Deck 18: Short-Term Finance and Planning

Question 1

The production manager does not have a direct influence on the firm's inventory holdings.

Answer 1

True

Question 2

Long-term debt reduction represents an increase in cash.

Answer 2

False

Question 3

Purchasing inventory more often and in smaller amounts will likely increase the firm's cash cycle.

Answer 3

False

Question 4

Fixed asset sale represents an increase in cash.

Question 5

A decrease in accounts payable is a source of cash.

Question 6

If the initial current ratio for a firm is greater than one, then obtaining a short-term bank loan to purchase fixed assets will decrease net working capital.

Question 7

When the firm takes out a long-term bank loan, then it is considered a use of cash.

Question 8

When the amount of inventory on hand is increased, then it is considered a use of cash.

Question 9

The cash manager does not have a direct influence on the firm's inventory holdings.

Question 10

If the initial current ratio for a firm is greater than one, then the sale of inventory (at book value) on credit will decrease net working capital.

Question 11

A decrease in accounts receivable is a source of cash.

Question 12

If the initial current ratio for a firm is greater than one, then using cash to purchase marketable securities will decrease net working capital.

Question 13

When payments are paid on accounts payable, then it is considered a use of cash.

Question 14

The payables manager does not have a direct influence on the firm's inventory holdings.

Question 15

When marketable securities are sold, then it is considered a use of cash.

Question 16

Most firms have a positive cash cycle.

Question 17

An increase in fixed assets is a source of cash.

Question 18

Inventory is acquisition represents an increase in cash.

Question 19

If the initial current ratio for a firm is greater than one, then factoring receivable at 90% of their book value will decrease net working capital.

Question 20

An increase in inventory is a source of cash.

Question 21

Increasing the discount for early payment by credit customers will tend to decrease the accounts receivable period.

Question 22

Cash is increased when a firm grants credit to a customer

Question 23

The formula (Cash cycle + accounts payable period) correctly defines the operating cycle.

Question 24

The time period between the day a firm pays for its inventory item and the day it received payment from the customer who purchased that inventory item is called the accounts receivable period.

Question 25

Selling obsolete inventory below cost just to get rid of it will tend to decrease the inventory period.

Question 26

An accounts payable period decrease would increase the length of a firm's cash cycle? Consider each in isolation.

Question 27

Paying suppliers slower will shorten the cash cycle.

Question 28

Discontinuing all slow-selling merchandise will tend to decrease the inventory period.

Question 29

Selling inventory slower will shorten the cash cycle.

Question 30

Cash cycle is the number of days it takes a firm to its receivables and the days it pays its creditors.

Question 31

The formula (Inventory period - accounts receivable period - accounts payable period) correctly defines the operating cycle.

Question 32

Accepting credit from a supplier increases cash.

Question 33

Selling more inventory on credit rather than for cash will shorten the cash cycle.

Question 34

The formula (Inventory period + accounts receivable period) correctly defines the operating cycle.

Question 35

Loosening the standards for granting credit to customers will tend to decrease the accounts receivable period.

Question 36

Collecting receivables faster will shorten the cash cycle.

Question 37

A graphical representation of the operating and cash cycles is called a cash flow time line.

Question 38

Producing goods on demand versus for inventory will tend to decrease the inventory period.

Question 39

Offering a larger discount for cash sales will likely increase the firm's cash cycle.

Question 40

Granting discounts for cash sales will tend to decrease the accounts receivable period.

Question 41

An increase in long-term debt Is a source of cash.

Question 42

The purchasing manager does not have a direct influence on the firm's inventory holdings.

Question 43

Minimal, if any, investments in marketable securities is associated with a restrictive short-term financial policy.

Question 44

Frequent cash-outs is associated with a restrictive short-term financial policy.

Question 45

Buying raw materials only as they are needed in the manufacturing process will tend to decrease the inventory period.

Question 46

Credit extended by a supplier is a source of cash.

Question 47

An accounts receivable period increase would increase the length of a firm's cash cycle? Consider each in isolation.

Question 48

The formula (Cash cycle - accounts payable period) correctly defines the operating cycle.

Question 49

An inventory turnover increase would increase the length of a firm's cash cycle? Consider each in isolation.

Question 50

Delaying payment on payables for an additional 10 days will likely increase the firm's cash cycle.

Question 51

Large investments in inventory is associated with a restrictive short-term financial policy.

Question 52

If investment in marketable securities is increased, then it would move a firm toward a flexible short-term financial policy.

Question 53

The payables manager does not have a direct influence on the firm's accounts receivable balance.

Question 54

Increasing the finance charges applied to all customer balances outstanding over thirty days will tend to decrease the accounts receivable period.

Question 55

The controller does not have a direct influence on the firm's accounts receivable balance.

Question 56

The credit manager does not have a direct influence on the firm's accounts receivable balance.

Question 57

A reduction in the average accounts receivable balance is a source of cash.

Question 58

If credit restrictions for accounts receivable are increased, then it would move a firm toward a flexible short-term financial policy.

Question 59

The production manager does not have a direct influence on the firm's accounts receivable balance.

Question 60

Changing credit terms to require payment in 30 days rather than 20 will likely increase the firm's cash cycle.

Question 61

For cash budgeting purposes, taxes are generally considered as paid in the quarter incurred

Question 62

A restrictive short-term financial policy, as compared to a more flexible policy, tends to increase the sales of a firm due to the firm's credit availability and terms.

Question 63

For cash budgeting purposes, wages are generally considered as paid in the quarter incurred

Question 64

For cash budgeting purposes, capital equipment purchases are generally considered as paid in the quarter incurred

Question 65

A flexible policy is most appropriate when carrying costs are low relative to shortage costs.

Question 66

A restrictive short-term financial policy, as compared to a more flexible policy, tends to increase the probability that a firm will face a cash-out situation.

Question 67

A restrictive short-term financial policy, as compared to a more flexible policy, tends to cause a firm to lose sales due to a lack of inventory on hand.

Question 68

The optimal current asset holdings are higher under a flexible policy than under a restrictive policy.

Question 69

For cash budgeting purposes, Inventory purchases are generally considered as paid in the quarter incurred

Question 70

Minimal credit sales are associated with a restrictive short-term financial policy.

Question 71

A flexible policy requires more short-term bank loans than does a restrictive policy.

Question 72

Reserve inventory storage costs is classified as a shortage cost.

Question 73

Large investments in marketable securities is associated with a restrictive short-term financial policy.

Question 74

The costs to set up equipment to produce a different product is classified as a shortage cost.

Question 75

If the level of investment in inventory is decreased, then it would move a firm toward a flexible short-term financial policy.

Question 76

Minimal cash balances are associated with a restrictive short-term financial policy.

Question 77

A flexible policy entails the use of marketable securities.

Question 78

Liberal credit terms for customers is associated with a restrictive short-term financial policy.

Question 79

The payment of wages to an employee is a source of cash.

Question 80

Lost customer goodwill is classified as a shortage cost.