Exam 18: Short-Term Finance and Planning

Which of the following are benefits derived from short-term financial planning? I.having advance notice of when your firm will require external financing II.being able to determine the extent of time for which a loan is required III.having the ability to time capital expenditures in order to place the least financial burden possible on a firm IV.knowing for certain what your cash balance will be six months in advance

The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the:

A cumulative cash deficit indicates a firm:

Taylor Supply has made an agreement with its bank that it can borrow up to $10,000 at any time over the next year.This arrangement is called a(n):

On average,Furniture & More is able to sell its inventory in 27 days.The firm takes 87 days on average to pay for its purchases.On the other hand,its average customer pays with a credit card which allows the firm to collect its receivables in 4 days.Given this information,what is the length of operating cycle?

Assume that long-term interest rates are substantially higher than short-term interest rates and are expected to remain that way for the foreseeable future.How does this affect a firm's selection of a financing policy for its current assets?

Breakwater Aquatics has a 45 day accounts receivable period.The estimated quarterly sales for this year,starting with the first quarter,are $6,800,$7,100,$8,200,and $6,400,respectively.What is the accounts receivable balance at the beginning of the third quarter? Assume a year has 360 days.

West Chester Automation has an inventory turnover of 17.5 and an accounts payable turnover of 11.The accounts receivable period is 36 days.What is the length of the cash cycle?

Interior Designs has an inventory period of 51 days,an accounts payable period of 38 days,and an accounts receivable period of 32 days.Management is considering an offer from their suppliers to pay within 10 days and receive a 2 percent discount.If the new discount is taken,the accounts payable period is expected to decline by 26 days.If the new discount is taken,the operating cycle will be _____ days.

The operating cycle describes how a product:

Costs that decrease as a firm acquires additional current assets are called _____ costs.

The following is the sales budget for Duck-n-Run,Inc.,for the first quarter of 2012: The accounts receivable balance at the end of the previous quarter was $45,000 ($32,000 of which was uncollected December sales.)What is the amount of the January collections?

Which of the following actions will tend to decrease the inventory period? I.discontinuing all slow-selling merchandise II.selling obsolete inventory below cost just to get rid of it III.buying raw materials only as needed for the manufacturing process IV.producing goods on demand versus for inventory

A compensating balance: I.is required when a firm acquires any bank financing other than a line of credit. II.increases the cost of short-term bank financing. III.may be required even if a firm never borrows funds. IV.is often used as a means of paying for banking services received.

A graphical representation of the operating and cash cycles is called a(n):

New York Bank provides Food Canning,Inc.a $250,000 line of credit with an interest rate of 1.75 percent per quarter.The credit line also requires that 1 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance.Food Canning,Inc.'s short-term investments are paying 1.2 percent per quarter.What is the effective annual interest rate on this arrangement if the line of credit goes unused all year? Assume any funds borrowed or invested use compound interest.

Which two of the following are most apt to cause a cash-out for a firm that is generally financially sound? I.fixed expenses II.fixed asset purchases III.flexible financing policy IV.highly seasonal sales

The length of time that elapses between the day a firm purchases an inventory item and the day that item sells is called the:

The Cement Works has a beginning cash balance for the quarter of $784.Susie,the firm's president,requires that a minimum cash balance of $900 be maintained and requires that borrowing be used to maintain that balance.If funds have been borrowed,then she requires that those loans be repaid as soon as excess funds are available.Currently,the firm has a loan outstanding of $1,260.How much will the firm borrow or repay this quarter if the quarterly receipts are $3,918 and the quarterly disbursements are $3,774?

Which one of the following statements is correct concerning the cash cycle?