Deck 18: Short-Term Finance and Planning

Question 1

A decrease in accounts receivable is a source of cash.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

Long-term debt reduction represents an increase in cash.

Answer 3

False

Question 4

An increase in inventory is a source of cash.

Question 5

Fixed asset sale represents an increase in cash.

Question 6

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

Question 7

Most firms have a positive cash cycle.

Question 8

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

Question 9

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 10

An increase in fixed assets is a source of cash.

Question 11

A decrease in accounts payable 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

Inventory is acquisition represents an increase in cash.

Question 15

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 16

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 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

Selling inventory slower will shorten the cash cycle.

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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 29

Accepting credit from a supplier increases cash.

Question 30

Collecting receivables faster will shorten the cash cycle.

Question 31

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

Question 32

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

Question 33

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

Question 34

Cash is increased when a firm grants credit to a customer

Question 35

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

Question 36

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

Question 37

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

Question 38

Paying suppliers slower will shorten the cash cycle.

Question 39

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

Question 40

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

Question 41

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

Question 42

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

Question 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

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

Question 54

Credit extended by a supplier is a source of cash.

Question 55

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

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

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

Question 59

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

Question 60

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

Question 61

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

Question 62

Reserve inventory storage costs is classified as a shortage cost.

Question 63

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

Question 64

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

Question 65

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

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

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

Question 68

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

Question 69

A flexible policy entails the use of marketable securities.

Question 70

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

Question 71

Lost customer goodwill is classified as a shortage cost.

Question 72

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

Question 73

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 74

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

Question 75

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

Question 76

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

Question 77

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

Question 78

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

Question 79

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

Question 80

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