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Exam 16: Short-Term Financial Planning

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Question 31

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Which statement is correct?

A) Firms should generally finance all of their assets with long-term debt.
B) Firms that follow restrictive financial policies can generally avoid short-term debt financing.
C) Short-term borrowing is generally more expensive than long-term borrowing.
D) Long-term interest rates tend to be more volatile than short-term rates.
E) A firm is less apt to face financial distress if it adopts a flexible financial policy rather than a restrictive policy.

F) A) and E)
G) A) and C)

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Question 32

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Show Place Decor has estimated quarterly sales for next year,starting with Quarter 1,of $38,600,$53,400,$48,900,and $69,800.Purchases are equal to 62 percent of the following quarter's sales and the accounts payable period is 30 days.Assume each month has 30 days.What is the estimated accounts payable balance at the end of Quarter 2?

A) $10,106
B) $9,520
C) $11,624
D) $14,425
E) $14,200

F) C) and D)
G) A) and C)

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Question 33

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Industrial Supply has projected Q1 sales at $38,200,Q2 sales at $44,900,and Q3 sales at $42,300.Purchasesequal69 percent of the next quarter's sales.The accounts receivable period is 30 days and the accounts payable period is 60 days.At the beginning of Q1,the firm has an accounts receivable balance of $11,800 and an accounts payable balance of $23,300.The firm pays $1,600 a month in cash expenses and $800 a month in interest and taxes.At the beginning of the Q1,the cash balance is $500 and the short-term loan balance is zero.During Q1,capital spending will be $2,100.The firm maintains a minimum cash balance of $200.Assume each month has 30 days.What is the cumulative cash surplus (deficit) at the end of Q1,prior to any short-term borrowing?

Candy Supplies purchases are equal to 68 percent of the following quarter's sales.Assume each month has 30 days,the accounts receivable period is 30 days,and the accounts payable period is 45 days.The estimated quarterly sales for next year,starting with Quarter 1,are $38,900,$40,600,$58,900,and $69,200,respectively.How much will the firm pay its suppliers in the third quarter?

Kacie's has an average collection period of 23 days and factors all receivables immediately at a discount of .95percent.What is the effective cost of borrowing? Assume that default is extremely unlikely.

You've worked out a line of credit arrangement that allows you to borrow up to $2.5 million at any time.The interest rate is .65 percent per month.In addition,2 percent of the amount you borrow must be deposited in a non-interest-bearing account.Assume your lender uses compound interest and that you need $1.2 million today which you will repay in five months.How much interest will you pay?

The Grain and Feed Store purchases are equal to 68 percent of the following quarter's sales.The accounts receivable period is 15 days and the accounts payable period is 30 days.Assume there are 30 days in each month.The store has estimated quarterly sales for the next year,starting with Quarter 1,of $16,750,$18,220,$17,560,and $19,710,respectively.How much will the store owe its suppliers at the end of Quarter 3?

A company has the following account balances.Which statement is correct concerning these balances? $\begin{array}{c}\begin{array}{|l|} \hline \text {Account}\\\\ \hline \text {Accounts receivable}\\ \hline \text {Accounts payable}\\ \hline \text {Inventory}\\\hline \text {Long-tem debt}\\\hline \text {Commonstock}\\ \hline \end{array}\begin{array}{c|} \hline \text {Beginning}\\\text {Balance}\\ \hline\$ 16,400\\ \hline20,300\\ \hline63,600\\ \hline127,500\\ \hline212,400\\ \hline\end{array}\begin{array}{c|} \hline \text {Ending}\\\text {Balance}\\ \hline\$17,800 \\ \hline24,400\\ \hline60,100\\ \hline125,800\\ \hline215,900\\ \hline \end{array}\end{array}$

Which of the following are sources of cash? I.Decreasing accounts receivable II.Increasing inventory III.Increasing accounts payable IV.Increasing common stock

The cash cycle is equal to the:

Which of these best describes a line of credit?

Al's Plumbing has the following current account values.These accounts represent a net _____ of cash for the period in the amount of ____. $\begin{array}{c}\begin{array}{|l|} \hline \text {Account}\\\\ \hline \text {Accounts receivable}\\ \hline \text {Accounts payable}\\ \hline \text {Inventory}\\ \hline \end{array}\begin{array}{c|} \hline \text {Beginning}\\\text {Balance}\\ \hline\$ 32,800 \\ \hline29,700\\ \hline52,600\\ \hline\end{array}\begin{array}{c|} \hline \text {Ending}\\\text {Balance}\\ \hline\$ 31,300 \\ \hline26,500\\ \hline54,200\\ \hline \end{array}\end{array}$

Which type of financing is generally used by new car dealers to finance their inventories?

Which one of the following actions will decrease the operating cycle?

The operating cycle:

A firm has an average collection period of 37 days and factors all of its receivables immediately at a discount of .98 percent.Assume all accounts are collected in full.What is the firm's effective cost of borrowing?

Kelso's has projected sales for January through April of $136,000,$148,000,$144,000,and $146,000,respectively.The firm collects 59 percent of sales in the month of sale,36 percent in the month following the sale,and the remainder in the second month following the sale.Assume all sales are collected.The accounts receivable balance at the end of the beginning of January was $56,050 ($47,643 of which was uncollected December sales) .How much did the firm collect in the month of February?

The Shoe Tree currently has an operating cycle of 199 days and a cash cycle of 54 days.The company is implementing some changes that will reduce the inventory period by 11 days,decrease the receivables period by 6 days,and decrease the accounts payable period by 4 days.How many days will be in the new cash cycle once all of these changes become effective?

An increase in the accounts receivable period is most apt to:

Which firm is most apt to have the shortest inventory period?