Question 1

Which of the following is not a source of cash?

Accepted Answer

A)  net income
B)  repayment of a bank loan
C)  reduction in accounts receivable
D)  depreciation B

Question 2

Which of the following statements about total capital requirement is least likely to be correct for a profitable firm?

Accepted Answer

A)  requirements remain constant over time
B)  seasonal variations are often experienced
C)  the trend is often upward-sloping
D)  a portion of working capital is permanent A

Question 3

The safety margin kept by the bank on loan against liquid assets is called:

Accepted Answer

A)  a haircut
B)  a line of credit
C)  factoring
D)  filed warehousing A

Question 4

Which of the following would not be included among the costs of carrying inventory?

Accepted Answer

A)  obsolescence
B)  opportunity cost of capital
C)  raw material cost
D)  risk of pilferage

Question 5

Calculate the cash balance given the following information: $$\begin{array} {| l | r | } 
\hline \text { Decrease in AR } & 30,000 \
\hline \text { Increase in Inventory } & 70,000 \
\hline \text { Increase in Accounts Payable } & 45,000 \
\hline \text { Decrease in Taxes Payable } & 8,000 \
\hline \text { Repaid Long Term Debt } & 90,000 \
\hline \text { Issued Common Shares } & 160,000 \
\hline \text { Issued Dividends } & 25,000 \
\hline
\end{array}$$

Accepted Answer

A)  $48,000
B)  $45,000
C)  $42,000
D)  $39,000

Question 6

Company which sees a customer pay a $2,500 bill resulting from a previous sale will see no change in its net working capital.

Accepted Answer

A) True 
 B)False

Question 7

How high can accounts receivable be allowed to grow before the firm's receivables period exceeds 50 days if annual sales equal $5 million and the cash conversion cycle equals 75 days?

Accepted Answer

A)  $342,466
B)  $684,932
C)  $1,027,397
D)  $1,712,329

Question 8

A firm is considering the following changes: increasing inventory variety which will increase average inventory by $10,000, and offering more liberal sales terms which will result in average receivables increasing to $65,000.These actions are expected to increase sales to $800,000 per year, and cost of goods will remain at 75%.Because of the increased purchases, average payables will increase to $35,000.What effect will these changes have on the cash conversion cycle?

Accepted Answer

The answer of A firm is considering the following changes:...

Question 9

Working capital, correctly defined, includes both current assets and current liabilities.

Accepted Answer

A) True 
 B)False

Question 10

A credit card company charges its customers an annual interest of 21.0% on the outstanding monthly balance.The effective annual rate for the customer will be:

Accepted Answer

A)  21.00%
B)  21.20%
C)  23.14%
D)  37.93%

Question 11

What is the payable period for a firm with average accounts payable of $4 million and annual cost of goods sold of $44 million?

Accepted Answer

A)  20.0 days
B)  30.0 days
C)  35.6 days
D)  33.2 days

Question 12

A firm faces a liquidity crunch and must decide between borrowing from a bank at 12% interest and stretching its payables for one quarter.If it stretches the payables it will forgo a 2% discount for timely payment.Based solely on cash flows, which would you suggest?

Accepted Answer

A)  stretching saves the firm approximately 8% per year
B)  use the bank loan; forgoing a cash discount is costly
C)  stretch the payables and finance at a savings of approximately 3.76% annually
D)  use the bank loan because it represents simple interest

Question 13

What will be the change in net working capital if you observe the following changes in current assets and current liabilities? (I.) Current assets increase by $170,000.
(II)) Current liabilities decrease by $60,000.

Accepted Answer

A)  Increase by $110,000
B)  Increase by $230,000
C)  Decrease by $110,000
D)  Decrease by $230,000

Question 14

Company which sees a customer pay a $2,500 bill resulting from a previous sale will see a $2,500 increase in cash.

Accepted Answer

A) True 
 B)False

Question 15

In "field warehousing" the inventory is kept by the:

Accepted Answer

A)  borrowing firm
B)  lending institution
C)  independent warehousing company
D)  jointly by the firm and the lender

Question 16

Keeping a large surplus of cash and investing it in Treasury bills will bring positive NPV to a firm.

Accepted Answer

A) True 
 B)False

Question 17

Managers who "stretch their payables" are attempting to:

Accepted Answer

A)  repay more recent charges prior to early charges
B)  improve their current ratio prior to preparation of financial statements
C)  offer finished goods at a discount for repayment
D)  obtain a longer period of short-term financing

Question 18

Which of the following is least likely to be correct about the factoring of receivables?

Accepted Answer

A)  the selling firm bears the risk of default
B)  the higher the perceived quality of the receivables, the lower the discount rate
C)  the discount is paid by the selling firm in the form of reduced sales price
D)  factoring may be the cheapest method of avoiding a cash flow problem

Question 19

Field warehousing can be an important source of:

Accepted Answer

A)  additional storage space for cash-strapped firms
B)  investing for those who follow the "relaxed cash strategy"
C)  cash management for those who factor receivables
D)  short-term financing with low risk to the lender

Question 20

Zoma Corporation is estimating its cash collections for the first quarter of next year (January, February and March).The company has provided you with monthly sales along with historical cash collections data.Calculate the total cash received for January, February and March given the following data:
 $$\begin{array} { | c | c | c | c | c | c | } 
\hline & \text { Navember } & \text { December } & \text { January } & \text { February } & \text { March } \
\hline \text { Sales } & \$ 90,000 & \$ 145,000 & \$ 170,000 & \$ 195,000 & \$ 205,000 \
\hline\text { Estimated Collection: }\
\hline 50 \% & \text { In month of sale } & & & \
\hline 30 \% & \text { In month after sale } & & & \
\hline 15 \% & \text { In second month after sale } & & & \
\hline 5 \% & \text { Never collected } & & & \
\hline

\end{array}$$

Accepted Answer

The answer of Zoma Corporation is estimating its cash collections...

Exam 20: Short-Term Financial Planning

Which of the following is not a source of cash?

Which of the following statements about total capital requirement is least likely to be correct for a profitable firm?

The safety margin kept by the bank on loan against liquid assets is called:

Which of the following would not be included among the costs of carrying inventory?

Company which sees a customer pay a $2,500 bill resulting from a previous sale will see no change in its net working capital.

How high can accounts receivable be allowed to grow before the firm's receivables period exceeds 50 days if annual sales equal $5 million and the cash conversion cycle equals 75 days?

Working capital, correctly defined, includes both current assets and current liabilities.

A credit card company charges its customers an annual interest of 21.0% on the outstanding monthly balance.The effective annual rate for the customer will be:

What is the payable period for a firm with average accounts payable of $4 million and annual cost of goods sold of $44 million?

A firm faces a liquidity crunch and must decide between borrowing from a bank at 12% interest and stretching its payables for one quarter.If it stretches the payables it will forgo a 2% discount for timely payment.Based solely on cash flows, which would you suggest?

What will be the change in net working capital if you observe the following changes in current assets and current liabilities? (I.) Current assets increase by $170,000. (II) ) Current liabilities decrease by $60,000.

Company which sees a customer pay a $2,500 bill resulting from a previous sale will see a $2,500 increase in cash.

In "field warehousing" the inventory is kept by the:

Keeping a large surplus of cash and investing it in Treasury bills will bring positive NPV to a firm.

Managers who "stretch their payables" are attempting to:

Which of the following is least likely to be correct about the factoring of receivables?

Field warehousing can be an important source of: