Question 1

All Rite Co.has arranged a line of credit of $225,000 with an interest rate of 8.25 percent and a compensating balance requirement of 1.5 percent,which is based on the total amount borrowed.Assume the firm uses this source of funding to purchase a $167,000 piece of equipment and repays the loan in a lump sum at the end of one year.What is the effective interest rate?

Accepted Answer

A)  9.75 percent
B)  9.27 percent
C)  8.08 percent
D)  8.26 percent
E)  8.38 percentF) C) and D)
G) A) and E)

Question 2

On April 1st,Morning Coffee had a beginning cash balance of $318.Sales for March were $460 and April sales were $510.During April the firm had cash expenses of $327 and payments on accounts payable of $262.The accounts receivable period is 30 days.What is the firm's beginning cash balance on May 1st?

Accepted Answer

A)  $189
B)  $173
C)  $211
D)  $239
E)  $210F) A) and D)
G) None of the above

Question 3

A financially solid firm is most apt to have a quarterly cash shortfall when it encounters a:

Accepted Answer

A)  period of relatively constant sales.
B)  major fixed asset expenditure.
C)  period of rising interest rates.
D)  period of declining interest rates.
E)  period of increased cash collections.F) A) and D)
G) C) and E)

Question 4

Young's had a beginning accounts payable balance of $42,900 and an ending accounts payable balance of $44,800.Sales for the period were $770,000 and costs of goods sold were $598,000.If the operating cycle is 129 days,how long is the firm's cash cycle?

Accepted Answer

A)  102.24 days
B)  79.35 days
C)  97.13 days
D)  81.19 days
E)  107.78 daysF) B) and E)
G) A) and B)

Question 5

As the owner of Better Built Products,you plan to implement a system whereby customers who pay their bills within 30 days will receive a rebate of 2 percent on their purchases.Those who pay within 5 days will receive a rebate of 3 percent.Explain the impact of this proposal on the firm.

Accepted Answer

The obvious results of this policy chang...

Question 6

Brook Side reported sales of $738,000 and cost of goods sold of $584,000 for the year.The firm had a beginning inventory of $51,000 and an ending inventory of $46,000.What is the length of the inventory period?

Accepted Answer

A)  15.24 days
B)  15.16 days
C)  31.19 days
D)  29.87 days
E)  30.31 daysF) All of the above
G) C) and D)

Question 7

A use of cash is associated with:

Accepted Answer

A)  a decrease in a liability.
B)  an increase in an asset.
C)  an increase in retained earnings.
D)  both an increase in an asset and an increase in retained earnings.
E)  both a decrease in a liability and an increase in an asset.F) A) and B)
G) A) and E)

Question 8

Gonzalez Mercantile has an inventory turnover of 8.3,days' sales in receivables of 57,and an average payables turnover of 7.2.What is the cash cycle given a 365-day year?

Accepted Answer

A)  50.28 days
B)  58.04 days
C)  55.00 days
D)  49.29 days
E)  61.37 daysF) B) and D)
G) A) and B)

Question 9

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

Accepted Answer

A)  carrying
B)  shortage
C)  order
D)  safety
E)  tradingF) A) and C)
G) C) and E)

Question 10

Accounts receivable and inventory are some of the most liquid assets a firm owns and their market values are typically fairly close to book value.Even so,in the eyes of many lenders,these assets make for inadequate collateral on loans,particularly if the business looking to borrow the money is in a liquidity crisis.Why do you think this is the case?

Accepted Answer

From a lender's standpoint,these assets ...

Question 11

List and describe three basic types of secured inventory loans.What are the advantages and disadvantages of each type of loan?

Accepted Answer

The three types discussed are blanket li...

Question 12

A type of short-term loan where the borrower sells its receivables to the lender up-front,but at a discount to face value,is called:

Accepted Answer

A)  a compensating balance.
B)  assigned receivables financing.
C)  a letter of credit.
D)  factored receivables financing.
E)  a bond.F) C) and D)
G) B) and E)

Question 13

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 its needs internally.
E)  is using its cash wisely.F) A) and C)
G) A) and B)

Question 14

Cash decreases when:

Accepted Answer

A)  current assets other than cash increase.
B)  fixed assets decrease.
C)  current liabilities increase.
D)  retained earnings increase.
E)  long-term debt increases.F) A) and E)
G) All of the above

Question 15

You can decrease the cash cycle by:

Accepted Answer

A)  increasing the cash discount offered to customers who pay their accounts early.
B)  increasing the percentage of customers paying with credit rather than cash.
C)  increasing the amount of raw materials kept in inventory.
D)  paying your suppliers earlier to receive a discount on your purchases.
E)  increasing your inventory to prevent stock-outs.F) B) and E)
G) All of the above

Question 16

The length of time between the sale of inventory and the collection of cash from receivables is called the:

Accepted Answer

A)  operating cycle.
B)  inventory period.
C)  accounts receivable period.
D)  accounts payable period.
E)  cash cycle.F) None of the above
G) C) and D)

Question 17

For 2018,Tree Top Farms had sales of $438,000,cost of goods sold of $286,000,ending inventory of $154,000,ending accounts receivable of $46,000,and ending accounts payable of $38,000.For 2019,sales were $413,000,cost of goods sold was $281,000,ending inventory was $149,000,ending accounts receivables were $48,000,and ending accounts payable were $36,000.What was the cash cycle for 2019 based on a 365-day year?

Accepted Answer

A)  202.96
B)  190.27
C)  203.17
D)  185.87
E)  186.05F) B) and E)
G) B) and D)

Question 18

Wilson's has an inventory turnover rate of 16,an accounts payable period of 47 days,and an accounts receivable period of 37 days.What is the length of the cash cycle?

Accepted Answer

A)  32.81 days
B)  −6.00 days
C)  2.00 days
D)  6.00 days
E)  12.81 daysF) All of the above
G) B) and E)

Question 19

A firm that adopts a flexible short-term financial policy is more apt to have:

Accepted Answer

A)  lower carrying costs than shortage costs.
B)  lower shortage costs than carrying costs.
C)  stricter limits on credit sales than the average firm.
D)  a relatively low level of current assets.
E)  greater short-term financing needs than if the firm adopted a restrictive policy.F) D) and E)
G) A) and B)

Question 20

ABC Manufacturing historically produced products that were held in inventory until they could be sold to a customer.The firm is now changing its policy and only producing a product when it receives an actual order from a customer.All else equal,this change will:

Accepted Answer

A)  increase the operating cycle.
B)  lengthen the accounts receivable period.
C)  shorten the accounts payable period.
D)  decrease the cash cycle.
E)  decrease the inventory turnover rate.F) A) and D)
G) C) and D)

Exam 26: Short-Term Finance and Planning

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

Correct Answer
verified

Correct Answer
verified
From a lender's standpoint,these assets ...
View Answer

ABC Manufacturing historically produced products that were held in inventory until they could be sold to a customer.The firm is now changing its policy and only producing a product when it receives an actual order from a customer.All else equal,this change will:

Correct Answer
verified

The length of time between the sale of inventory and the collection of cash from receivables is called the:

Correct Answer
verified

Young's had a beginning accounts payable balance of $42,900 and an ending accounts payable balance of $44,800.Sales for the period were $770,000 and costs of goods sold were $598,000.If the operating cycle is 129 days,how long is the firm's cash cycle?

Correct Answer
verified

Correct Answer
verified

List and describe three basic types of secured inventory loans.What are the advantages and disadvantages of each type of loan?

Correct Answer
verified
The three types discussed are blanket li...
View Answer

A financially solid firm is most apt to have a quarterly cash shortfall when it encounters a:

Correct Answer
verified

Correct Answer
verified

A type of short-term loan where the borrower sells its receivables to the lender up-front,but at a discount to face value,is called:

Correct Answer
verified

You can decrease the cash cycle by:

Correct Answer
verified

A cumulative cash deficit indicates a firm:

Correct Answer
verified

As the owner of Better Built Products,you plan to implement a system whereby customers who pay their bills within 30 days will receive a rebate of 2 percent on their purchases.Those who pay within 5 days will receive a rebate of 3 percent.Explain the impact of this proposal on the firm.

Correct Answer
verified
The obvious results of this policy chang...
View Answer

Wilson's has an inventory turnover rate of 16,an accounts payable period of 47 days,and an accounts receivable period of 37 days.What is the length of the cash cycle?

Correct Answer
verified

A firm that adopts a flexible short-term financial policy is more apt to have:

Correct Answer
verified

Gonzalez Mercantile has an inventory turnover of 8.3,days' sales in receivables of 57,and an average payables turnover of 7.2.What is the cash cycle given a 365-day year?

Correct Answer
verified

A use of cash is associated with:

Correct Answer
verified

Cash decreases when:

Correct Answer
verified

Correct Answer
verified

Brook Side reported sales of $738,000 and cost of goods sold of $584,000 for the year.The firm had a beginning inventory of $51,000 and an ending inventory of $46,000.What is the length of the inventory period?

Correct Answer
verified

Exam 26: Short-Term Finance and Planning

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedFrom a lender's standpoint,these assets ...View AnswerShow Answer

ABC Manufacturing historically produced products that were held in inventory until they could be sold to a customer.The firm is now changing its policy and only producing a product when it receives an actual order from a customer.All else equal,this change will:

Correct AnswerverifiedShow Answer

The length of time between the sale of inventory and the collection of cash from receivables is called the:

Correct AnswerverifiedShow Answer

Young's had a beginning accounts payable balance of $42,900 and an ending accounts payable balance of $44,800.Sales for the period were $770,000 and costs of goods sold were $598,000.If the operating cycle is 129 days,how long is the firm's cash cycle?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

List and describe three basic types of secured inventory loans.What are the advantages and disadvantages of each type of loan?

Correct AnswerverifiedThe three types discussed are blanket li...View AnswerShow Answer

A financially solid firm is most apt to have a quarterly cash shortfall when it encounters a:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A type of short-term loan where the borrower sells its receivables to the lender up-front,but at a discount to face value,is called:

Correct AnswerverifiedShow Answer

You can decrease the cash cycle by:

Correct AnswerverifiedShow Answer

A cumulative cash deficit indicates a firm:

Correct AnswerverifiedShow Answer

As the owner of Better Built Products,you plan to implement a system whereby customers who pay their bills within 30 days will receive a rebate of 2 percent on their purchases.Those who pay within 5 days will receive a rebate of 3 percent.Explain the impact of this proposal on the firm.

Correct AnswerverifiedThe obvious results of this policy chang...View AnswerShow Answer

Wilson's has an inventory turnover rate of 16,an accounts payable period of 47 days,and an accounts receivable period of 37 days.What is the length of the cash cycle?

Correct AnswerverifiedShow Answer

A firm that adopts a flexible short-term financial policy is more apt to have:

Correct AnswerverifiedShow Answer

Gonzalez Mercantile has an inventory turnover of 8.3,days' sales in receivables of 57,and an average payables turnover of 7.2.What is the cash cycle given a 365-day year?

Correct AnswerverifiedShow Answer

A use of cash is associated with:

Correct AnswerverifiedShow Answer

Cash decreases when:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Brook Side reported sales of $738,000 and cost of goods sold of $584,000 for the year.The firm had a beginning inventory of $51,000 and an ending inventory of $46,000.What is the length of the inventory period?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
From a lender's standpoint,these assets ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The three types discussed are blanket li...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The obvious results of this policy chang...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified