when

Under which type of credit arrangement does a public warehouse act as a control agent?

Which one of the following will decrease the operating cycle?

Assume you are completing a short-term financial plan spreadsheet.The cumulative surplus will be equal to the

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters

Exam 18: Short-Term Finance and Planning

Flexible short-term financial policies tend to

Prudoe Fuels factors its accounts receivable immediately at a discount of 1.65 percent.The average collection period is 43 days.Assume all accounts are collected in full.What is the effective annual interest rate on this arrangement? Assume a 365-day year.

A fraction of the available credit on a loan agreement deposited by the borrower with the bank in a low or non-interest-bearing account is called a

A restrictive short-term financial policy tends to

Which one of these statements is correct?

A flexible short-term financial policy

Dixie's has a net cash inflow for the quarter of -$108.The beginning cash balance is $212.Company policy is to maintain a minimum cash balance of $75 and borrow only the amount that is necessary to maintain that balance.How much does the firm need to borrow to have a zero cumulative surplus?

Duke's Auto Parts has a beginning receivables balance on January 1st of $398.Quarterly sales for the year are $427,$502,$479,and $525,starting with the first quarter.The accounts receivable period is 60 days.How much did the firm collect in the second quarter? Assume a 360-day year.

The cash cycle includes the time period between the time when

Under which type of credit arrangement does a public warehouse act as a control agent?

Which one of the following will decrease the operating cycle?

Assume you are completing a short-term financial plan spreadsheet.The cumulative surplus will be equal to the

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Raising Capital

International Corporate Finance

Mergers and Acquisitions Web Only

Filters

Duke's Auto Parts has a beginning receivables balance on January 1^st of $398.Quarterly sales for the year are $427,$502,$479,and $525,starting with the first quarter.The accounts receivable period is 60 days.How much did the firm collect in the second quarter? Assume a 360-day year.