Question 1

If a firm needs to increase its cash holdings it could:

Accepted Answer

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

Question 2

Martinique's has a collection period of 60 days.Sales for the next calendar year are estimated at $1,550,$1,230,$1,780 and $2,800,respectively,by quarter starting with the first quarter of the year.Given this information,which one of the following statements is correct? Assume a 360-day year.

Accepted Answer

A) The firm will collect $1,133.33 in Quarter 2. 
B) The accounts receivable balance at the beginning of Quarter 4 will be $1,066.67. 
C) The firm will collect $593.33 from Quarter 2 sales in Quarter 3. 
D) The firm will have an accounts receivable balance of $1,866.67 at the end of the year. 
E) The firm will collect a total of $1,033.33 in Quarter 4. 
A) The firm will collect $1,133.33 in Quarter 2. 
B) The accounts receivable balance at the beginning of Quarter 4 will be $1,066.67. 
C) The firm will collect $593.33 from Quarter 2 sales in Quarter 3. 
D) The firm will have an accounts receivable balance of $1,866.67 at the end of the year. 
E) The firm will collect a total of $1,033.33 in Quarter 4.

Question 3

If the average accounts receivable that a firm holds decreases without any decrease in credit sales,the operating cycle will:

Accepted Answer

A) remain constant because sales remained constant. 
B) remain constant because the change will only affect the cash cycle. 
C) decrease because the days' sales outstanding will decrease. 
D) increase because the accounts receivable turnover will decrease. 
E) decrease because the accounts receivable turnover will decrease. 
A) remain constant because sales remained constant. 
B) remain constant because the change will only affect the cash cycle. 
C) decrease because the days' sales outstanding will decrease. 
D) increase because the accounts receivable turnover will decrease. 
E) decrease because the accounts receivable turnover will decrease.

Question 4

A firm currently has a cash cycle of 36 days.Assume the firm changes its operations such that it decreases its receivables period by 4 days,decreases its inventory period by 1 day,and decreases its payables period by 2 days.What will be the length of the cash cycle after these changes?

Accepted Answer

A) 31 days 
B) 35 days 
C) 33 days 
D) 37 days 
E) 38 days 
A) 31 days 
B) 35 days 
C) 33 days 
D) 37 days 
E) 38 days

Question 5

The operating cycle will decrease if you decrease the:

Accepted Answer

A) days sales in inventory. 
B) days in accounts payable. 
C) cash cycle by increasing the accounts payable period. 
D) accounts receivable turnover rate. 
E) speed at which inventory is sold. 
A) days sales in inventory. 
B) days in accounts payable. 
C) cash cycle by increasing the accounts payable period. 
D) accounts receivable turnover rate. 
E) speed at which inventory is sold.

Question 6

Brown's Market currently has an operating cycle of 76.8 days.It is planning some operational changes that are expected to decrease the accounts receivable period by 2.8 days and decrease the inventory period by 3.1 days.The accounts payable turnover rate is expected to increase from 9 to 11.5 times per year.If all these changes are adopted,what will be the firm's new operating cycle?

Accepted Answer

A) 68.4 days 
B) 73.4 days 
C) 63.3 days 
D) 57.9 days 
E) 70.9 days 
A) 68.4 days 
B) 73.4 days 
C) 63.3 days 
D) 57.9 days 
E) 70.9 days

Question 7

The length of time between the payment for 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 8

A short-term loan where the lender holds the borrower's receivables as security 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 9

Flexible short-term financial policies tend to:

Accepted Answer

A) maintain low accounts receivable balances. 
B) support few investments in marketable securities. 
C) minimize the investment in inventory. 
D) maintain large cash balances. 
E) tightly restrict credit sales. 
A) maintain low accounts receivable balances. 
B) support few investments in marketable securities. 
C) minimize the investment in inventory. 
D) maintain large cash balances. 
E) tightly restrict credit sales.

Question 10

Heritage Farms has sales of $1.62 million with costs of goods sold equal to 78 percent of sales.The average inventory is $369,000,accounts payable average $438,000,and receivables average $147,000.How long is the cash cycle?

Accepted Answer

A) 13.19 days 
B) 13.30 days 
C) 17.29 days 
D) 7.54 days 
E) 11.77 days 
A) 13.19 days 
B) 13.30 days 
C) 17.29 days 
D) 7.54 days 
E) 11.77 days

Question 11

If The Deli delays paying its suppliers by an additional ten days,then:

Accepted Answer

A) its payables turnover rate will increase. 
B) it should require less bank financing of its daily operations. 
C) its cash cycle will increase by ten days. 
D) its operating cycle will increase by ten days. 
E) its stock-out costs will rise. 
A) its payables turnover rate will increase. 
B) it should require less bank financing of its daily operations. 
C) its cash cycle will increase by ten days. 
D) its operating cycle will increase by ten days. 
E) its stock-out costs will rise.

Question 12

Smith and Johnson have expected sales of $2,380,$2,840,$4,430,and $4,480 for the months of January through April,respectively.The accounts receivable period is 15 days.How much did the firm collect in the month of March? Assume a 30-day month.

Accepted Answer

A) $2,215 
B) $4,160 
C) $3,635 
D) $3,430 
E) $1,420 
A) $2,215 
B) $4,160 
C) $3,635 
D) $3,430 
E) $1,420

Question 13

The cash cycle is defined as the time between:

Accepted Answer

A) the arrival of inventory and cash collected from receivables. 
B) selling a product and paying the supplier of that product. 
C) selling a product and collecting the accounts receivable. 
D) cash disbursements and cash collection for an item. 
E) the sale of inventory and cash collection. 
A) the arrival of inventory and cash collected from receivables. 
B) selling a product and paying the supplier of that product. 
C) selling a product and collecting the accounts receivable. 
D) cash disbursements and cash collection for an item. 
E) the sale of inventory and cash collection.

Question 14

Commercial paper is generally issued:

Accepted Answer

A) by large firms. 
B) for 190 days or less. 
C) by commercial banks. 
D) for 90 to 180 days. 
E) at the prime rate offered by the firm's bank. 
A) by large firms. 
B) for 190 days or less. 
C) by commercial banks. 
D) for 90 to 180 days. 
E) at the prime rate offered by the firm's bank.

Question 15

Identify the three primary characteristics of a restrictive short-term financial policy.

Accepted Answer

The three characteristics are:

Question 16

Baxter Trucking has a net cash inflow for the quarter of $38 including interest,a beginning cash balance of $22,and a beginning loan balance of $45.Company policy is to maintain a minimum cash balance of $20.What is the minimum amount the firm must borrow or can repay to end the month with a zero cumulative surplus?

Accepted Answer

A) Borrow $4 
B) Borrow $9 
C) Repay $36 
D) Repay $422 
E) Repay $40 
A) Borrow $4 
B) Borrow $9 
C) Repay $36 
D) Repay $422 
E) Repay $40

Question 17

New World has a beginning cash balance of $536 on February 1st.The firm has projected sales of $660 in January,$810 in February,and $890 in March.The cost of goods sold is equal to 70 percent of sales.Goods are purchased one month prior to the month of sale.The accounts payable period is 30 days and the accounts receivable period is 15 days.The firm has monthly cash expenses of $225.What is the projected ending cash balance at the end of February? Assume 30-day months.

Accepted Answer

A) $437 
B) $502 
C) $479 
D) $423 
E) $486 
A) $437 
B) $502 
C) $479 
D) $423 
E) $486

Question 18

Birds Unlimited has an accounts payable period of 60 days.The firm has expected sales of $17,800,$22,100,$24,400 and $28,800,respectively,by quarter for the next calendar year.The purchases for a quarter are equal to 65 percent of the following quarter's sales.What is the amount of the projected cash disbursements for accounts payable for Quarter 3? Assume a 360-day year.

Accepted Answer

A) $11,126.67 
B) $16,813.33 
C) $12,693.33 
D) $17,125.50 
E) $12,250.33 
A) $11,126.67 
B) $16,813.33 
C) $12,693.33 
D) $17,125.50 
E) $12,250.33

Question 19

Wilson's Dry Goods has a line of credit with a local bank for $250,000.The loan agreement calls for interest of 7.6 percent with a compensating balance requirement of 5 percent,which is based on the total amount borrowed.What is the effective interest rate if the firm needed $138,000 for one year to cover its expansion costs?

Accepted Answer

A) 8.55 percent 
B) 7.60 percent 
C) 8.13 percent 
D) 8.38 percent 
E) 8.00 percent 
A) 8.55 percent 
B) 7.60 percent 
C) 8.13 percent 
D) 8.38 percent 
E) 8.00 percent

Question 20

A firm has an inventory turnover rate of 15.7,a receivables turnover rate of 20.2,and a payables turnover rate of 14.6.How long is the cash cycle?

Accepted Answer

A) 28.46 days 
B) 16.32 days 
C) 32.87 days 
D) 13.08 days 
E) 23.37 days 
A) 28.46 days 
B) 16.32 days 
C) 32.87 days 
D) 13.08 days 
E) 23.37 days

Exam 26: Short-Term Finance and Planning

If a firm needs to increase its cash holdings it could:

Martinique's has a collection period of 60 days.Sales for the next calendar year are estimated at $1,550,$1,230,$1,780 and $2,800,respectively,by quarter starting with the first quarter of the year.Given this information,which one of the following statements is correct? Assume a 360-day year.

If the average accounts receivable that a firm holds decreases without any decrease in credit sales,the operating cycle will:

A firm currently has a cash cycle of 36 days.Assume the firm changes its operations such that it decreases its receivables period by 4 days,decreases its inventory period by 1 day,and decreases its payables period by 2 days.What will be the length of the cash cycle after these changes?

The operating cycle will decrease if you decrease the:

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

A short-term loan where the lender holds the borrower's receivables as security is called:

Flexible short-term financial policies tend to:

Heritage Farms has sales of $1.62 million with costs of goods sold equal to 78 percent of sales.The average inventory is $369,000,accounts payable average $438,000,and receivables average $147,000.How long is the cash cycle?

If The Deli delays paying its suppliers by an additional ten days,then:

Smith and Johnson have expected sales of $2,380,$2,840,$4,430,and $4,480 for the months of January through April,respectively.The accounts receivable period is 15 days.How much did the firm collect in the month of March? Assume a 30-day month.

The cash cycle is defined as the time between:

Commercial paper is generally issued:

Identify the three primary characteristics of a restrictive short-term financial policy.

A firm has an inventory turnover rate of 15.7,a receivables turnover rate of 20.2,and a payables turnover rate of 14.6.How long is the cash cycle?

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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