Question 1

High Point Hotel (HPH) has $218,000 in accounts receivable. To finance a major purchase, the company assigns these receivables to Cross Town Bank. Which one of the following statements correctly describes this transaction?

Accepted Answer

A)  HPH will immediately receive $218,000 and will have no further obligation related to these receivables. 
B)  HPH will receive some amount of cash immediately while maintaining full responsibility for any uncollected receivables. 
C)  Cross Town Bank accepts full responsibility for the collection of the accounts receivables and, in exchange, immediately pays HPH a discounted value for its receivables. 
D)  Cross Town Bank accepts full responsibility for collecting the accounts receivables and pays HPH a discounted price for the accounts collected after the normal collection period has elapsed. 
E)  HPH receives the full amount of its receivables upon assignment but must reimburse Cross Town Bank for any uncollected account.

Question 2

Metal Products Co. has an inventory period of 94.2 days, an accounts payable period of 40.4 days, and an accounts receivable turnover rate of 17.6. What is the length of the cash cycle?

Accepted Answer

A)  71.40 days 
B)  74.54 days 
C)  96.28 days 
D)  114.94 days 
E)  108.28 days

Question 3

Which one of these will decrease the cash cycle, all else held constant?

Accepted Answer

A)  Increasing the accounts receivable turnover rate 
B)  Decreasing the accounts payable period 
C)  Increasing the inventory period 
D)  Decreasing the inventory turnover rate 
E)  Increasing the accounts receivable period

Question 4

Plant Mart has a beginning receivables balance on February 1 of $1,648. Sales for February through May are $2,670, $2,940, $3,820, and $4,450, respectively. The accounts receivable period is 15 days. What is the amount of the April collections? Assume a year has 360 days.

Accepted Answer

A)  $3,010 
B)  $3,380 
C)  $2,805 
D)  $3,545 
E)  $3,470

Question 5

Kid's Delight expects to sell $135,900 of toys in December, $64,700 in January, $74,400 in February, and $56,800 in March. The wholesale cost is 58 percent of the retail price. The receivables period is 30 days, the payables period is 60 days, and all inventory is purchased one month prior to selling it. What is the accounts payable balance at the end of February? Assume a year has 360 days.

Accepted Answer

A)  $74,544 
B)  $80,678 
C)  $79,327 
D)  $76,168 
E)  $76,096

Question 6

Nadine's Boutique has an accounts payable period of 30 days. Sales of $3,300, $3,400, $4,600, and $4,100 are expected for Quarters 1 through 4, respectively. The cost of goods sold is equal to 62 percent of the next quarter's sales. The accounts payable balance is $975 as of the beginning of Quarter 1. What is the amount of the projected cash disbursements for accounts payable for Quarter 2 of next year? Assume a year has 360 days.

Accepted Answer

A)  $2,645 
B)  $2,486 
C)  $2,567 
D)  $2,604 
E)  $2,670

Question 7

The Box Store has a beginning cash balance of $318 on March 1. Projected sales are $720 for February, $850 for March, and $980 for April. The cost of goods sold is equal to 57 percent of sales with goods being purchased one month prior to the month of sale. The accounts payable period is 45 days and the accounts receivable period is 20 days. The firm has monthly cash expenses of $274. What is the projected ending cash balance at the end of March? Assume every month has 30 days.

Accepted Answer

A)  $342 
B)  $360 
C)  $407 
D)  $418 
E)  $372

Question 8

The Sports Store has a beginning receivables balance on January 1 of $2,640. Sales for January through April are $3,440, $3,590, $2,690, and $4,720, respectively. The accounts receivable period is 45 days. How much did the store collect in the month of April? Assume a year has 360 days.

Accepted Answer

A)  $3,515 
B)  $3,445 
C)  $3,140 
D)  $3,690 
E)  $3,705

Question 9

Which one of the following actions will tend to increase the inventory period?

Accepted Answer

A)  Discontinuing all slow-selling merchandise 
B)  Selling obsolete inventory below cost just to get rid of it 
C)  Buying raw materials only as needed for the manufacturing process 
D)  Producing goods on demand versus for inventory 
E)  Increasing inventory selection to attract more customers

Question 10

The length of time between the sale of inventory and the collection of the payment for that sale is called the:

Accepted Answer

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

Question 11

The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the:

Accepted Answer

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

Question 12

The Corner Store factors all of its receivables immediately at a discount rate of 1.1 percent. The average collection period is 37.4 days and default is unlikely. What is the effective cost of borrowing?

Accepted Answer

A)  10.24 percent 
B)  13.97 percent 
C)  15.82 percent 
D)  11.40 percent 
E)  12.58 percent

Question 13

North Side Wholesalers has sales of $1,648,900. The cost of goods sold is equal to 71 percent of sales and the average inventory is $75,800. How many days on average does it take to sell the inventory?

Accepted Answer

A)  28.30 days 
B)  23.63 days 
C)  20.48 days 
D)  33.28 days 
E)  21.68 days

Question 14

With a compromise financial policy companies will:

Accepted Answer

A)  borrow only long-term funds and refuse any loans that require compensating balances. 
B)  borrow short-term funds and also invest in marketable securities. 
C)  finance all of their assets with various short-term loans. 
D)  finance their seasonal asset peaks with short-term debt and the remainder of their assets with equity. 
E)  finance half of their fixed assets with long-term debt and half with short-term debt.

Question 15

A company:

Accepted Answer

A)  with a restrictive financing policy secures sufficient long-term financing to fund all its assets. 
B)  with a flexible financing policy frequently invests in marketable securities. 
C)  with a flexible financing policy tends to use short-term financing on an ongoing basis. 
D)  will tend to avoid short-term financing under both restrictive and flexible financing policies. 
E)  with seasonal sales must select flexible financing policies.

Question 16

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

Question 17

Assume each month has 30 days and a company has a 30-day accounts receivable period. During the second calendar quarter of the year, that company will collect payment for the sales it made during which of the following months?

Accepted Answer

A)  February, March, and April 
B)  April, May and June 
C)  December, January, and February 
D)  January, February, and March 
E)  March, April, and May

Question 18

The operating cycle describes how a product:

Accepted Answer

A)  is priced. 
B)  is sold. 
C)  moves through the current asset accounts. 
D)  moves through the production process. 
E)  generates a profit.

Question 19

Which one of these affects the length of the cash cycle but not the operating cycle?

Accepted Answer

A)  Inventory period 
B)  Accounts payable period 
C)  Both the accounts receivable and inventory periods 
D)  Accounts receivable period 
E)  Both the accounts receivable and the accounts payable periods

Question 20

The Purple House has projected sales of $38,000, $47,500, $52,700, and $85,000 for Quarters 1 through 4 of next year, respectively. Inventory is purchased at 58 percent of the sales price and is purchased one quarter prior to the quarter of sale. The accounts payable period is 45 days. The accounts payable balance at the beginning of the year is $72,000. What is the amount of the expected disbursements for the third quarter?

Accepted Answer

A)  $29,058 
B)  $39,933 
C)  $40,250 
D)  $34,550 
E)  $28,333

Exam 18: Short Term Finance and Planning