Question 1

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.

Question 2

Which one of the following statements concerning the cash cycle is correct?

Accepted Answer

A)  The cash cycle is equal to the operating cycle minus the inventory period. 
B)  A negative cash cycle is actually preferable to a positive cash cycle. 
C)  Granting credit to slower paying customers tends to decrease the cash cycle. 
D)  The cash cycle plus the accounts receivable period is equal to the operating cycle. 
E)  The most desirable cash cycle is the one that equals zero days.

Question 3

Orio,Inc. has a beginning receivables balance on January 1st of $560. Sales for January through April are $620,$680,$570 and $550,respectively. The accounts receivable period is 30 days. How much did the firm collect in the month of March? Assume that a year has 360 days.

Accepted Answer

A)  $550 
B)  $570 
C)  $620 
D)  $625 
E)  $680

Question 4

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   Blue Moon Corporation's days' sales in receivable for 2011 is (use average accounts receivable) ______.

Accepted Answer

A)  10.56 days 
B)  12.36 days 
C)  23.66 days 
D)  17.10 days 
E)  126.74 days

Question 5

Which one of the following will increase net working capital? Assume that the current ratio is greater than 1.0.

Accepted Answer

A)  using cash to pay an accounts payable 
B)  using cash to pay a long-term debt 
C)  selling inventory at cost 
D)  collecting an accounts receivable 
E)  using a long-term loan to buy inventory

Question 6

Restrictive short-term financial policies regarding current asset management include three basic actions. List and briefly describe each action.

Accepted Answer

The answer of Restrictive short-term financial policies regarding current asset...

Question 7

The length of time between the acquisition of inventory and its sale is called the:

Accepted Answer

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

Question 8

A firm has sales of $720,000. The cost of goods sold is equal to 70% of sales. The firm has an average inventory of $6,500. How many days on average does it take the firm to sell its inventory?

Accepted Answer

A)  3.30 days 
B)  4.71 days 
C)  67.29 days 
D)  77.54 days 
E)  110.77 days

Question 9

Which one of the following will not affect the operating cycle?

Accepted Answer

A)  decreasing the payables turnover from 7 times to 6 times 
B)  increasing the days sales in receivables 
C)  decreasing the inventory turnover rate 
D)  increasing the average receivables balance 
E)  decreasing the credit repayment times for the firm's customers

Question 10

Your firm factors its accounts receivable immediately at a 3% discount. The average collection period is 41.95 days. Assume that all accounts are collected in full. What is the effective annual interest rate on this arrangement?

Accepted Answer

A)  27.9% 
B)  30.3% 
C)  31.7% 
D)  32.9% 
E)  34.3%

Question 11

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   Blue Moon Corporation's accounts payable turnover for 2011 is (use average payables) ______.

Accepted Answer

A)  7.75 
B)  7.96 
C)  8.94 
D)  9.02 
E)  10.39

Question 12

The manager responsible for the accounting information concerning cash flows is the:

Accepted Answer

A)  controller. 
B)  payables manager. 
C)  credit manager. 
D)  purchasing manager. 
E)  production manager.

Question 13

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   The inventory turnover ratio for 2011 for Blue Moon Corporation is (use average inventory) _______.

Accepted Answer

A)  2.96 
B)  3.06 
C)  3.17 
D)  5.87 
E)  6.05

Question 14

The inventory turnover for the Lambkin Company was 8 times and its days' sales in receivables was 55. The average payables deferral period (or turnover) was 7.5. What is the cash cycle for Lambkin given a 365-day year?

Accepted Answer

A)  51.96 days 
B)  58.04 days 
C)  115.00 days 
D)  149.29 days 
E)  164.37 days

Question 15

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

Accepted Answer

A)  carrying 
B)  shortage 
C)  debt 
D)  equity 
E)  payables

Question 16

Smith and Johnson have expected sales of $380,$340,$430 and $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 that a year has 360 days.

Accepted Answer

A)  $340 
B)  $360 
C)  $385 
D)  $430 
E)  $455

Question 17

Which one of the following will increase the cash cycle?

Accepted Answer

A)  Improving the cash discounts given to customers who pay their accounts early 
B)  Having a larger percentage of customers paying with cash instead of credit 
C)  Buying less raw materials to have on hand 
D)  Paying your suppliers earlier to receive the discount they offer 
E)  Ordering raw materials inventory only when you need it

Question 18

At the beginning of the year,you have an outstanding short-term loan of $10 which was used to cover your cash needs for the previous year. During the current year,you expect to pay $2 interest and have an annual net cash inflow of -$10 (negative),excluding the interest payment. What is your anticipated loan balance at year end?

Accepted Answer

A)  $0 
B)  $2 
C)  $12 
D)  $18 
E)  $22

Question 19

Which one of the following will decrease the net working capital of a firm? Assume that the current ratio is greater than 1.0.

Accepted Answer

A)  Selling inventory at a profit 
B)  Collecting an accounts receivable 
C)  Paying a payment on a long-term debt 
D)  Selling a fixed asset for book value 
E)  Paying an accounts payable

Question 20

The Babco Co. has a $200,000 line of credit with an 8% interest rate and a 10% compensating balance requirement which is based on the total amount borrowed. What is the effective interest rate if the firm uses this source of funding to purchase a $117,000 piece of equipment? The company plans on repaying the loan in a lump sum at the end of one year.

Accepted Answer

A)  7.20% 
B)  7.27% 
C)  8.08% 
D)  8.80% 
E)  8.89%

Exam 26: Short-Term Finance and Planning