Question 1

A firm's permanent working capital refers to the:

Accepted Answer

A)  difference between fixed assets and current assets. 
B)  maximum difference between current assets and current liabilities. 
C)  portion of net working capital that is financed from long-term sources. 
D)  amounts that must be held to meet debt covenants. 
A)  difference between fixed assets and current assets. 
B)  maximum difference between current assets and current liabilities. 
C)  portion of net working capital that is financed from long-term sources. 
D)  amounts that must be held to meet debt covenants.

Question 2

An increase in long-term assets is a source of cash for the firm.

Accepted Answer

A) True 
 B)False

Question 3

The primary aim of cash budgeting models is to obtain better forecasts of earnings.

Accepted Answer

A) True 
 B)False

Question 4

For firms facing financial distress a dollar of cash within the firm is often worth less than a dollar to shareholders.

Accepted Answer

A) True 
 B)False

Question 5

A firm that sells marketable securities will see an increase in its working capital but no change in its holdings of cash.

Accepted Answer

A) True 
 B)False

Question 6

Which one of the following would not be included as a source of short-term financing?

Accepted Answer

A)  Line of credit from a bank 
B)  Increase in the minimum operating cash balance 
C)  Sale of marketable securities 
D)  Stretching of accounts payable 
A)  Line of credit from a bank 
B)  Increase in the minimum operating cash balance 
C)  Sale of marketable securities 
D)  Stretching of accounts payable

Question 7

Holdings of marketable securities are at worst zero-NPV investments for taxpaying firms.

Accepted Answer

A) True 
 B)False

Question 8

When managers are continually short-term lenders,they are said to follow a:

Accepted Answer

A)  middle-of-the-road financing strategy. 
B)  restrictive financing strategy. 
C)  relaxed financing strategy. 
D)  permanent working-capital strategy. 
A)  middle-of-the-road financing strategy. 
B)  restrictive financing strategy. 
C)  relaxed financing strategy. 
D)  permanent working-capital strategy.

Question 9

For a recent 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 did the firm need to borrow in order to maintain a minimum cash balance of $10,000?

Accepted Answer

A)  $38,850 
B)  $37,550 
C)  $7,350 
D)  $30,000 
A)  $38,850 
B)  $37,550 
C)  $7,350 
D)  $30,000

Question 10

Before settling on a final short-term financial plan,the manager needs to ask several questions.Which is the odd man out?

Accepted Answer

A)  Does the plan yield satisfactory financial ratios? 
B)  Would the firm do better to arrange long-term financing to cover any cash shortage? 
C)  Has the firm estimated its EVA correctly? 
D)  Does the company need a larger reserve of cash or marketable securities to cover emergencies? 
A)  Does the plan yield satisfactory financial ratios? 
B)  Would the firm do better to arrange long-term financing to cover any cash shortage? 
C)  Has the firm estimated its EVA correctly? 
D)  Does the company need a larger reserve of cash or marketable securities to cover emergencies?

Question 11

Many high tech firms hold large amounts of marketable securities.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)  The firm may receive more favorable status from suppliers. 
B)  The firm may reduce its explicit short-term interest expense. 
C)  The cost of forgone discounts may exceed the cost of bank credit. 
D)  The firm may be labeled as a credit risk. 
A)  The firm may receive more favorable status from suppliers. 
B)  The firm may reduce its explicit short-term interest expense. 
C)  The cost of forgone discounts may exceed the cost of bank credit. 
D)  The firm may be labeled as a credit risk.

Question 13

In the preparation of cash budgets,capital expenditures are:

Accepted Answer

A)  not included because these items are depreciated. 
B)  included as sources of operating cash. 
C)  included as uses of cash and make the budget lumpy. 
D)  traditionally offset as a use of cash by interest income. 
A)  not included because these items are depreciated. 
B)  included as sources of operating cash. 
C)  included as uses of cash and make the budget lumpy. 
D)  traditionally offset as a use of cash by interest income.

Question 14

A firm that stretches its payables gains an extra 1 month before it needs to pay for its purchases of raw materials but it loses a 2% discount for prompt payment.This is like borrowing at an effective annual interest rate of:

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 15

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?

Accepted Answer

A)  $2.21 million 
B)  $1.19 million 
C)  $3.49 million 
D)  $2.71 million 
A)  $2.21 million 
B)  $1.19 million 
C)  $3.49 million 
D)  $2.71 million

Question 16

A company stretches payables whenever it offers more generous payment terms to its customers.

Accepted Answer

A) True 
 B)False

Question 17

Managers with a large surplus of cash are often tempted to run a less tight ship.

Accepted Answer

A) True 
 B)False

Question 18

The short-term financial plan sets out a strategy for investing any cash surpluses or financing any deficit.

Accepted Answer

A) True 
 B)False

Question 19

The term "tax inversion" refers to the negative tax shield that is created when a firm invests in securities.

Accepted Answer

A) True 
 B)False

Question 20

Clopton Inc.forecasts cash sales of $18 million in January,$23 million in February and $25 million in March.Credit sales in these three months are forecast at $80 million,$110 million and $145 million.On average 50% of credit sales are paid for in the current month,30% in the next month,and the remainder in the following month.What is the expected cash inflow in March?

Accepted Answer

A)  $121.5 million 
B)  $102 million 
C)  $127 million 
D)  $146.5 million 
A)  $121.5 million 
B)  $102 million 
C)  $127 million 
D)  $146.5 million

Exam 19: Short-Term Financial Planning

A firm's permanent working capital refers to the:

An increase in long-term assets is a source of cash for the firm.

The primary aim of cash budgeting models is to obtain better forecasts of earnings.

For firms facing financial distress a dollar of cash within the firm is often worth less than a dollar to shareholders.

A firm that sells marketable securities will see an increase in its working capital but no change in its holdings of cash.

Which one of the following would not be included as a source of short-term financing?

Holdings of marketable securities are at worst zero-NPV investments for taxpaying firms.

When managers are continually short-term lenders,they are said to follow a:

Before settling on a final short-term financial plan,the manager needs to ask several questions.Which is the odd man out?

Many high tech firms hold large amounts of marketable securities.

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

In the preparation of cash budgets,capital expenditures are:

A firm that stretches its payables gains an extra 1 month before it needs to pay for its purchases of raw materials but it loses a 2% discount for prompt payment.This is like borrowing at an effective annual interest rate of:

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 company stretches payables whenever it offers more generous payment terms to its customers.

Managers with a large surplus of cash are often tempted to run a less tight ship.

The short-term financial plan sets out a strategy for investing any cash surpluses or financing any deficit.

The term "tax inversion" refers to the negative tax shield that is created when a firm invests in securities.

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 Policy

Payout Policy

Long-Term Financial Planning

Working Capital Management

Mergers,Acquisitions,and Corporate Control

International Financial Management

Options

Risk Management

Filters