Question 1

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)   a decrease in the average accounts payable balanceF) A) and C)
G) A) and B)

Question 2

Your bank offers you a $100,000 line of credit with an interest rate of 2.5% per quarter. The loan agreement also requires that 4% 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 1.25% per quarter. What is your effective annual interest rate if you borrow the whole $100,000 for the entire year? Assume that both the funds you borrow and the funds you invest use compound interest.

Accepted Answer

A)   10.00%
B)   10.25%
C)   10.38%
D)   10.50%
E)   10.67%F) A) and E)
G) A) and C)

Question 3

A compensating balance: I. is required when a firm acquires bank financing other than a line of credit.
II)  increases the cost of short-term bank financing.
III)  represents an opportunity cost to the lending institution.
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)   I, II and IV onlyF) D) and E)
G) B) and C)

Question 4

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   Blue Moon Corporation's cash cycle for 2011 is:

Accepted Answer

A)   50.71 days.
B)   81.65 days.
C)   95.92 days.
D)   98.74 days.
E)   140.27 days.F) None of the above
G) B) and C)

Question 5

On April 1st,your firm had a beginning cash balance of $280. Your sales for March were $460 and your April sales were $510. During April you had cash expenses of $130 and payments on your accounts payable of $210. Your accounts receivable period is 30 days. What is your firm's beginning cash balance on May 1st?

Accepted Answer

A)   $400
B)   $430
C)   $450
D)   $860
E)   $910F) A) and B)
G) None of the above

Question 6

Your firm currently has an operating cycle of 64 days. You are analyzing some operational changes which are expected to decrease the accounts receivable period by 3 days and decrease the inventory period by 2 days. The accounts payable turnover rate is expected to increase from 7 to 9 times per year. If all of these changes are adopted,what will your firm's new operating cycle be?

Accepted Answer

A)   47 days
B)   51 days
C)   54 days
D)   57 days
E)   59 daysF) B) and D)
G) All of the above

Question 7

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   The operating cycle for 2011 for Blue Moon Corporation is:

Accepted Answer

A)   85.84 days.
B)   127.50 days.
C)   133.87 days.
D)   136.38 days.
E)   187.37 days.F) A) and E)
G) None of the above

Question 8

A prearranged credit agreement with a bank typically open for two or more years is called a:

Accepted Answer

A)   letter of credit.
B)   cleanup loan.
C)   compensating balance.
D)   line of credit.
E)   revolving credit arrangement.F) A) and B)
G) A) and E)

Question 9

The primary difference between a line of credit and a revolving credit arrangement is the:

Accepted Answer

A)   type of collateral used to secure the loan.
B)   length of the time period covered by the loan agreement.
C)   fact that the line of credit is a secured loan and the revolving credit arrangement is unsecured.
D)   fact that the line of credit is an unsecured loan and the revolving credit arrangement is secured.
E)   line of credit is a long-term financing agreement while the revolving credit arrangement is a short-term financing agreement.F) C) and D)
G) A) and E)

Question 10

Your firm has a line of credit with your local bank for $50,000. The loan agreement calls for interest of 9% with a 5% compensating balance requirement which is based on the total amount borrowed. What is the effective interest rate if you need $42,750 for one year to cover your operating expenses?

Accepted Answer

A)   8.55%
B)   9.00%
C)   9.13%
D)   9.38%
E)   9.47%F) B) and D)
G) A) and B)

Question 11

D & F,Inc. expects sales of $620,$650,$730 and $780 for the months of April through July,respectively. The firm collects 20% of sales in the month of sale,50% in the month following the month of sale and 28% in the second month following the month of sale. The remaining 2% of sales is never collected. How much money does the firm expect to collect in the month of July?

Accepted Answer

A)   $645
B)   $703
C)   $711
D)   $742
E)   $755F) A) and B)
G) C) and D)

Question 12

A restrictive short-term financial policy,as compared to a more flexible policy,tends to: I. cause a firm to lose sales due to a lack of inventory on hand.
II)  increase the sales of a firm due to the firm's credit availability and terms.
III)  increase the probability that a firm will face a cash-out situation.
IV)  increase the ability of a firm to charge premium prices.

Accepted Answer

A)   I and III only
B)   II and IV only
C)   I and IV only
D)   II and III only
E)   I and II onlyF) None of the above
G) B) and C)

Question 13

Which of the following actions will tend to decrease the accounts receivable period?
I. loosening the standards for granting credit to customers
II. increasing the discount for early payment by credit customers
III. increasing the finance charges applied to all customer balances outstanding over thirty days
IV. granting discounts for cash sales

Accepted Answer

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

Question 14

A prearranged,short-term bank loan made on a formal or informal basis,and typically reviewed for renewal annually,is called a:

Accepted Answer

A)   letter of credit.
B)   cleanup loan.
C)   compensating balance.
D)   line of credit.
E)   roll-over.F) A) and B)
G) A) and E)

Question 15

Your bank offers you a $40,000 line of credit with an interest rate of 2.35% per quarter. The loan agreement also requires that 5% 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 1.75% per quarter. What is your effective annual interest rate if you borrow the whole $40,000 for the entire year? Assume that both the funds you borrow and the funds you invest use compound interest.

Accepted Answer

A)   9.40%
B)   9.63%
C)   9.74%
D)   9.82%
E)   9.87%F) A) and B)
G) D) and E)

Question 16

A cumulative cash deficit indicates that 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) B) and D)
G) A) and D)

Question 17

Cash cycle equals:

Accepted Answer

A)   inventory period plus accounts receivable period.
B)   change in net working capital period.
C)   operating cycle plus accounts payable period.
D)   operating cycle plus inventory period.
E)   None of these.F) A) and B)
G) A) and C)

Question 18

A firm currently has a 36 day cash cycle. Assume that the firm changes its operations such that it decreases its receivables period by 4 days,increases its inventory period by 1 day and decreases its payables period by 2 days. What will the length of the cash cycle be after these changes?

Accepted Answer

A)   31 days
B)   33 days
C)   35 days
D)   37 days
E)   38 daysF) All of the above
G) A) and E)

Question 19

An increase in which one of the following is most apt to be an indicator of an accounts receivable policy that is too 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 C)

Question 20

ABC,Inc. has a beginning receivables balance on January 1st of $430. Sales for January through April are $240,$250,$330 and $350,respectively. The accounts receivable period is 60 days. How much did the firm collect in the month of March? Assume that a year has 360 days.

Accepted Answer

A)   $240
B)   $250
C)   $330
D)   $350
E)   $430F) C) and D)
G) B) and D)

Exam 26: Short-Term Finance and Planning

Cash cycle equals:

Correct Answer
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Blue Moon Corporation's Balance Sheet and Income Statement as shown below: The operating cycle for 2011 for Blue Moon Corporation is:

Correct Answer
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A prearranged,short-term bank loan made on a formal or informal basis,and typically reviewed for renewal annually,is called a:

Correct Answer
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Blue Moon Corporation's Balance Sheet and Income Statement as shown below: Blue Moon Corporation's cash cycle for 2011 is:

Correct Answer
verified

ABC,Inc. has a beginning receivables balance on January 1^st of $430. Sales for January through April are $240,$250,$330 and $350,respectively. The accounts receivable period is 60 days. How much did the firm collect in the month of March? Assume that a year has 360 days.

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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A cumulative cash deficit indicates that a firm:

Correct Answer
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An increase in which one of the following is most apt to be an indicator of an accounts receivable policy that is too restrictive?

Correct Answer
verified

Your firm has a line of credit with your local bank for $50,000. The loan agreement calls for interest of 9% with a 5% compensating balance requirement which is based on the total amount borrowed. What is the effective interest rate if you need $42,750 for one year to cover your operating expenses?

Correct Answer
verified

A firm currently has a 36 day cash cycle. Assume that the firm changes its operations such that it decreases its receivables period by 4 days,increases its inventory period by 1 day and decreases its payables period by 2 days. What will the length of the cash cycle be after these changes?

Correct Answer
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Correct Answer
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A compensating balance: I. is required when a firm acquires bank financing other than a line of credit. II) increases the cost of short-term bank financing. III) represents an opportunity cost to the lending institution. 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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Correct Answer
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Correct Answer
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A prearranged credit agreement with a bank typically open for two or more years is called a:

Correct Answer
verified

Correct Answer
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Correct Answer
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The primary difference between a line of credit and a revolving credit arrangement is the:

Correct Answer
verified

Exam 26: Short-Term Finance and Planning

Cash cycle equals:

Correct AnswerverifiedShow Answer

Blue Moon Corporation's Balance Sheet and Income Statement as shown below: The operating cycle for 2011 for Blue Moon Corporation is:

Correct AnswerverifiedShow Answer

A prearranged,short-term bank loan made on a formal or informal basis,and typically reviewed for renewal annually,is called a:

Correct AnswerverifiedShow Answer

Blue Moon Corporation's Balance Sheet and Income Statement as shown below: Blue Moon Corporation's cash cycle for 2011 is:

Correct AnswerverifiedShow Answer

ABC,Inc. has a beginning receivables balance on January 1st of $430. Sales for January through April are $240,$250,$330 and $350,respectively. The accounts receivable period is 60 days. How much did the firm collect in the month of March? Assume that a year has 360 days.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A cumulative cash deficit indicates that a firm:

Correct AnswerverifiedShow Answer

An increase in which one of the following is most apt to be an indicator of an accounts receivable policy that is too restrictive?

Correct AnswerverifiedShow Answer

Your firm has a line of credit with your local bank for $50,000. The loan agreement calls for interest of 9% with a 5% compensating balance requirement which is based on the total amount borrowed. What is the effective interest rate if you need $42,750 for one year to cover your operating expenses?

Correct AnswerverifiedShow Answer

A firm currently has a 36 day cash cycle. Assume that the firm changes its operations such that it decreases its receivables period by 4 days,increases its inventory period by 1 day and decreases its payables period by 2 days. What will the length of the cash cycle be after these changes?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A compensating balance: I. is required when a firm acquires bank financing other than a line of credit. II) increases the cost of short-term bank financing. III) represents an opportunity cost to the lending institution. IV) is often used as a means of paying for banking services received.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A prearranged credit agreement with a bank typically open for two or more years is called a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The primary difference between a line of credit and a revolving credit arrangement is the:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

ABC,Inc. has a beginning receivables balance on January 1^st of $430. Sales for January through April are $240,$250,$330 and $350,respectively. The accounts receivable period is 60 days. How much did the firm collect in the month of March? Assume that a year has 360 days.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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