Question 1

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 2

Which of the following is not typically a characteristic of commercial paper borrowing?

Accepted Answer

A)  maturity is short-term 
B)  banks are not the lenders 
C)  the loans are secured. 
D)  borrowers have high credit quality

Question 3

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 4

What is the annual cost of goods for a firm,with accounts payable period of 35 days and average accounts payable of $600,000.

Accepted Answer

A)  $5,753,425 
B)  $6,171,429 
C)  $6,257,143 
D)  $17,142,857

Question 5

How do firms develop a short-term financing plan that meets their need for cash?

Accepted Answer

The answer of How do firms develop a short-term financing...

Question 6

A firm sells its accounts receivable to a factor at a 5% discount.If the average collection period is 1 month,determine the effective annual rate of interest on the factoring.

Accepted Answer

A)  90.06% 
B)  85.06% 
C)  80.06% 
D)  75.06%

Question 7

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

Question 8

The text suggests that,of the three financing strategies shown,the relaxed strategy is probably the worst from the standpoint of managerial evaluation.Why is this thought to be the case,and when may it be an acceptable practice?

Accepted Answer

The answer of The text suggests that,of the three financing...

Question 9

For most corporations,net working capital is:

Accepted Answer

A)  negative during the inventory period of the cash conversion cycle 
B)  equal to the amount of current assets 
C)  positive to provide liquidity during the cash conversion cycle 
D)  only present during slack periods of the year

Question 10

A firm borrows $100,000 from the bank,but has to maintain a compensating balance of $20,000 with the bank.The annual interest rate for the loan is 12%.What is the effective annual rate if the interest is compounded quarterly?

Accepted Answer

A)  12.03% 
B)  13.00% 
C)  14.05% 
D)  15.87%

Question 11

As for the preparation of cash budgets,capital expenditures are:

Accepted Answer

A)  not included because these items are depreciated 
B)  included as sources of operating cash 
C)  included as uses of cash and make the budget lumpy 
D)  traditionally offset as a use of cash by interest income

Question 12

A line of credit would be considered:

Accepted Answer

A)  an agreement to borrow up to a specific total amount on demand from a bank. 
B)  a short-term unsecured loan with minimum interest expense. 
C)  a secured loan to be amortized over three to five years. 
D)  a long-term, permanent source of funding.

Question 13

A firm needs spare cash to deal with capital budget appropriations,dividend payments,and other large outlays.The interest rate on bank loans is simply quoted as:

Accepted Answer

A)  precautionary motive 
B)  transactions motive 
C)  speculative motive 
D)  simple interest

Question 14

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 15

When a loan is secured by receivables,the firm assigns the receivables to the bank.If the firm fails to repay the loan,the bank can collect the receivables from the firm's customers and use the cash to pay off the debt.

Accepted Answer

A) True 
 B)False

Question 16

Although commercial paper is unsecured,the companies that issue this short-term security are:

Accepted Answer

A)  typically known to repay all defaults 
B)  large firms of top credit quality 
C)  small firms of top credit quality 
D)  firms that have government-sponsored guarantees for the debt

Question 17

Some companies solve their financing problem by borrowing on the strength of their current assets; others solve it by selling their current assets.

Accepted Answer

A) True 
 B)False

Question 18

What happens to a firm whose uses of cash exceed its sources of cash during an accounting period?

Accepted Answer

A)  it borrows on a short-term basis 
B)  it declares a net loss on the income statement 
C)  it experiences an increase in cash balance 
D)  it experiences a decrease in cash balance

Question 19

A firm sells its accounts receivable to a factor at a 2% discount.If the average collection period is 1 month,determine the effective annual rate of interest on the factoring.

Accepted Answer

A)  27.43% 
B)  28.53% 
C)  29.63% 
D)  30.73%

Question 20

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

Exam 20: Short-Term Financial Planning

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

Which of the following is not typically a characteristic of commercial paper borrowing?

Field warehousing can be an important source of:

What is the annual cost of goods for a firm,with accounts payable period of 35 days and average accounts payable of $600,000.

How do firms develop a short-term financing plan that meets their need for cash?

A firm sells its accounts receivable to a factor at a 5% discount.If the average collection period is 1 month,determine the effective annual rate of interest on the factoring.

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

The text suggests that,of the three financing strategies shown,the relaxed strategy is probably the worst from the standpoint of managerial evaluation.Why is this thought to be the case,and when may it be an acceptable practice?

For most corporations,net working capital is:

A firm borrows $100,000 from the bank,but has to maintain a compensating balance of $20,000 with the bank.The annual interest rate for the loan is 12%.What is the effective annual rate if the interest is compounded quarterly?

As for the preparation of cash budgets,capital expenditures are:

A line of credit would be considered:

A firm needs spare cash to deal with capital budget appropriations,dividend payments,and other large outlays.The interest rate on bank loans is simply quoted as:

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

When a loan is secured by receivables,the firm assigns the receivables to the bank.If the firm fails to repay the loan,the bank can collect the receivables from the firm's customers and use the cash to pay off the debt.

Although commercial paper is unsecured,the companies that issue this short-term security are:

Some companies solve their financing problem by borrowing on the strength of their current assets; others solve it by selling their current assets.

What happens to a firm whose uses of cash exceed its sources of cash during an accounting period?

A firm sells its accounts receivable to a factor at a 2% discount.If the average collection period is 1 month,determine the effective annual rate of interest on the factoring.

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?