Question 1

A company currently has a 51 day cash cycle.Assume the firm changes its operations such that it decreases its receivables period by 2 days,increases its inventory period by 3 days,and increases its payables period by 4 days.What will the length of the cash cycle be after these changes?

Accepted Answer

A)  42 days
B)  45 days
C)  48 days
D)  49 days
E)  51 daysF) A) and B)
G) A) and C)

Question 2

Which one of the following statements is correct?

Accepted Answer

A)  The assignment of receivables involves selling the firm's accounts receivables at full price.
B)  Lines of credit frequently require a cleanup period.
C)  With maturity factoring, the borrower receives the loan amount immediately.
D)  Commercial paper is short-term financing offered to highly-rated corporations by major banks.
E)  Credit card receivables funding is a relatively inexpensive method of borrowing on a short-term basis.F) A) and B)
G) A) and D)

Question 3

On May 1,your firm had a beginning cash balance of $175.Your sales for April were $430 and your May sales were $480.During May,you had cash expenses of $110 and payments on your accounts payable of $290.Your accounts receivable period is 30 days.What is your firm's beginning cash balance on June 1?

Accepted Answer

A)  $145
B)  $155
C)  $205
D)  $215
E)  $265F) B) and C)
G) C) and E)

Question 4

An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?

Accepted Answer

A)  bad debts
B)  accounts receivable turnover rate
C)  accounts receivable period
D)  credit sales
E)  operating cycleF) B) and D)
G) C) and E)

Question 5

The Mish Mash Store has a beginning cash balance of $440 on March 1.The firm has projected sales of $610 in February,$680 in March,and $740 in April.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 10 days.The firm has monthly cash expenses of $125.What is the projected ending cash balance at the end of March? Assume every month has 30 days.

Accepted Answer

A)  $461
B)  $496
C)  $507
D)  $567
E)  $621F) A) and D)
G) B) and D)

Question 6

Fancy Footwear has a line of credit with a local bank in the amount of $80,000.The loan agreement calls for interest of 7 percent with a compensating balance of 5 percent,which is based on the total amount borrowed.The compensating balance will be deposited into an interest-free account.What is the effective interest rate on the loan if the firm needs to borrow $75,000 for one year to cover operating expenses?

Accepted Answer

A)  7.37 percent
B)  7.43 percent
C)  7.56 percent
D)  8.17 percent
E)  8.33 percentF) B) and E)
G) D) and E)

Question 7

Interior Designs has an inventory period of 51 days,an accounts payable period of 38 days,and an accounts receivable period of 32 days.Management is considering an offer from their suppliers to pay within 10 days and receive a 2 percent discount.If the new discount is taken,the accounts payable period is expected to decline by 26 days.If the new discount is taken,the operating cycle will be _____ days.

Accepted Answer

A)  52
B)  62
C)  78
D)  83
E)  91F) B) and D)
G) B) and C)

Question 8

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 periodF) B) and C)
G) None of the above

Question 9

A manufacturing firm has a 90-day collection period.The firm produces seasonal merchandise and thus has the least sales during the first quarter of a year and the highest level of sales during the fourth quarter of a year.The firm maintains a relatively steady level of production which means that its cash disbursements are fairly equal in all quarters.The firm is most apt to face a cash-out situation in:

Accepted Answer

A)  the first quarter.
B)  the second quarter.
C)  the third quarter.
D)  the fourth quarter.
E)  any quarter with equal probabilities of occurrence.F) C) and D)
G) A) and B)

Question 10

Which of the following are benefits derived from short-term financial planning?
I.having advance notice of when your firm will require external financing
II.being able to determine the extent of time for which a loan is required
III.having the ability to time capital expenditures in order to place the least financial burden possible on a firm
IV.knowing for certain what your cash balance will be six months in advance

Accepted Answer

A)  I and III only
B)  I, II, and III only
C)  II, III, and IV only
D)  I, II, and IV only
E)  I, II, III, and IVF) B) and E)
G) A) and E)

Question 11

The Harvester collects 25 percent of sales in the month of sale,60 percent of sales in the month following the month of sale,and 15 percent of sales in the second month following the month of sale.During the month of April,the firm will collect:

Accepted Answer

A)  60 percent of February sales.
B)  15 percent of April sales.
C)  60 percent of March sales.
D)  15 percent of March sales.
E)  25 percent of February sales.F) A) and E)
G) C) and D)

Question 12

A bank offers your firm a revolving credit arrangement for up to $115 million at an interest rate of 2 percent per quarter.The bank also requires you to maintain a compensating balance of 5 percent against the unused portion of the credit line,to be deposited in a non-interest-bearing account.Assume you have a short-term investment account at the bank that pays 1.3 percent per quarter,and assume the bank uses compound interest on its revolving credit loans.What is the effective annual interest rate on the revolving credit arrangement if your firm does not borrow any money during the year?

Accepted Answer

A)  0 percent
B)  5.0 percent
C)  5.2 percent
D)  5.3 percent
E)  5.5 percentF) A) and B)
G) B) and C)

Question 13

Which one of the following will increase the accounts payable period,all else constant?

Accepted Answer

A)  an increase in the cost of goods sold account value
B)  an increase in the ending accounts payable balance
C)  an increase in the cash cycle
D)  a decrease in the operating cycle
E)  an increase in the accounts payable turnover rateF) C) and D)
G) A) and B)

Question 14

A flexible short-term financial policy:

Accepted Answer

A)  increases a firm's need for long-term financing.
B)  minimizes net working capital.
C)  avoids bad debts by only selling items for cash.
D)  maximizes fixed assets and minimizes current assets.
E)  is most appropriate for a firm with relatively high carrying costs and relatively low shortage costs.F) A) and D)
G) A) and E)

Question 15

An increase in which one of the following will decrease the cash cycle,all else equal?

Accepted Answer

A)  payables turnover
B)  days sales in inventory
C)  operating cycle
D)  inventory turnover rate
E)  accounts receivable periodF) A) and C)
G) A) and E)

Question 16

Which one of the following managers determines which customers must pay cash and which can charge their purchases?

Accepted Answer

A)  purchasing manager
B)  credit manager
C)  controller
D)  production manager
E)  payables managerF) A) and B)
G) All of the above

Question 17

Your firm has an average collection period of 42 days.Current practice is to factor all receivables immediately at a 4 percent discount.Assume that default is extremely unlikely.What is the effective cost of borrowing?

Accepted Answer

A)  28.79 percent
B)  36.20 percent
C)  37.78 percent
D)  40.97 percent
E)  42.58 percentF) A) and B)
G) All of the above

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.F) None of the above
G) A) and C)

Question 19

The Mountain Top Shoppe has sales of $512,000,average accounts receivable of $31,400 and average accounts payable of $24,800.The cost of goods sold is equivalent to 71 percent of sales.How long does it take The Mountain Top Shoppe to pay its suppliers?

Accepted Answer

A)  21.76 days
B)  22.38 days
C)  24.90 days
D)  25.89 days
E)  26.67 daysF) A) and B)
G) C) and E)

Question 20

Davis and Davis have expected sales of $490,$465,$450,and $570 for the months of January through April,respectively.The accounts receivable period is 28 days.What is the accounts receivable balance at the end of March? Assume a year has 360 days.

Accepted Answer

A)  $420
B)  $426
C)  $440
D)  $450
E)  $482F) B) and C)
G) B) and E)

Exam 18: Short-Term Finance and Planning

Davis and Davis have expected sales of $490,$465,$450,and $570 for the months of January through April,respectively.The accounts receivable period is 28 days.What is the accounts receivable balance at the end of March? Assume a year has 360 days.

Correct Answer
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Which one of the following statements is correct?

Correct Answer
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The Harvester collects 25 percent of sales in the month of sale,60 percent of sales in the month following the month of sale,and 15 percent of sales in the second month following the month of sale.During the month of April,the firm will collect:

Correct Answer
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An increase in which one of the following will decrease the cash cycle,all else equal?

Correct Answer
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Correct Answer
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The Mountain Top Shoppe has sales of $512,000,average accounts receivable of $31,400 and average accounts payable of $24,800.The cost of goods sold is equivalent to 71 percent of sales.How long does it take The Mountain Top Shoppe to pay its suppliers?

Correct Answer
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Correct Answer
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A company currently has a 51 day cash cycle.Assume the firm changes its operations such that it decreases its receivables period by 2 days,increases its inventory period by 3 days,and increases its payables period by 4 days.What will the length of the cash cycle be after these changes?

Correct Answer
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Your firm has an average collection period of 42 days.Current practice is to factor all receivables immediately at a 4 percent discount.Assume that default is extremely unlikely.What is the effective cost of borrowing?

Correct Answer
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On May 1,your firm had a beginning cash balance of $175.Your sales for April were $430 and your May sales were $480.During May,you had cash expenses of $110 and payments on your accounts payable of $290.Your accounts receivable period is 30 days.What is your firm's beginning cash balance on June 1?

Correct Answer
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Correct Answer
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The operating cycle describes how a product:

Correct Answer
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An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?

Correct Answer
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A flexible short-term financial policy:

Correct Answer
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Which one of the following will increase the accounts payable period,all else constant?

Correct Answer
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Which one of the following managers determines which customers must pay cash and which can charge their purchases?

Correct Answer
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Correct Answer
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Which one of the following will decrease the operating cycle?

Correct Answer
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Exam 18: Short-Term Finance and Planning

Davis and Davis have expected sales of $490,$465,$450,and $570 for the months of January through April,respectively.The accounts receivable period is 28 days.What is the accounts receivable balance at the end of March? Assume a year has 360 days.

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Harvester collects 25 percent of sales in the month of sale,60 percent of sales in the month following the month of sale,and 15 percent of sales in the second month following the month of sale.During the month of April,the firm will collect:

Correct AnswerverifiedShow Answer

An increase in which one of the following will decrease the cash cycle,all else equal?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Mountain Top Shoppe has sales of $512,000,average accounts receivable of $31,400 and average accounts payable of $24,800.The cost of goods sold is equivalent to 71 percent of sales.How long does it take The Mountain Top Shoppe to pay its suppliers?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A company currently has a 51 day cash cycle.Assume the firm changes its operations such that it decreases its receivables period by 2 days,increases its inventory period by 3 days,and increases its payables period by 4 days.What will the length of the cash cycle be after these changes?

Correct AnswerverifiedShow Answer

Your firm has an average collection period of 42 days.Current practice is to factor all receivables immediately at a 4 percent discount.Assume that default is extremely unlikely.What is the effective cost of borrowing?

Correct AnswerverifiedShow Answer

On May 1,your firm had a beginning cash balance of $175.Your sales for April were $430 and your May sales were $480.During May,you had cash expenses of $110 and payments on your accounts payable of $290.Your accounts receivable period is 30 days.What is your firm's beginning cash balance on June 1?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The operating cycle describes how a product:

Correct AnswerverifiedShow Answer

An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?

Correct AnswerverifiedShow Answer

A flexible short-term financial policy:

Correct AnswerverifiedShow Answer

Which one of the following will increase the accounts payable period,all else constant?

Correct AnswerverifiedShow Answer

Which one of the following managers determines which customers must pay cash and which can charge their purchases?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following will decrease the operating cycle?

Correct AnswerverifiedShow Answer

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