Question 1

Rose's Gift Shop borrows money on a short-term basis by pledging its inventory as collateral.This is an example of a(n):

Accepted Answer

A) debenture. 
B) line of credit. 
C) banker's acceptance. 
D) working loan. 
E) inventory loan. 
A) debenture. 
B) line of credit. 
C) banker's acceptance. 
D) working loan. 
E) inventory loan.

Question 2

Which of the following are associated with a restrictive short-term financial policy?
I.little,if any,investment in marketable securities
II.liberal credit terms for customers
III.low cash balances
IV.increasing inventory levels

Accepted Answer

A) I and III only 
B) II and IV only 
C) I and IV only 
D) III and IV only 
E) I, II, and III only 
A) I and III only 
B) II and IV only 
C) I and IV only 
D) III and IV only 
E) I, II, and III only

Question 3

Using two separate graphs,illustrate a flexible and a restrictive short-term financing policy.Place costs on the vertical axis and current assets on the horizontal axis.On each graph,indicate the shortage costs,carrying costs,total costs,and indicate the optimal investment in current assets.

Accepted Answer

Students should repl

Question 4

You've worked out a line of credit arrangement that allows you to borrow up to $50 million at any time.The interest rate is 0.5 percent per month.In addition,7 percent of the amount that you borrow must be deposited in a non-interest bearing account.Assume your bank uses compound interest on its line of credit loans.What is the effective annual interest rate on this lending arrangement?

Accepted Answer

A) 6.65 percent 
B) 6.72 percent 
C) 6.81 percent 
D) 6.87 percent 
E) 6.94 percent 
A) 6.65 percent 
B) 6.72 percent 
C) 6.81 percent 
D) 6.87 percent 
E) 6.94 percent

Question 5

The primary difference between a line of credit and a revolving credit arrangement is the:

Accepted Answer

A) type of collateral used to secure the loan. 
B) length of the credit period. 
C) fact that the line of credit is a secured loan and the revolving credit arrangement is unsecured. 
D) fact that the line of credit is an unsecured loan and the revolving credit arrangement is secured. 
E) classification as either a committed or a noncommitted loan. 
A) type of collateral used to secure the loan. 
B) length of the credit period. 
C) fact that the line of credit is a secured loan and the revolving credit arrangement is unsecured. 
D) fact that the line of credit is an unsecured loan and the revolving credit arrangement is secured. 
E) classification as either a committed or a noncommitted loan.

Question 6

Tall Guys Clothing has a 45 day collection period.Sales for the next calendar year are estimated at $2,100,$1,600,$2,500 and $2,300,respectively,by quarter,starting with the first quarter of the year.Given this information,which one of the following statements is correct? Assume a year has 360 days.

Accepted Answer

A) The firm will collect $800 in Quarter 2. 
B) The accounts receivable balance at the beginning of Quarter 4 will be $1,150. 
C) The firm will collect $2,000 in Quarter 3. 
D) The firm will have an accounts receivable balance of $2,300 at the end of the year. 
E) The firm will collect a total of $2,400 in Quarter 4. 
A) The firm will collect $800 in Quarter 2. 
B) The accounts receivable balance at the beginning of Quarter 4 will be $1,150. 
C) The firm will collect $2,000 in Quarter 3. 
D) The firm will have an accounts receivable balance of $2,300 at the end of the year. 
E) The firm will collect a total of $2,400 in Quarter 4.

Question 7

The optimal investment in current assets for an operating firm occurs at the point where:

Accepted Answer

A) both shortage costs and carrying costs equal zero. 
B) shortage costs are equal to zero. 
C) carrying costs are equal to zero. 
D) carrying costs exceed shortage costs. 
E) the total costs of holding current assets is minimized. 
A) both shortage costs and carrying costs equal zero. 
B) shortage costs are equal to zero. 
C) carrying costs are equal to zero. 
D) carrying costs exceed shortage costs. 
E) the total costs of holding current assets is minimized.

Question 8

Merryl Enterprises currently has an operating cycle of 59 days.The firm is analyzing some operational changes,which are expected to increase the accounts receivable period by 2 days and decrease the inventory period by 5 days.The accounts payable turnover rate is expected to increase from 42 to 46 times per year.If all of these changes are adopted,what will the firm's new operating cycle be?

Accepted Answer

A) 51 days 
B) 54 days 
C) 56 days 
D) 59 days 
E) 65 days 
A) 51 days 
B) 54 days 
C) 56 days 
D) 59 days 
E) 65 days

Question 9

Details Corp.has a book net worth of $8,150.Long-term debt is $1,800.Net working capital,other than cash,is $2,150.Fixed assets are $2,000.How much cash does the company have?

Accepted Answer

A) $4,250 
B) $4,550 
C) $5,150 
D) $5,800 
E) $6,750 
A) $4,250 
B) $4,550 
C) $5,150 
D) $5,800 
E) $6,750

Question 10

Rachel's has a $50,000 line of credit with Uptown Bank.The line of credit calls for an interest rate of 8 percent and a compensating balance of 4 percent.The compensating balance is based on the total amount borrowed and will be held in an interest-free account.What is the effective annual interest rate if the firm borrows $35,000 for one year?

Accepted Answer

A) 7.76 percent 
B) 8.00 percent 
C) 8.17 percent 
D) 8.33 percent 
E) 8.42 percent 
A) 7.76 percent 
B) 8.00 percent 
C) 8.17 percent 
D) 8.33 percent 
E) 8.42 percent

Question 11

Which one of the following is indicative of a short-term restrictive financial policy?

Accepted Answer

A) purchasing inventory on an as-needed basis 
B) granting credit to all customers 
C) investing heavily in marketable securities 
D) maintaining a large accounts receivable balance 
E) keeping inventory levels high 
A) purchasing inventory on an as-needed basis 
B) granting credit to all customers 
C) investing heavily in marketable securities 
D) maintaining a large accounts receivable balance 
E) keeping inventory levels high

Question 12

HG Livery Supply had a beginning accounts payable balance of $57,300 and an ending accounts payable balance of $55,100.Sales for the period were $610,000 and costs of goods sold were $458,000.What is the payables turnover rate?

Accepted Answer

A) 8.15 times 
B) 8.39 times 
C) 9.02 times 
D) 9.86 times 
E) 10.85 times 
A) 8.15 times 
B) 8.39 times 
C) 9.02 times 
D) 9.86 times 
E) 10.85 times

Question 13

The most common means of financing a temporary cash deficit is a:

Accepted Answer

A) long-term secured bank loan. 
B) short-term secured bank loan. 
C) short-term issue of corporate bonds. 
D) long-term unsecured bank loan. 
E) short-term unsecured bank loan. 
A) long-term secured bank loan. 
B) short-term secured bank loan. 
C) short-term issue of corporate bonds. 
D) long-term unsecured bank loan. 
E) short-term unsecured bank loan.

Question 14

North Side Wholesalers has sales of $948,000.The cost of goods sold is equal to 68 percent of sales.The firm has an average inventory of $23,000.How many days on average does it take the firm to sell its inventory?

Accepted Answer

A) 12.30 days 
B) 13.02 days 
C) 16.48 days 
D) 26.35 days 
E) 29.68 days 
A) 12.30 days 
B) 13.02 days 
C) 16.48 days 
D) 26.35 days 
E) 29.68 days

Question 15

Which one of the following will increase net working capital? Assume the current ratio is greater than 1.0.

Accepted Answer

A) paying a supplier for a previous purchase 
B) paying off a long-term debt 
C) selling inventory at cost 
D) purchasing inventory on credit 
E) selling inventory at a profit on credit 
A) paying a supplier for a previous purchase 
B) paying off a long-term debt 
C) selling inventory at cost 
D) purchasing inventory on credit 
E) selling inventory at a profit on credit

Question 16

Which of the following are sources of cash?
I.decrease in inventory
II.increase in accounts receivable
III.repayment of a bond
IV.sale of preferred stock

Accepted Answer

A) I and III only 
B) I and IV only 
C) II and III only 
D) I, II, and III only 
E) I, III, and IV only 
A) I and III only 
B) I and IV only 
C) II and III only 
D) I, II, and III only 
E) I, III, and IV only

Question 17

A flexible short-term financial policy:
I.increases shortage costs due to frequent cash-outs.
II.tends to increase sales as compared to a restrictive policy.
III.requires a sizeable investment in current assets.
IV.incurs more carrying costs than a restrictive policy.

Accepted Answer

A) I and IV only 
B) II and III only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, III, and IV only 
A) I and IV only 
B) II and III only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, III, and IV only

Question 18

Which one of the following managers determines when a supplier will be paid?

Accepted Answer

A) controller 
B) payables manager 
C) credit manager 
D) purchasing manager 
E) production manager 
A) controller 
B) payables manager 
C) credit manager 
D) purchasing manager 
E) production manager

Question 19

Which one of the following will decrease the net working capital of a firm? Assume the current ratio is greater than 1.0.

Accepted Answer

A) selling inventory at cost 
B) collecting payment from a customer 
C) paying a payment on a long-term debt 
D) selling a fixed asset for book value 
E) paying a supplier for the purchase of an inventory item 
A) selling inventory at cost 
B) collecting payment from a customer 
C) paying a payment on a long-term debt 
D) selling a fixed asset for book value 
E) paying a supplier for the purchase of an inventory item

Question 20

Which one of the following will decrease the operating cycle?

Accepted Answer

A) decreasing the inventory turnover rate 
B) decreasing the accounts payable period 
C) increasing the accounts receivable turnover rate 
D) increasing the accounts payable period 
E) increasing the accounts receivable period 
A) decreasing the inventory turnover rate 
B) decreasing the accounts payable period 
C) increasing the accounts receivable turnover rate 
D) increasing the accounts payable period 
E) increasing the accounts receivable period

Exam 18: Short-Term Finance and Planning

Rose's Gift Shop borrows money on a short-term basis by pledging its inventory as collateral.This is an example of a(n):

Which of the following are associated with a restrictive short-term financial policy? I.little,if any,investment in marketable securities II.liberal credit terms for customers III.low cash balances IV.increasing inventory levels

Using two separate graphs,illustrate a flexible and a restrictive short-term financing policy.Place costs on the vertical axis and current assets on the horizontal axis.On each graph,indicate the shortage costs,carrying costs,total costs,and indicate the optimal investment in current assets.

The primary difference between a line of credit and a revolving credit arrangement is the:

The optimal investment in current assets for an operating firm occurs at the point where:

Details Corp.has a book net worth of $8,150.Long-term debt is $1,800.Net working capital,other than cash,is $2,150.Fixed assets are $2,000.How much cash does the company have?

Which one of the following is indicative of a short-term restrictive financial policy?

HG Livery Supply had a beginning accounts payable balance of $57,300 and an ending accounts payable balance of $55,100.Sales for the period were $610,000 and costs of goods sold were $458,000.What is the payables turnover rate?

The most common means of financing a temporary cash deficit is a:

North Side Wholesalers has sales of $948,000.The cost of goods sold is equal to 68 percent of sales.The firm has an average inventory of $23,000.How many days on average does it take the firm to sell its inventory?

Which one of the following will increase net working capital? Assume the current ratio is greater than 1.0.

Which of the following are sources of cash? I.decrease in inventory II.increase in accounts receivable III.repayment of a bond IV.sale of preferred stock

A flexible short-term financial policy: I.increases shortage costs due to frequent cash-outs. II.tends to increase sales as compared to a restrictive policy. III.requires a sizeable investment in current assets. IV.incurs more carrying costs than a restrictive policy.

Which one of the following managers determines when a supplier will be paid?

Which one of the following will decrease the net working capital of a firm? Assume the current ratio is greater than 1.0.

Which one of the following will decrease the operating cycle?

Introduction to Corporate Finance

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Long-Term Financial Planning and Growth

Introduction to Valuation: The Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Some Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Payout Policy

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Behavioral Finance: Implications for Financial Management

Enterprise Risk Management

Options and Corporate Finance

Option Valuation

Mergers and Acquisitions

Leasing

Filters