Question 1

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 E)
G) A) and B)

Question 2

Juno Industrial Supply has a $150,000 line of credit with a 7.5 percent interest rate.The loan agreement requires a 2 percent compensating balance,which is based on the total amount borrowed,and which will be held in an interest-free account.What is the effective interest rate if the firm borrows $90,000 on the line of credit for one year?

Accepted Answer

A)   5.42 percent
B)   5.50 percent
C)   7.30 percent
D)   7.50 percent
E)   7.65 percentF) A) and B)
G) C) and D)

Question 3

As of the beginning of the quarter,Swenson's,Inc.had a cash balance of $460.During the quarter,the company collected $480 from customers and paid suppliers $360.The company also paid an interest payment of $20 and a tax payment of $110.In addition,the company repaid $140 on its long-term debt.What is Callahan's cash balance at the end of the quarter?

Accepted Answer

A)   -$110
B)   $290
C)   $310
D)   $350
E)   $490F) A) and B)
G) None of the above

Question 4

Which of the following are uses of cash?
I.collecting a receivable
II.increasing inventory
III.obtaining a bank loan
IV.paying a supplier for previous purchases

Accepted Answer

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

Question 5

Which one of the following is indicative of a short-term restrictive financial policy?

Accepted Answer

A)   purchasing inventory on an as-needed basis
B)   granting credit to all customers
C)   investing heavily in marketable securities
D)   maintaining a large accounts receivable balance
E)   keeping inventory levels highF) A) and E)
G) D) and E)

Question 6

Central Supply purchased a toboggan for inventory this morning and paid cash for it.The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the:

Accepted Answer

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

Question 7

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 E)
G) B) and C)

Question 8

The Lumber Mart recently replaced its management team.As a result,the firm is implementing a restrictive short-term policy in place of the flexible policy under which the firm had been operating.Which of the following should the employees expect as a result of this policy change?
I.reduction in sales due to stock outs
II.greater inventory selection
III.decreased sales due to the new accounts receivable credit policy
IV.decreased investment in marketable securities

Accepted Answer

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

Question 9

Kid's Delight expects to sell $8,200 worth of toys in December,$3,700 worth in January,$4,400 in February,and $6,100 in March.The wholesale cost is 72 percent of the retail price.The firm has a receivables period of 30 days,a payables period of 60 days,and buys inventory one month prior to selling it.Which one of the following statements is correct?

Accepted Answer

A)   The February payments to suppliers are $2,992.
B)   The March collections are $3,700.
C)   The accounts receivable balance at the end of March is $4,400.
D)   The purchases for February are $3,168.
E)   The accounts payable balance at the end of January is $5,832.F) B) and E)
G) A) and E)

Question 10

A national firm has sales of $729,000 and cost of goods sold of $478,000.At the beginning of the year,the inventory was $37,000.At the end of the year,the inventory balance was $41,000.What is the inventory turnover rate?

Accepted Answer

A)   12.26 times
B)   12.78 times
C)   14.22 times
D)   18.56 times
E)   19.70 timesF) None of the above
G) C) and E)

Question 11

The length of time between the day a firm purchases an item from its supplier until the day that supplier is paid for that purchase is called the:

Accepted Answer

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

Question 12

The Sports Store has a $100,000 line of credit with City Bank.The loan agreement requires that 2 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance.The interest rate on the borrowed funds is 1.75 percent per quarter.The Sport Store's short-term investments are paying 1.5 percent per quarter.What is the effective annual interest rate on the line of credit if The Sports Store borrows the entire $100,000 for one year? Assume any funds borrowed or invested use compound interest.

Accepted Answer

A)   7.19 percent
B)   7.76 percent
C)   8.00 percent
D)   8.08 percent
E)   8.14 percentF) A) and B)
G) A) and C)

Question 13

Which one of the following statements is correct concerning the cash balance of a firm?

Accepted Answer

A)   Most firms attempt to maintain a zero cash balance at all times.
B)   The cumulative cash surplus shown on a cash budget is equal to the ending cash balance plus the minimum desired cash balance.
C)   On a cash balance report,the cumulative cash surplus at the end of May is used as June's beginning cash balance.
D)   A cumulative cash deficit indicates a borrowing need.
E)   The ending cash balance must equal the minimum desired cash balance.F) A) and C)
G) All of the above

Question 14

You've worked out a line of credit arrangement that allows you to borrow up to $50 million at any time.The interest rate is 0.5 percent per month.In addition,7 percent of the amount that you borrow must be deposited in a non-interest bearing account.Assume your bank uses compound interest on its line of credit loans.What is the effective annual interest rate on this lending arrangement?

Accepted Answer

A)   6.65 percent
B)   6.72 percent
C)   6.81 percent
D)   6.87 percent
E)   6.94 percentF) A) and D)
G) C) and D)

Question 15

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

Accepted Answer

A)   paying a supplier for a previous purchase
B)   paying off a long-term debt
C)   selling inventory at cost
D)   purchasing inventory on credit
E)   selling inventory at a profit on creditF) C) and D)
G) B) and C)

Question 16

Your bank offers you a $40,000 line of credit with an interest rate of 1.75 percent per quarter.The loan agreement also requires that 2 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance.Your short-term investments are paying 0.20 percent per month.What is your effective annual interest rate on this arrangement if you do not borrow any money on this credit line during the year? Assume any funds borrowed or invested use compound interest.

Accepted Answer

A)   2.00 percent
B)   2.43 percent
C)   3.18 percent
D)   7.00 percent
E)   7.19 percentF) B) and D)
G) C) and D)

Question 17

A cumulative cash deficit indicates a firm:

Accepted Answer

A)   has at least a short-term need for external funding.
B)   is facing long-term financial distress.
C)   will go out of business within the year.
D)   is capable of funding all of its needs internally.
E)   is using its cash wisely.F) A) and C)
G) A) and E)

Question 18

A compensating balance:
I.is required when a firm acquires any bank financing other than a line of credit.
II.increases the cost of short-term bank financing.
III.may be required even if a firm never borrows funds.
IV.is often used as a means of paying for banking services received.

Accepted Answer

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

Question 19

The Cement Works has a beginning cash balance for the quarter of $784.Susie,the firm's president,requires that a minimum cash balance of $900 be maintained and requires that borrowing be used to maintain that balance.If funds have been borrowed,then she requires that those loans be repaid as soon as excess funds are available.Currently,the firm has a loan outstanding of $1,260.How much will the firm borrow or repay this quarter if the quarterly receipts are $3,918 and the quarterly disbursements are $3,774?

Accepted Answer

A)   borrow $16
B)   borrow $128
C)   borrow $144
D)   repay $28
E)   repay $144F) A) and B)
G) D) and E)

Question 20

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) B) and E)

Exam 18: Short-Term Finance and Planning

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 compensating balance: I.is required when a firm acquires any bank financing other than a line of credit. II.increases the cost of short-term bank financing. III.may be required even if a firm never borrows funds. IV.is often used as a means of paying for banking services received.

Correct Answer
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Correct Answer
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Correct Answer
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A cumulative cash deficit indicates a firm:

Correct Answer
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Correct Answer
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Which of the following are uses of cash? I.collecting a receivable II.increasing inventory III.obtaining a bank loan IV.paying a supplier for previous purchases

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

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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The length of time between the day a firm purchases an item from its supplier until the day that supplier is paid for that purchase is called the:

Correct Answer
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Correct Answer
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A national firm has sales of $729,000 and cost of goods sold of $478,000.At the beginning of the year,the inventory was $37,000.At the end of the year,the inventory balance was $41,000.What is the inventory turnover rate?

Correct Answer
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Which one of the following statements is correct concerning the cash balance of a firm?

Correct Answer
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Which one of the following is indicative of a short-term restrictive financial policy?

Correct Answer
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Central Supply purchased a toboggan for inventory this morning and paid cash for it.The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the:

Correct Answer
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Exam 18: Short-Term Finance and Planning

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

Correct AnswerverifiedShow Answer

A compensating balance: I.is required when a firm acquires any bank financing other than a line of credit. II.increases the cost of short-term bank financing. III.may be required even if a firm never borrows funds. IV.is often used as a means of paying for banking services received.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A cumulative cash deficit indicates a firm:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following are uses of cash? I.collecting a receivable II.increasing inventory III.obtaining a bank loan IV.paying a supplier for previous purchases

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

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

The length of time between the day a firm purchases an item from its supplier until the day that supplier is paid for that purchase is called the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A national firm has sales of $729,000 and cost of goods sold of $478,000.At the beginning of the year,the inventory was $37,000.At the end of the year,the inventory balance was $41,000.What is the inventory turnover rate?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct concerning the cash balance of a firm?

Correct AnswerverifiedShow Answer

Which one of the following is indicative of a short-term restrictive financial policy?

Correct AnswerverifiedShow Answer

Central Supply purchased a toboggan for inventory this morning and paid cash for it.The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the:

Correct AnswerverifiedShow Answer

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