Exam 18: Short-Term Finance and Planning

Juno Industrial Supply has a $150,000 line of credit with a 7.5 percent interest rate.The loan agreement requires a 2 percent compensating balance,which is based on the total amount borrowed,and which will be held in an interest-free account.What is the effective interest rate if the firm borrows $90,000 on the line of credit for one year?

A firm with a flexible short-term financial policy will:

High Point Hotel (HPH)has $165,000 in accounts receivable.To finance a major purchase,the company assigns these receivables to Cross Town Bank.Which one of the following statements correctly describes this transaction?

Money deposited by a borrower with the bank in a low or non-interest-bearing account as a condition of a loan agreement is called a:

A bank offers your firm a revolving credit arrangement for up to $115 million at an interest rate of 2 percent per quarter.The bank also requires you to maintain a compensating balance of 5 percent against the unused portion of the credit line,to be deposited in a non-interest-bearing account.Assume you have a short-term investment account at the bank that pays 1.3 percent per quarter,and assume the bank uses compound interest on its revolving credit loans.What is the effective annual interest rate on the revolving credit arrangement if your firm does not borrow any money during the year?

Steve has estimated the cash inflows and outflows for his hardware store for next year.The report that he has prepared recapping these cash flows is called a:

If you pay your suppliers five days sooner,then:

Brustle's Pottery either factors or assigns all of its receivables to other firms.This is known as:

Denver Interiors,Inc.,has sales of $836,000 and cost of goods sold of $601,000.The firm had a beginning inventory of $36,000 and an ending inventory of $47,000.What is the length of the inventory period?

The Thunder Dan's Corporation's purchases from suppliers in a quarter are equal to 65 percent of the next quarter's forecasted sales.The payables period is 60 days.Wages,taxes,and other expenses are 16 percent of sales,and interest and dividends are $60 per quarter.No capital expenditures are planned.Sales for the first quarter of the following year are projected at $720.The projected quarterly sales are: What is the amount of the total disbursements for Quarter 2?

Nadine's Boutique has a 30 day accounts payable period.The firm has expected quarterly sales of $1,100,$1,400,$1,600,and $2,100,respectively,for next year.The quarterly cost of goods sold is equal to 68 percent of the next quarter's sales.The firm has a beginning accounts payable balance of $550 as of Quarter 1.What is the amount of the projected cash disbursements for accounts payable for Quarter 3 of the next year? Assume a year has 360 days.

Which one of the following statements is correct concerning the cash balance of a firm?

The Lumber Mart recently replaced its management team.As a result,the firm is implementing a restrictive short-term policy in place of the flexible policy under which the firm had been operating.Which of the following should the employees expect as a result of this policy change? I.reduction in sales due to stock outs II.greater inventory selection III.decreased sales due to the new accounts receivable credit policy IV.decreased investment in marketable securities

Which of the following determines the length of the operating cycle? I.cash cycle II.inventory period III.accounts payable period IV.accounts receivable period

The length of time between the day a firm purchases an item from its supplier until the day that supplier is paid for that purchase is called the:

Which of the following are uses of cash? I.collecting a receivable II.increasing inventory III.obtaining a bank loan IV.paying a supplier for previous purchases

New Town Bank offers you a $40,000 line of credit with an interest rate of 1.6 percent per quarter.The loan agreement also requires that 3 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance.Short-term investments are currently paying 1.1 percent per quarter.What is the effective annual interest rate on the line of credit if you borrow the entire $40,000 for one year? Assume any funds borrowed or invested use compound interest.

Which of the following will increase the cash cycle,all else constant? I.increasing the inventory period II.decreasing the accounts receivable turnover rate III.increasing the accounts payable period IV.decreasing the accounts receivable period

Assume each month has 30 days and a firm has a 60-day accounts receivable period.During the second calendar quarter of the year,that firm will collect payment for the sales it made during which of the following months?

Which one of the following equals the operating cycle?