Question 1

The operating cycle can be decreased by:

Accepted Answer

A) paying accounts payable faster. 
B) discontinuing the discount given for early payment of an accounts receivable. 
C) decreasing the inventory turnover rate. 
D) collecting accounts receivable faster. 
E) increasing the accounts payable turnover rate. 
A) paying accounts payable faster. 
B) discontinuing the discount given for early payment of an accounts receivable. 
C) decreasing the inventory turnover rate. 
D) collecting accounts receivable faster. 
E) increasing the accounts payable turnover rate. D

Question 2

Salem Inc.has an inventory turnover of 15 and an accounts receivable turnover of 9.The accounts payable period is 51 days.What is the length of the cash cycle?

Accepted Answer

A) 13.89 days 
B) 14.07 days 
C) 14.23 days 
D) 18.79 days 
E) 23.00 days 
A) 13.89 days 
B) 14.07 days 
C) 14.23 days 
D) 18.79 days 
E) 23.00 days A

Question 3

Wilco's currently has a cash cycle of 43 days.Assume the firm changes its operations such that it decreases its receivables period by 2 days,increases its inventory period by 1 day,and increases its payables period by 3 days.What will be the length of the cash cycle after these changes?

Accepted Answer

A) 38 days 
B) 41 days 
C) 39 days 
D) 43 days 
E) 45 days 
A) 38 days 
B) 41 days 
C) 39 days 
D) 43 days 
E) 45 days C

Question 4

A short-term loan which is secured by inventory that is held in trust is referred to as:

Accepted Answer

A) a blanket inventory lien. 
B) a secured line of credit. 
C) a banker's acceptance. 
D) a trust receipt financing arrangement. 
E) field warehousing financing. 
A) a blanket inventory lien. 
B) a secured line of credit. 
C) a banker's acceptance. 
D) a trust receipt financing arrangement. 
E) field warehousing financing.

Question 5

A flexible short-term financial policy:

Accepted Answer

A) increases the likelihood that a firm will face financial distress. 
B) incurs an opportunity cost due to the rate of return that applies to short-term assets. 
C) advocates a smaller investment in net working capital than a restrictive policy does. 
D) increases the probability that a firm will earn high returns on all its assets. 
E) utilizes short-term financing to fund all the firm's assets. 
A) increases the likelihood that a firm will face financial distress. 
B) incurs an opportunity cost due to the rate of return that applies to short-term assets. 
C) advocates a smaller investment in net working capital than a restrictive policy does. 
D) increases the probability that a firm will earn high returns on all its assets. 
E) utilizes short-term financing to fund all the firm's assets.

Question 6

D & F expects credit sales of $980,$1,460,$1,730 and $950 for the months of April through July,respectively.The firm collects 25 percent of sales in the month of sale,65 percent of sales in the month following the month of sale,and 8 percent in the second month following the month of sale.The remaining sales are never collected.How much money does the firm expect to collect in the month of July?

Accepted Answer

A) $1,645.50 
B) $1,478.80 
C) $1,571.10 
D) $1,374.20 
E) $1,475.50 
A) $1,645.50 
B) $1,478.80 
C) $1,571.10 
D) $1,374.20 
E) $1,475.50

Question 7

Weisbro and Sons purchases its inventory one quarter prior to the quarter of sale.The purchase price is 60 percent of the sales price.The accounts payable period is 45 days.The accounts payable balance at the beginning of Quarter 1 is $39,500.The expected sales are: Quarter 1 = $32,000; Quarter 2 = $34,500; Quarter 3 = $40,600; Quarter 4 = $50,200.What is the amount of the expected disbursements for Quarter 2? Assume a 360-day year.

Accepted Answer

A) $19,280 
B) $20,470 
C) $22,530 
D) $25,220 
E) $19,950 
A) $19,280 
B) $20,470 
C) $22,530 
D) $25,220 
E) $19,950

Question 8

Bilt Rite has sales of $610,000 and cost of goods sold equal to 68 percent of sales.The beginning accounts receivable balance is $58,900 and the ending accounts receivable balance is $61,050.How long on average does it take the firm to collect its receivables?

Accepted Answer

A) 35.89 days 
B) 44.09 days 
C) 41.07 days 
D) 25.98 days 
E) 26.52 days 
A) 35.89 days 
B) 44.09 days 
C) 41.07 days 
D) 25.98 days 
E) 26.52 days

Question 9

Miller's Hardware has a flexible short-term financing policy.Over the course of one year,the firm should expect to have some months that allow it to:

Accepted Answer

A) repay all its debts. 
B) invest in marketable securities. 
C) reduce its total costs below the firm's normal minimum total cost point. 
D) finance all its assets with short-term loans. 
E) earn high returns on all its current assets. 
A) repay all its debts. 
B) invest in marketable securities. 
C) reduce its total costs below the firm's normal minimum total cost point. 
D) finance all its assets with short-term loans. 
E) earn high returns on all its current assets.

Question 10

A manufacturing firm has a 90-day collection period.The firm produces seasonal merchandise and thus has the least sales during the first quarter of a year and the highest level of sales during the third quarter of a year.The firm maintains a relatively steady level of production which means that its cash disbursements are approximately equal in all quarters.The firm is most apt to face a cash-out situation in:

Accepted Answer

A) the first quarter. 
B) the second quarter. 
C) the third quarter. 
D) the fourth quarter. 
E) any quarter,equally. 
A) the first quarter. 
B) the second quarter. 
C) the third quarter. 
D) the fourth quarter. 
E) any quarter,equally.

Question 11

Which one of these statements is true?

Accepted Answer

A) The cumulative finance surplus requirement is computed prior to adjusting for the minimum cash balance. 
B) A financially sound firm will always have a positive quarterly net cash flow. 
C) A negative cumulative cash surplus indicates a borrowing need. 
D) Most firms plan on maintaining a zero cash balance. 
E) The minimum cash balance generally increases on a quarterly basis. 
A) The cumulative finance surplus requirement is computed prior to adjusting for the minimum cash balance. 
B) A financially sound firm will always have a positive quarterly net cash flow. 
C) A negative cumulative cash surplus indicates a borrowing need. 
D) Most firms plan on maintaining a zero cash balance. 
E) The minimum cash balance generally increases on a quarterly basis.

Question 12

Cash increases when:

Accepted Answer

A) long-term debt decreases. 
B) equity decreases. 
C) current liabilities decrease. 
D) accounts payable increases. 
E) fixed assets increase. 
A) long-term debt decreases. 
B) equity decreases. 
C) current liabilities decrease. 
D) accounts payable increases. 
E) fixed assets increase.

Question 13

The inventory turnover for the Lambkin Company was 9.4 times and its days' sales in receivables was 46.What is the operating cycle given a 365-day year?

Accepted Answer

A) 45.63 days 
B) 55.40 days 
C) 63.25 days 
D) 84.83 days 
E) 74.29 days 
A) 45.63 days 
B) 55.40 days 
C) 63.25 days 
D) 84.83 days 
E) 74.29 days

Question 14

Which one of the following will not affect the operating cycle?

Accepted Answer

A) Decreasing the payables turnover from 7 times to 6 times 
B) Increasing the days sales in receivables 
C) Decreasing the inventory turnover rate 
D) Increasing the average receivables balance 
E) Decreasing the credit repayment times for the firm's customers 
A) Decreasing the payables turnover from 7 times to 6 times 
B) Increasing the days sales in receivables 
C) Decreasing the inventory turnover rate 
D) Increasing the average receivables balance 
E) Decreasing the credit repayment times for the firm's customers

Question 15

The accounts receivable policy is generally set by the:

Accepted Answer

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

Question 16

One use of cash is represented by:

Accepted Answer

A) an increase in borrowing. 
B) an increase in operating cash flow. 
C) a decrease in accounts payable. 
D) an increase in notes payable. 
E) a decrease in inventory. 
A) an increase in borrowing. 
B) an increase in operating cash flow. 
C) a decrease in accounts payable. 
D) an increase in notes payable. 
E) a decrease in inventory.

Question 17

Which one of these statements is correct?

Accepted Answer

A) A farmer generally uses trust receipt financing to finance operations during the growing season. 
B) An auto dealer is most apt to use purchase order financing. 
C) A drug store is most apt to use trust receipt financing. 
D) Trust receipt financing is most applicable to large,easily identifiable types of inventory. 
E) Blanket inventory lien financing is another term for purchase order financing. 
A) A farmer generally uses trust receipt financing to finance operations during the growing season. 
B) An auto dealer is most apt to use purchase order financing. 
C) A drug store is most apt to use trust receipt financing. 
D) Trust receipt financing is most applicable to large,easily identifiable types of inventory. 
E) Blanket inventory lien financing is another term for purchase order financing.

Question 18

The short-term financial policy a firm adopts will be reflected in:

Accepted Answer

A) the size of the firm's investment in current assets. 
B) the financing of current assets. 
C) the financing of fixed assets. 
D) both the size and the financing of current assets. 
E) both the size and the financing of fixed assets. 
A) the size of the firm's investment in current assets. 
B) the financing of current assets. 
C) the financing of fixed assets. 
D) both the size and the financing of current assets. 
E) both the size and the financing of fixed assets.

Question 19

The length of time between the acquisition of inventory by a firm and the payment by the firm for that inventory is called the:

Accepted Answer

A) operating cycle. 
B) inventory period. 
C) accounts receivable period. 
D) accounts payable period. 
E) cash cycle. 
A) operating cycle. 
B) inventory period. 
C) accounts receivable period. 
D) accounts payable period. 
E) cash cycle.

Question 20

A compensating balance:

Accepted Answer

A) requirement generally applies to inventory-type loans. 
B) is a means of paying for banking services received. 
C) requirement is generally set equal to one percent of the amount borrowed. 
D) decreases the cost of short-term bank financing. 
E) refunds a portion of the borrower's interest if a loan is repaid early. 
A) requirement generally applies to inventory-type loans. 
B) is a means of paying for banking services received. 
C) requirement is generally set equal to one percent of the amount borrowed. 
D) decreases the cost of short-term bank financing. 
E) refunds a portion of the borrower's interest if a loan is repaid early.

Exam 26: Short-Term Finance and Planning

The operating cycle can be decreased by:

Salem Inc.has an inventory turnover of 15 and an accounts receivable turnover of 9.The accounts payable period is 51 days.What is the length of the cash cycle?

Wilco's currently has a cash cycle of 43 days.Assume the firm changes its operations such that it decreases its receivables period by 2 days,increases its inventory period by 1 day,and increases its payables period by 3 days.What will be the length of the cash cycle after these changes?

A short-term loan which is secured by inventory that is held in trust is referred to as:

A flexible short-term financial policy:

Bilt Rite has sales of $610,000 and cost of goods sold equal to 68 percent of sales.The beginning accounts receivable balance is $58,900 and the ending accounts receivable balance is $61,050.How long on average does it take the firm to collect its receivables?

Miller's Hardware has a flexible short-term financing policy.Over the course of one year,the firm should expect to have some months that allow it to:

Which one of these statements is true?

Cash increases when:

The inventory turnover for the Lambkin Company was 9.4 times and its days' sales in receivables was 46.What is the operating cycle given a 365-day year?

Which one of the following will not affect the operating cycle?

The accounts receivable policy is generally set by the:

One use of cash is represented by:

Which one of these statements is correct?

The short-term financial policy a firm adopts will be reflected in:

The length of time between the acquisition of inventory by a firm and the payment by the firm for that inventory is called the:

A compensating balance:

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements and Cash Flow

Discounted Cash Flow Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, real Options, and Capital Budgeting

Interest Rates and Bond Valuation

Stock Valuation

Lessons From Market History

Return, risk, and the Capital Asset Pricing Model Capm

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk, cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Raising Capital

Leasing

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Cash Management

Credit and Inventory Management

Mergers,acquisitions,and Divestitures

Financial Distress

International Corporate Finance

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