Question 1

You've worked out a line of credit arrangement that allows you to borrow up to $35 million at any time. The interest rate is .52 percent per month. In addition, 2.5 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)   6.59 percent
B)   6.72 percent
C)   6.42 percent
D)   6.87 percent
E)   6.94 percentF) C) and D)
G) B) and C)

Question 2

Breakwater Aquatics has an accounts receivable period of 36 days. The estimated quarterly sales for this year, starting with the first quarter, are $6,800, $7,100, $8,200, and $6,400, respectively. What is the accounts receivable balance at the beginning of the third quarter? Assume a year has 360 days.

Accepted Answer

A)   $3,644
B)   $2,840
C)   $3,308
D)   $2,560
E)   $3,280F) All of the above
G) None of the above

Question 3

A cumulative cash deficit indicates a company:

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 4

Peterson's Antiquities currently has a 32.6-day cash cycle. Assume the company changes its operations such that it decreases its receivables period by 3.1 days, increases its inventory period by 1.8 days, and increases its payables period by 2.2 days. What will the length of the cash cycle be after these changes?

Accepted Answer

A)   33.5 days
B)   36.1 days
C)   30.2 days
D)   29.1 days
E)   27.6 daysF) D) and E)
G) C) and D)

Question 5

Assume Laksko's has credit sales of $462,400 in March, $507,500 in April, and $550,200 in May. Also assume that 64 percent of sales are collected in the month of sale, 35 percent are collected in the following month, and the remainder are never collected. Credit purchases are $224,600 in March, $236,700 in April, and $252,700 in May. Credit purchases are paid in 30 days. Interest is $12,400 a month, wages and other expenses are $64,400 a month. Fixed assets purchases of $119,500 are scheduled for April with additional purchases of $56,400 in May. The April 1 cash balance was $321,060 and taxes of $180,000 must be paid on April 15. What is the cash balance at the end of May?

Accepted Answer

A)   $348,887
B)   $351,008
C)   $414,141
D)   $440,777
E)   $366,653F) B) and D)
G) C) and D)

Question 6

Which one of these actions represents a use of cash?

Accepted Answer

A)   Collecting a receivable
B)   Paying employee wages
C)   Selling inventory for cash
D)   Obtaining a bank loan
E)   Purchasing inventory on creditF) None of the above
G) A) and B) B

Question 7

The optimal investment in current assets for an active company occurs at the point where:

Accepted Answer

A)   both shortage costs and carrying costs equal zero.
B)   shortage costs are equal to zero.
C)   carrying costs are equal to zero.
D)   carrying costs exceed shortage costs.
E)   shortage costs and carrying costs are equal.F) A) and C)
G) C) and D)

Question 8

New Products has sales of $749,500 and cost of goods sold of $368,600. Beginning inventory is $54,700 and ending inventory is $58,200. What is the length of the inventory period?

Accepted Answer

A)   15.01 days
B)   17.89 days
C)   55.90 days
D)   90.53 days
E)   113.67 daysF) B) and C)
G) A) and D) C

Question 9

Bradley's has an inventory turnover rate of 7.6, a payables turnover rate of 11.4, and a receivables turnover rate of 12.6. How long is the operating cycle?

Accepted Answer

A)   20.20 days
B)   76.99 days
C)   70.63 days
D)   30.13 days
E)   24.11 daysF) A) and B)
G) C) and E)

Question 10

If a company adheres to a restrictive short-term financial policy, then they will generally have:

Accepted Answer

A)   little, if any, investment in marketable securities.
B)   low inventory turnover rates.
C)   liberal credit terms for customers.
D)   few, if any, stockouts.
E)   high cash balances.F) B) and D)
G) B) and E)

Question 11

Morning Star has credit sales of $1,032,800, costs of goods sold of $662,350, average accounts receivable of $86,300, and average accounts payable of $92,600. On average, how long does it take Morning Star's credit customers to pay for their purchases?

Accepted Answer

A)   11.97 days
B)   39.24 days
C)   30.50 days
D)   21.88 days
E)   19.56 daysF) B) and C)
G) A) and B)

Question 12

Interior Designs has an inventory period of 84.6 days, an accounts payable period of 43.2 days, and an accounts receivable period of 41.7 days. Management is considering an offer from their suppliers to pay within 10 days and receive a discount of 2 percent. If the new discount is taken, the accounts payable period is expected to decline by 30.4 days. What will be the new operating cycle given the change in the payables period?

Accepted Answer

A)   95.9 days
B)   115.0 days
C)   97.4 days
D)   126.3 days
E)   139.1 daysF) D) and E)
G) A) and C)

Question 13

The operating cycle is equal to the:

Accepted Answer

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

Question 14

HG Livery Supply has a beginning accounts payable balance of $68,800 and an ending accounts payable balance of $72,700. Sales for the period were $942,800 and costs of goods sold were $534,200. What is the payables turnover rate?

Accepted Answer

A)   7.55 times
B)   8.39 times
C)   7.02 times
D)   13.33 times
E)   12.85 timesF) None of the above
G) A) and C)

Question 15

Rachel's has a $45,000 line of credit with an interest rate of 7.4 percent and a compensating balance requirement of 2.75 percent. The compensating balance is based on the total amount borrowed with funds being held in an interest-free account. What is the effective annual interest rate if the company requires $28,000 of borrowed funds for one year?

Accepted Answer

A)   7.64 percent
B)   7.58 percent
C)   7.51 percent
D)   7.61 percent
E)   7.42 percentF) A) and B)
G) A) and C)

Question 16

Cement Works has a beginning cash balance for the quarter of $1,211. The company requires a minimum cash balance of $1,200 and uses a loan account to maintain that balance. If funds have been borrowed, then they are repaid as soon as excess funds are available. Currently, the outstanding loan balance is $1,318. How much will be borrowed or repaid this quarter if the quarterly receipts are $4,209 and the quarterly disbursements are $3,807.

Accepted Answer

A)   Borrow $416
B)   Borrow $402
C)   Borrow $413
D)   Repay $413
E)   Repay $402F) None of the above
G) A) and D)

Question 17

All of the following are benefits derived from short-term financial planning with the exception of:

Accepted Answer

A)   having advance notice of when your firm should require external financing.
B)   knowing for certain what your cash balance will be six months in advance.
C)   knowing if excess funds should be available for investing.
D)   being able to determine the approximate extent of time for which a loan is required.
E)   having the ability to time capital expenditures in order to place the least financial burden possible on a firm.F) A) and E)
G) B) and C)

Question 18

Which one of these 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) B) and E)
G) B) and D) A

Question 19

At the beginning of the year, BJ's had an outstanding short-term loan of $527. The interest charges for the year were $31 and the annual net cash flow was $211, prior to any payment of principal or interest on the loan. What is the anticipated loan balance at year-end?

Accepted Answer

A)   $451
B)   $347
C)   $558
D)   $769
E)   $693F) A) and E)
G) B) and C)

Question 20

Which one of the following statements is correct?

Accepted Answer

A)   The assignment of receivables involves selling 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) C) and D)

Exam 18: Short Term Finance and Planning

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A cumulative cash deficit indicates a company:

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Which one of these actions represents a use of cash?

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B

The optimal investment in current assets for an active company occurs at the point where:

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New Products has sales of $749,500 and cost of goods sold of $368,600. Beginning inventory is $54,700 and ending inventory is $58,200. What is the length of the inventory period?

Correct Answer
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C

Bradley's has an inventory turnover rate of 7.6, a payables turnover rate of 11.4, and a receivables turnover rate of 12.6. How long is the operating cycle?

Correct Answer
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If a company adheres to a restrictive short-term financial policy, then they will generally have:

Correct Answer
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Morning Star has credit sales of $1,032,800, costs of goods sold of $662,350, average accounts receivable of $86,300, and average accounts payable of $92,600. On average, how long does it take Morning Star's credit customers to pay for their purchases?

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The operating cycle is equal to the:

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HG Livery Supply has a beginning accounts payable balance of $68,800 and an ending accounts payable balance of $72,700. Sales for the period were $942,800 and costs of goods sold were $534,200. What is the payables turnover rate?

Correct Answer
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All of the following are benefits derived from short-term financial planning with the exception of:

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

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A

At the beginning of the year, BJ's had an outstanding short-term loan of $527. The interest charges for the year were $31 and the annual net cash flow was $211, prior to any payment of principal or interest on the loan. What is the anticipated loan balance at year-end?

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Which one of the following statements is correct?

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Exam 18: Short Term Finance and Planning

Correct AnswerverifiedShow Answer

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A cumulative cash deficit indicates a company:

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Which one of these actions represents a use of cash?

Correct AnswerverifiedB

The optimal investment in current assets for an active company occurs at the point where:

Correct AnswerverifiedShow Answer

New Products has sales of $749,500 and cost of goods sold of $368,600. Beginning inventory is $54,700 and ending inventory is $58,200. What is the length of the inventory period?

Correct AnswerverifiedC

Bradley's has an inventory turnover rate of 7.6, a payables turnover rate of 11.4, and a receivables turnover rate of 12.6. How long is the operating cycle?

Correct AnswerverifiedShow Answer

If a company adheres to a restrictive short-term financial policy, then they will generally have:

Correct AnswerverifiedShow Answer

Morning Star has credit sales of $1,032,800, costs of goods sold of $662,350, average accounts receivable of $86,300, and average accounts payable of $92,600. On average, how long does it take Morning Star's credit customers to pay for their purchases?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The operating cycle is equal to the:

Correct AnswerverifiedShow Answer

HG Livery Supply has a beginning accounts payable balance of $68,800 and an ending accounts payable balance of $72,700. Sales for the period were $942,800 and costs of goods sold were $534,200. What is the payables turnover rate?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

All of the following are benefits derived from short-term financial planning with the exception of:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedA

At the beginning of the year, BJ's had an outstanding short-term loan of $527. The interest charges for the year were $31 and the annual net cash flow was $211, prior to any payment of principal or interest on the loan. What is the anticipated loan balance at year-end?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

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B

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C

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A

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