Question 1

A type of short-term loan where the borrower sells its receivables to the lender up-front,but at a discount to face value,is called:

Accepted Answer

A) a compensating balance. 
B) assigned receivables financing. 
C) a letter of credit. 
D) factored receivables financing. 
E) a bond. 
A) a compensating balance. 
B) assigned receivables financing. 
C) a letter of credit. 
D) factored receivables financing. 
E) a bond.

Question 2

Cash decreases when:

Accepted Answer

A) current assets other than cash increase. 
B) fixed assets decrease. 
C) current liabilities increase. 
D) retained earnings increase. 
E) long-term debt increases. 
A) current assets other than cash increase. 
B) fixed assets decrease. 
C) current liabilities increase. 
D) retained earnings increase. 
E) long-term debt increases.

Question 3

A use of cash is associated with:

Accepted Answer

A) a decrease in a liability. 
B) an increase in an asset. 
C) an increase in retained earnings. 
D) both an increase in an asset and an increase in retained earnings. 
E) both a decrease in a liability and an increase in an asset. 
A) a decrease in a liability. 
B) an increase in an asset. 
C) an increase in retained earnings. 
D) both an increase in an asset and an increase in retained earnings. 
E) both a decrease in a liability and an increase in an asset.

Question 4

You can decrease the cash cycle by:

Accepted Answer

A) increasing the cash discount offered to customers who pay their accounts early. 
B) increasing the percentage of customers paying with credit rather than cash. 
C) increasing the amount of raw materials kept in inventory. 
D) paying your suppliers earlier to receive a discount on your purchases. 
E) increasing your inventory to prevent stock-outs. 
A) increasing the cash discount offered to customers who pay their accounts early. 
B) increasing the percentage of customers paying with credit rather than cash. 
C) increasing the amount of raw materials kept in inventory. 
D) paying your suppliers earlier to receive a discount on your purchases. 
E) increasing your inventory to prevent stock-outs.

Question 5

A financially solid firm is most apt to have a quarterly cash shortfall when it encounters a:

Accepted Answer

A) period of relatively constant sales. 
B) major fixed asset expenditure. 
C) period of rising interest rates. 
D) period of declining interest rates. 
E) period of increased cash collections. 
A) period of relatively constant sales. 
B) major fixed asset expenditure. 
C) period of rising interest rates. 
D) period of declining interest rates. 
E) period of increased cash collections.

Question 6

A firm that adopts a flexible short-term financial policy is more apt to have:

Accepted Answer

A) lower carrying costs than shortage costs. 
B) lower shortage costs than carrying costs. 
C) stricter limits on credit sales than the average firm. 
D) a relatively low level of current assets. 
E) greater short-term financing needs than if the firm adopted a restrictive policy. 
A) lower carrying costs than shortage costs. 
B) lower shortage costs than carrying costs. 
C) stricter limits on credit sales than the average firm. 
D) a relatively low level of current assets. 
E) greater short-term financing needs than if the firm adopted a restrictive policy.

Question 7

As the owner of Better Built Products,you plan to implement a system whereby customers who pay their bills within 30 days will receive a rebate of 2 percent on their purchases.Those who pay within 5 days will receive a rebate of 3 percent.Explain the impact of this proposal on the firm.

Accepted Answer

The obvious results of this policy chang

Question 8

Costs of the firm that rise with increased levels of investment in its current assets are called ________ costs.

Accepted Answer

A) carrying 
B) shortage 
C) order 
D) safety 
E) trading 
A) carrying 
B) shortage 
C) order 
D) safety 
E) trading

Question 9

List and describe three basic types of secured inventory loans.What are the advantages and disadvantages of each type of loan?

Accepted Answer

The three types discussed are blanket li

Question 10

Accounts receivable and inventory are some of the most liquid assets a firm owns and their market values are typically fairly close to book value.Even so,in the eyes of many lenders,these assets make for inadequate collateral on loans,particularly if the business looking to borrow the money is in a liquidity crisis.Why do you think this is the case?

Accepted Answer

From a lender's standpoint,these assets

Question 11

A cumulative cash deficit indicates a firm:

Accepted Answer

A) has at least a short-term need for external funding. 
B) is facing long-term financial distress. 
C) will go out of business within the year. 
D) is capable of funding all its needs internally. 
E) is using its cash wisely. 
A) has at least a short-term need for external funding. 
B) is facing long-term financial distress. 
C) will go out of business within the year. 
D) is capable of funding all its needs internally. 
E) is using its cash wisely.

Question 12

The length of time between the sale of inventory and the collection of cash from receivables 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 13

For 2018,Tree Top Farms had sales of $438,000,cost of goods sold of $286,000,ending inventory of $154,000,ending accounts receivable of $46,000,and ending accounts payable of $38,000.For 2019,sales were $413,000,cost of goods sold was $281,000,ending inventory was $149,000,ending accounts receivables were $48,000,and ending accounts payable were $36,000.What was the cash cycle for 2019 based on a 365-day year?

Accepted Answer

A) 202.96 
B) 190.27 
C) 203.17 
D) 185.87 
E) 186.05 
A) 202.96 
B) 190.27 
C) 203.17 
D) 185.87 
E) 186.05

Question 14

Brook Side reported sales of $738,000 and cost of goods sold of $584,000 for the year.The firm had a beginning inventory of $51,000 and an ending inventory of $46,000.What is the length of the inventory period?

Accepted Answer

A) 15.24 days 
B) 15.16 days 
C) 31.19 days 
D) 29.87 days 
E) 30.31 days 
A) 15.24 days 
B) 15.16 days 
C) 31.19 days 
D) 29.87 days 
E) 30.31 days

Question 15

On April 1st,Morning Coffee had a beginning cash balance of $318.Sales for March were $460 and April sales were $510.During April the firm had cash expenses of $327 and payments on accounts payable of $262.The accounts receivable period is 30 days.What is the firm's beginning cash balance on May 1st?

Accepted Answer

A) $189 
B) $173 
C) $211 
D) $239 
E) $210 
A) $189 
B) $173 
C) $211 
D) $239 
E) $210

Question 16

Young's had a beginning accounts payable balance of $42,900 and an ending accounts payable balance of $44,800.Sales for the period were $770,000 and costs of goods sold were $598,000.If the operating cycle is 129 days,how long is the firm's cash cycle?

Accepted Answer

A) 102.24 days 
B) 79.35 days 
C) 97.13 days 
D) 81.19 days 
E) 107.78 days 
A) 102.24 days 
B) 79.35 days 
C) 97.13 days 
D) 81.19 days 
E) 107.78 days

Question 17

Wilson's has an inventory turnover rate of 16,an accounts payable period of 47 days,and an accounts receivable period of 37 days.What is the length of the cash cycle?

Accepted Answer

A) 32.81 days 
B) −6.00 days 
C) 2.00 days 
D) 6.00 days 
E) 12.81 days 
A) 32.81 days 
B) −6.00 days 
C) 2.00 days 
D) 6.00 days 
E) 12.81 days

Question 18

All Rite Co.has arranged a line of credit of $225,000 with an interest rate of 8.25 percent and a compensating balance requirement of 1.5 percent,which is based on the total amount borrowed.Assume the firm uses this source of funding to purchase a $167,000 piece of equipment and repays the loan in a lump sum at the end of one year.What is the effective interest rate?

Accepted Answer

A) 9.75 percent 
B) 9.27 percent 
C) 8.08 percent 
D) 8.26 percent 
E) 8.38 percent 
A) 9.75 percent 
B) 9.27 percent 
C) 8.08 percent 
D) 8.26 percent 
E) 8.38 percent

Question 19

Gonzalez Mercantile has an inventory turnover of 8.3,days' sales in receivables of 57,and an average payables turnover of 7.2.What is the cash cycle given a 365-day year?

Accepted Answer

A) 50.28 days 
B) 58.04 days 
C) 55.00 days 
D) 49.29 days 
E) 61.37 days 
A) 50.28 days 
B) 58.04 days 
C) 55.00 days 
D) 49.29 days 
E) 61.37 days

Question 20

ABC Manufacturing historically produced products that were held in inventory until they could be sold to a customer.The firm is now changing its policy and only producing a product when it receives an actual order from a customer.All else equal,this change will:

Accepted Answer

A) increase the operating cycle. 
B) lengthen the accounts receivable period. 
C) shorten the accounts payable period. 
D) decrease the cash cycle. 
E) decrease the inventory turnover rate. 
A) increase the operating cycle. 
B) lengthen the accounts receivable period. 
C) shorten the accounts payable period. 
D) decrease the cash cycle. 
E) decrease the inventory turnover rate.

Exam 26: Short-Term Finance and Planning

A type of short-term loan where the borrower sells its receivables to the lender up-front,but at a discount to face value,is called:

Cash decreases when:

A use of cash is associated with:

You can decrease the cash cycle by:

A financially solid firm is most apt to have a quarterly cash shortfall when it encounters a:

A firm that adopts a flexible short-term financial policy is more apt to have:

As the owner of Better Built Products,you plan to implement a system whereby customers who pay their bills within 30 days will receive a rebate of 2 percent on their purchases.Those who pay within 5 days will receive a rebate of 3 percent.Explain the impact of this proposal on the firm.

Costs of the firm that rise with increased levels of investment in its current assets are called ________ costs.

List and describe three basic types of secured inventory loans.What are the advantages and disadvantages of each type of loan?

A cumulative cash deficit indicates a firm:

The length of time between the sale of inventory and the collection of cash from receivables is called the:

Brook Side reported sales of $738,000 and cost of goods sold of $584,000 for the year.The firm had a beginning inventory of $51,000 and an ending inventory of $46,000.What is the length of the inventory period?

Young's had a beginning accounts payable balance of $42,900 and an ending accounts payable balance of $44,800.Sales for the period were $770,000 and costs of goods sold were $598,000.If the operating cycle is 129 days,how long is the firm's cash cycle?

Wilson's has an inventory turnover rate of 16,an accounts payable period of 47 days,and an accounts receivable period of 37 days.What is the length of the cash cycle?

Gonzalez Mercantile has an inventory turnover of 8.3,days' sales in receivables of 57,and an average payables turnover of 7.2.What is the cash cycle given a 365-day year?

ABC Manufacturing historically produced products that were held in inventory until they could be sold to a customer.The firm is now changing its policy and only producing a product when it receives an actual order from a customer.All else equal,this change will:

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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