Exam 18: Short-Term Finance and Planning

Kid's Delight expects to sell $8,200 worth of toys in December,$3,700 worth in January,$4,400 in February,and $6,100 in March.The wholesale cost is 72 percent of the retail price.The firm has a receivables period of 30 days,a payables period of 60 days,and buys inventory one month prior to selling it.Which one of the following statements is correct?

List and describe the three basic types of secured inventory loans.Compare the advantages and disadvantages of these loans.

Which one of the following actions will tend to increase the accounts receivable period? Assume the accounts receivable period is currently 34 days.

Peterson's Antiquities currently has a 31 day cash cycle.Assume the firm changes its operations such that it decreases its receivables period by 2 days,decreases its inventory period by 3 days,and decreases its payables period by 4 days.What will the length of the cash cycle be after these changes?

The Dog House expects sales of $560,$650,$630,and $610 for the months of May through August,respectively.The firm collects 20 percent of sales in the month of sale,70 percent in the month following the month of sale,and 8 percent in the second month following the month of sale.The remaining 2 percent of sales is never collected.How much money does the firm expect to collect in the month of August?

On May 1,your firm had a beginning cash balance of $175.Your sales for April were $430 and your May sales were $480.During May,you had cash expenses of $110 and payments on your accounts payable of $290.Your accounts receivable period is 30 days.What is your firm's beginning cash balance on June 1?

The Wake-Up Coffee Company has projected the following quarterly sales amounts for the coming year: Accounts receivable at the beginning of the year are $200.Wake-Up has a 60-day collection period.What is the amount of the accounts receivable balance at the end of Quarter 3?

Which one of the following statements is correct?

Your bank offers you a $40,000 line of credit with an interest rate of 1.75 percent per quarter.The loan agreement also requires that 2 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance.Your short-term investments are paying 0.20 percent per month.What is your effective annual interest rate on this arrangement if you do not borrow any money on this credit line during the year? Assume any funds borrowed or invested use compound interest.

Josie's Craft Shack has a beginning cash balance for the quarter of $1,126.The store has a policy of maintaining a minimum cash balance of $1,000 and is willing to borrow funds as needed to maintain that balance.Currently,the firm has a loan balance of $480.How much will the store borrow or repay if the net cash flow for the quarter is -$280?

Which one of the following increases cash?

Workout Together has projected the following sales for the coming year: Sales in the year following this one are projected to be 18 percent greater in each quarter.Assume the firm places orders during each quarter equal to 35 percent of projected sales for the next quarter.How much will the firm pay to its suppliers in Quarter 2 if its accounts payable period is 60 days?

The Blue Star has sales of $387,000,costs of goods sold of $259,000,average accounts receivable of $12,100,and average accounts payable of $12,600.How long does it take for the firm's credit customers to pay for their purchases?

A flexible short-term financial policy:

Which of the following statements is (are)correct? I.An increase in the accounts payable period shortens the cash cycle. II.The cash cycle is equal to the operating cycle minus the inventory period. III.A negative cash cycle is preferable to a positive cash cycle. IV.The cash cycle plus the accounts receivable period is equal to the operating cycle.

Which of the following will increase the operating cycle? I.increasing the inventory turnover rate II.increasing the payables period III.decreasing the receivable turnover rate IV.decreasing the inventory level

Central Supply purchased a toboggan for inventory this morning and paid cash for it.The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the:

Davis and Davis have expected sales of $490,$465,$450,and $570 for the months of January through April,respectively.The accounts receivable period is 28 days.What is the accounts receivable balance at the end of March? Assume a year has 360 days.

The Bear Rug has sales of $811,000.The cost of goods sold is equal to 63 percent of sales.The beginning accounts receivable balance is $41,000 and the ending accounts receivable balance is $38,000.How long on average does it take the firm to collect its receivables?

Compensating balances are frequently a part of revolving lending arrangements with banks,yet they add to the cost of financing for the borrower.Why,then,would borrowers agree to such terms? What other types of alternative financing are available?