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Exam 16: Short-Term Financial Planning

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Question 21

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Which of these is a use of cash?

A) Issuing new shares of stock
B) Decreasing accounts receivable
C) Decreasing inventory
D) Decreasing fixed assets
E) Decreasing accounts payable

F) A) and B)
G) A) and C)

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Question 22

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

A) Granting increasing amounts of credit to customers
B) Expanding the number of inventory items carried
C) Increasing the firm's investment in the current accounts
D) Minimizing the cash balances held by the firm
E) Investing relatively large amounts in marketable securities

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

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Question 23

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The accounts receivable period is the time that elapses between the _____ and the ____.

Westover Products has estimated monthly sales for February through May of $9,600,$10,200,$10,700,and $11,400,respectively.If the accounts receivable period is 45 days,how much will be collected in April? Assume each month has 30 days.

Here are some important figures from the budget of Global Enterprises for the second quarter $\begin{array} { | l | r | r | r | } \hline & \underline { \text { April } } & \underline { \text { May } } & \text { June } \\\hline \text { Credit sales } & \$ 524,600 & \$ 546,800 & \$ 568,100 \\\hline \text { Credit purchases } & 359,100 & 366,700 & 384,200 \\\hline \text { Cash disbursements: } & & & \\\hline \text { Wages, taxes, and other } & 98,400 & 99,100 & 124,600 \\\hline \text { Interest } & 7,500 & 7,500 & 7,500 \\\hline \text { Fixed asset purchases } & 11,300 & 0 & 48,900 \\\hline\end{array}$ The company predicts that 2 percent of its credit sales will never be collected,45 percent of its sales will be collected in the month of sale,and the remaining 53 percent will be collected in the following month.Credit purchases will be paid in the month following the purchase.March credit sales were $487,900 and credit purchases were $349,500.What is the ending cash balance for April if the beginning cash balance was $39,500?

Alderson Metals is compiling a cash balance projection by quarter for next year.Which one of the following adjustments to this projection will decrease the cumulative surplus?

Which one of the following commences on the day inventory is purchased and ends on the day the payment for the sale of that inventory is collected? Assume all sales and purchases are on credit.

The operating cycle is equal to the:

Dover Wholesalers sells products exclusively to Benn Retailer.Benn Retailer buys exclusively from Dover Wholesalers.Dover Wholesalers has a receivables period of 44 days,an inventory period of 8 days,and a payables period of 63 days.Benn Retailer has an inventory period of 15 days,a receivables period of 22 days,and a payables period of 44 days.Which statement is correct given this information?

Which one of these will increase the operating cycle?

H&H Companies has an average collection period of 43 days and factors all of its receivables immediately at a discount of 1.1 percent.Assume all accounts are collected in full.What is the firm's effective cost of borrowing?

QT Stores has an average collection period of 28 days and factors all of its receivables immediately at a discount of 1.12 percent.What is the firm's effective cost of borrowing assuming all accounts are collected in full?

A flexible short-term financial policy will tend to have more of which of the following than a restrictive short-term financial policy will? I.Uncollectable accounts receivable II.Work stoppages for lack of raw materials III.Carrying costs IV.Obsolete or out-of-date inventory

By definition,an inventory loan is which one of the following types of loan?

Suppose MMP changes its policy and starts requiring all of its customers to pay within 20 days rather than the 30 days that it currently allows.Which one of the following will result from this change?

Furniture Outlet has an accounts receivable period of 63 days and an accounts payable period of 87 days.The company turns over its inventory 4.3 times per year and marks up the inventory an average of 38 percent over its wholesale cost.What is the length of the firm's operating cycle?

Kurt's Music has a line of credit with a local bank that permits it to borrow up to $650,000 at any time.The interest rate is .64 percent per month.The bank charges compound interest and also requires that 2 percent of the amount borrowed be deposited into a non-interest-bearing account.How much interest will the firm pay if it needs $200,000 of cash for three months to pay its operating expenses?

The High Water Mark is operating at its optimal point.Which one of the following conditions exists given this firm's operating status?

The Brown Squirrel has estimated sales for January through May of $14,700,$16,900,$23,500,$36,700,and $42,300,respectively.Assume there are 30 days in each month and the accounts receivable period is 45 days.How much should the firm expect to collect in May?

The HOT Truck operates several specialty vehicles that provide hot food and beverages for firms that have workers employed in outlying regions.The company has annual sales of $489,500.Cost of goods sold average 59 percent of sales and the profit margin is 6.1 percent.The average accounts receivable balance is $41,700.On average,how long does it take this food truck to collect payment for its services?