Question 1

Unlike long-term planners short-term planners are concerned only with the most likely outcomes.

Accepted Answer

A) True 
 B)False

Question 2

Firms that continually invest in nontrivial amounts of marketable securities may be guilty of:

Accepted Answer

A)  excessive short-term borrowing. 
B)  not matching their sources and uses of cash. 
C)  holding excessive current liabilities. 
D)  incurring extra taxes. 
A)  excessive short-term borrowing. 
B)  not matching their sources and uses of cash. 
C)  holding excessive current liabilities. 
D)  incurring extra taxes.

Question 3

A firm must decide between borrowing from a bank at 12% interest or 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 is the cheaper solution?

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 3.75% 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 3.75% annually. 
D)  Use the bank loan because it represents simple interest.

Question 4

Evidence suggests that investors place a particularly high value on liquidity in the case of companies with growth opportunities.

Accepted Answer

A) True 
 B)False

Question 5

Which one of the following statements best describes the total capital requirement for most profitable firms?

Accepted Answer

A)  The general trend in the total capital requirement is downward sloping. 
B)  The total capital requirement tends to be constant over long periods of time. 
C)  There are seasonal fluctuations around the total capital requirement trend. 
D)  The total capital requirement must be funded with short-term debt. 
A)  The general trend in the total capital requirement is downward sloping. 
B)  The total capital requirement tends to be constant over long periods of time. 
C)  There are seasonal fluctuations around the total capital requirement trend. 
D)  The total capital requirement must be funded with short-term debt.

Question 6

Which of the following would increase the firm's cash balance?

Accepted Answer

A)  increase the cash dividend 
B)  increase the accounts payable 
C)  increase accounts receivable 
D)  increase inventory 
A)  increase the cash dividend 
B)  increase the accounts payable 
C)  increase accounts receivable 
D)  increase inventory

Question 7

Short-term financing plans are usually developed by trial and error.

Accepted Answer

A) True 
 B)False

Question 8

The largest inflows of cash usually come from payments by the firm's customers.

Accepted Answer

A) True 
 B)False

Question 9

Managers are alerted to projected cash shortages by means of the:

Accepted Answer

A)  statement of sources and uses of cash. 
B)  pro forma balance sheet. 
C)  cash budget. 
D)  monthly bank statements. 
A)  statement of sources and uses of cash. 
B)  pro forma balance sheet. 
C)  cash budget. 
D)  monthly bank statements.

Question 10

Avatar Corp solves its cash shortage by paying its bills a week late but loses a 1% discount by doing so.This is equivalent to borrowing at an annual interest rate of:

Accepted Answer

A)  52.0%. 
B)  12.8%. 
C)  68.6%. 
D)  1.0%. 
A)  52.0%. 
B)  12.8%. 
C)  68.6%. 
D)  1.0%.

Question 11

What happens to a firm whose uses of cash exceed its sources of cash during an accounting period?

Accepted Answer

A)  It has a loss of net working capital. 
B)  It declares a net loss on the income statement. 
C)  It experiences a decrease in sales. 
D)  It experiences a decrease in its cash balance. 
A)  It has a loss of net working capital. 
B)  It declares a net loss on the income statement. 
C)  It experiences a decrease in sales. 
D)  It experiences a decrease in its cash balance.

Question 12

Which of the following statements is not true of short-term financial planning?

Accepted Answer

A)  The plan should consider possible shortfalls in sales or a delay in collections. 
B)  The plan seeks to ensure that the company will be able to meet its cash needs. 
C)  The planning period is typically five years. 
D)  The plan needs to be based on the best forecasts available. 
A)  The plan should consider possible shortfalls in sales or a delay in collections. 
B)  The plan seeks to ensure that the company will be able to meet its cash needs. 
C)  The planning period is typically five years. 
D)  The plan needs to be based on the best forecasts available.

Question 13

If a firm's customers on average take two weeks to pay their bills,then about half of each month's bills will not be paid until the following month.

Accepted Answer

A) True 
 B)False

Question 14

Which statement does not correctly describe short-term financial decisions?

Accepted Answer

A)  Most firms finance short-term assets with short-term borrowing. 
B)  Most firms maintain a positive investment in working capital. 
C)  Most firms finance their investment in working capital with short-term debt. 
D)  Liquidity is particularly valued by small firms that face relatively high costs to raising funds on short notice. 
A)  Most firms finance short-term assets with short-term borrowing. 
B)  Most firms maintain a positive investment in working capital. 
C)  Most firms finance their investment in working capital with short-term debt. 
D)  Liquidity is particularly valued by small firms that face relatively high costs to raising funds on short notice.

Question 15

A toy store does not pay for its purchases of toys from manufacturers until one month later.Suppose that in October it starts to stock up in anticipation of a surge in toy sales in December,when is it most likely to have a negative operating cash flow?

Accepted Answer

A)  It should never have a negative operating cash flow as long as its business is profitable. 
B)  In October because this is when it starts to stock up. 
C)  In November because this is when it will need to pay for the increased inventory. 
D)  In December because this is when the toys will start to move off the shelves. 
A)  It should never have a negative operating cash flow as long as its business is profitable. 
B)  In October because this is when it starts to stock up. 
C)  In November because this is when it will need to pay for the increased inventory. 
D)  In December because this is when the toys will start to move off the shelves.

Question 16

Which one of the following is a use 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 17

Cash holdings decline when a firm buys raw materials on credit.

Accepted Answer

A) True 
 B)False

Question 18

The Boat Works started the month with $3.21 million in accounts receivable.Sales for the month were $7.84 million.The firm collects 18% 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)  $4,621,200 
B)  $6,428,800 
C)  $9,061,000 
D)  $1,411,200 
A)  $4,621,200 
B)  $6,428,800 
C)  $9,061,000 
D)  $1,411,200

Question 19

Which of the following will not reduce an imminent cash shortage?

Accepted Answer

A)  Phoning customers who have overdue bills. 
B)  Issuing common stock to repay long-term debt. 
C)  Postponing purchase of a new machine. 
D)  Rolling over maturing bank debt. 
A)  Phoning customers who have overdue bills. 
B)  Issuing common stock to repay long-term debt. 
C)  Postponing purchase of a new machine. 
D)  Rolling over maturing bank debt.

Question 20

A company that sells $5 million of marketable securities will see a $5 million increase in cash.

Accepted Answer

A) True 
 B)False

Exam 19: Short-Term Financial Planning

Unlike long-term planners short-term planners are concerned only with the most likely outcomes.

Firms that continually invest in nontrivial amounts of marketable securities may be guilty of:

A firm must decide between borrowing from a bank at 12% interest or 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 is the cheaper solution?

Evidence suggests that investors place a particularly high value on liquidity in the case of companies with growth opportunities.

Which one of the following statements best describes the total capital requirement for most profitable firms?

Which of the following would increase the firm's cash balance?

Short-term financing plans are usually developed by trial and error.

The largest inflows of cash usually come from payments by the firm's customers.

Managers are alerted to projected cash shortages by means of the:

Avatar Corp solves its cash shortage by paying its bills a week late but loses a 1% discount by doing so.This is equivalent to borrowing at an annual interest rate of:

What happens to a firm whose uses of cash exceed its sources of cash during an accounting period?

Which of the following statements is not true of short-term financial planning?

If a firm's customers on average take two weeks to pay their bills,then about half of each month's bills will not be paid until the following month.

Which statement does not correctly describe short-term financial decisions?

A toy store does not pay for its purchases of toys from manufacturers until one month later.Suppose that in October it starts to stock up in anticipation of a surge in toy sales in December,when is it most likely to have a negative operating cash flow?

Which one of the following is a use of cash?

Cash holdings decline when a firm buys raw materials on credit.

The Boat Works started the month with $3.21 million in accounts receivable.Sales for the month were $7.84 million.The firm collects 18% of its sales in the month of sale with the remainder paid the following month.What is the accounts receivable balance at month end?

Which of the following will not reduce an imminent cash shortage?

A company that sells $5 million of marketable securities will see a $5 million increase in cash.

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