Exam 19: Short-Term Financial Planning

Discuss the concept of maturities matching as that term is used in corporate financial planning.

A reduction in inventory levels would be considered a source of cash.

A revolving line of credit would be considered:

The text suggests that, of the three strategies discussed, 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?

A firm paid out a dividend of $700,000 and repaid $1,000,000 of 6-month notes payable. The net effect of these transactions on the firm's net working capital is a decrease of:

A firm had $2,800 cash at the beginning of the period. During the period, the firm collected $1,600 in receivables, paid $1,850 to supplier, had credit sales of $4,200, and incurred cash expenses of $2,300. What was the cash balance at the end of the period?

In field warehousing the inventory is kept by the:

The Boat Works started the month with $1.28 million in accounts receivable. Sales for the month were $3.4 million. The firm collects 35% of its sales in the month of sale with the remainder paid the following month. What is the accounts receivable balance at month end?

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

Issuing additional long-term debt of $5 million and buying new long-term assets worth $4 million and short-term assets of $1 million will result in a net cash flow of _____ and a change in net working capital of ____.

The cost of issuing commercial paper is generally lower than that of a revolving line of credit.

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

Permanent working capital requirements are generally financed with commercial paper.

Biotech firms require large amounts of cash if their drugs succeed in gaining regulatory approval. Therefore, these firms often have substantial cash holdings to fund their possible investment needs.

Although commercial paper is unsecured, the companies that issue this short-term security are:

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 one of the following is not typically a characteristic of commercial paper?

For the period, a firm collected $38,200 on accounts receivable, paid $19,700 to suppliers on trade credit, paid $12,000 in cash expenses, purchased for cash a $42,000 piece of equipment that will be depreciated straight-line to zero over 4 years, and had $59,000 of sales of which 15% were cash sales. The firm also paid $13,500 in taxes and interest. The beginning cash balance was $11,300. How much must the firm borrow if it wishes to maintain a minimum cash balance of $10,000?

If a firm's current ratio exceeds 1.0, what happens as a result of paying cash to reduce accounts payable?

Show the effect of the following transactions on cash, net working capital, and the current ratio. Assume that the current ratio exceeds 1.0 to begin. a. The firm borrows $1,000 short term and pays $500 in accounts payable. b. The firm factors $1,000 in receivables at a 5% discount. c. The firm issues $1,000 in long-term bonds, using the proceeds to pay $800 in payables and purchase $200 in marketable securities.