Deck 26: Short-Term Finance and Planning

Question 1

Cash increases when:

A)long-term debt decreases.
B)equity decreases.
C)current liabilities decrease.
D)accounts payable increases.
E)fixed assets increase.

Answer 1

accounts payable increases.

Question 2

The cash cycle will decrease as a result of increasing the:

A)payables turnover.
B)days sales in inventory.
C)operating cycle.
D)inventory turnover rate.
E)accounts receivable period.

Answer 2

inventory turnover rate.

Question 3

Which one of the following will not affect the operating cycle?

A)Decreasing the payables turnover from 7 times to 6 times
B)Increasing the days sales in receivables
C)Decreasing the inventory turnover rate
D)Increasing the average receivables balance
E)Decreasing the credit repayment times for the firm's customers

Answer 3

Decreasing the payables turnover from 7 times to 6 times

Question 4

Which one of the following will decrease the net working capital of a firm? Assume the current ratio is greater than 1.0.

A)Selling inventory at a profit
B)Collecting an accounts receivable
C)Paying a payment on a long-term debt
D)Selling a fixed asset for book value
E)Paying an accounts payable

Question 5

The cash cycle equals the:

A)inventory period plus the accounts receivable period.
B)change in net working capital divided by daily sales.
C)operating cycle plus the accounts payable period.
D)operating cycle minus the inventory period.
E)operating cycle minus the accounts payable period.

Question 6

Which one of the following is a source of cash?

A)An increase in accounts receivable
B)An increase in fixed assets
C)A decrease in long-term debt
D)The payment of a cash dividend
E)An increase in accounts payable

Question 7

Which one of these statements is correct concerning the cash cycle?

A)The longer the cash cycle,the more likely a firm will need external financing.
B)Increasing the accounts payable period increases the cash cycle.
C)A positive cash cycle is preferable to a negative cash cycle.
D)The cash cycle can exceed the operating cycle if the payables period is equal to zero.
E)Adopting a more liberal accounts receivable policy will tend to decrease the cash cycle.

Question 8

The operating cycle can be decreased by:

A)paying accounts payable faster.
B)discontinuing the discount given for early payment of an accounts receivable.
C)decreasing the inventory turnover rate.
D)collecting accounts receivable faster.
E)increasing the accounts payable turnover rate.

Question 9

Which one of these statements concerning the cash cycle is correct?

A)The cash cycle is equal to the operating cycle minus the inventory period.
B)A negative cash cycle is actually preferable to a positive cash cycle.
C)Granting credit to slower paying customers tends to decrease the cash cycle.
D)The cash cycle plus the accounts receivable period is equal to the operating cycle.
E)The most desirable cash cycle is the one that equals zero days.

Question 10

You can decrease the cash cycle by:

A)increasing the cash discount offered to customers who pay their accounts early.
B)increasing the percentage of customers paying with credit rather than cash.
C)increasing the amount of raw materials kept in inventory.
D)paying your suppliers earlier to receive a discount on your purchases.
E)increasing your inventory to prevent stock-outs.

Question 11

Cash decreases when:

A)current assets other than cash increase.
B)fixed assets decrease.
C)current liabilities increase.
D)retained earnings increase.
E)long-term debt increases.

Question 12

Which one of the following is a use of cash?

A)Selling goods from inventory
B)Sale of a marketable security held by the firm
C)Submitting taxes to the government
D)Obtainment of a long-term loan
E)Collection of a past-due accounts receivable

Question 13

ABC Manufacturing historically produced products that were held in inventory until they could be sold to a customer.The firm is now changing its policy and only producing a product when it receives an actual order from a customer.All else equal,this change will:

A)increase the operating cycle.
B)lengthen the accounts receivable period.
C)shorten the accounts payable period.
D)decrease the cash cycle.
E)decrease the inventory turnover rate.

Question 14

If a firm needs to increase its cash holdings it could:

A)increase fixed assets.
B)decrease accounts payable.
C)decrease long-term debt.
D)increase other current assets.
E)increase current liabilities.

Question 15

Which one of the following will increase net working capital? Assume the current ratio is greater than 1.0.

A)Using cash to pay an accounts payable
B)Using cash to pay a long-term debt
C)Selling inventory at cost
D)Collecting an accounts receivable
E)Using a long-term loan to buy inventory

Question 16

Net working capital is defined as the:

A)current assets of a business.
B)difference between current assets and current liabilities.
C)present value of short-term cash flows.
D)difference between all assets and liabilities.
E)difference between total current assets and cash.

Question 17

The cash cycle is defined as the time between:

A)the arrival of inventory and cash collected from receivables.
B)selling a product and paying the supplier of that product.
C)selling a product and collecting the accounts receivable.
D)cash disbursements and cash collection for an item.
E)the sale of inventory and cash collection.

Question 18

One use of cash is represented by:

A)an increase in borrowing.
B)an increase in operating cash flow.
C)a decrease in accounts payable.
D)an increase in notes payable.
E)a decrease in inventory.

Question 19

The operating cycle will decrease if you decrease the:

A)days sales in inventory.
B)days in accounts payable.
C)cash cycle by increasing the accounts payable period.
D)accounts receivable turnover rate.
E)speed at which inventory is sold.

Question 20

A use of cash is associated with:

A)a decrease in a liability.
B)an increase in an asset.
C)an increase in retained earnings.
D)both an increase in an asset and an increase in retained earnings.
E)both a decrease in a liability and an increase in an asset.

Question 21

The length of time between the acquisition of inventory and its sale is called the:

A)operating cycle.
B)inventory period.
C)accounts receivable period.
D)accounts payable period.
E)cash cycle.

Question 22

If The Deli delays paying its suppliers by an additional ten days,then:

A)its payables turnover rate will increase.
B)it should require less bank financing of its daily operations.
C)its cash cycle will increase by ten days.
D)its operating cycle will increase by ten days.
E)its stock-out costs will rise.

Question 23

Shortage costs include all the following except the:

A)opportunity costs related to a low return on assets.
B)order costs.
C)disruption of production schedules.
D)production setup costs.
E)lost sales.

Question 24

Costs of the firm that rise with increased levels of investment in its current assets are called ________ costs.

A)carrying
B)shortage
C)order
D)safety
E)trading

Question 25

Miller's Hardware has a flexible short-term financing policy.Over the course of one year,the firm should expect to have some months that allow it to:

A)repay all its debts.
B)invest in marketable securities.
C)reduce its total costs below the firm's normal minimum total cost point.
D)finance all its assets with short-term loans.
E)earn high returns on all its current assets.

Question 26

The short-term financial policy a firm adopts will be reflected in:

A)the size of the firm's investment in current assets.
B)the financing of current assets.
C)the financing of fixed assets.
D)both the size and the financing of current assets.
E)both the size and the financing of fixed assets.

Question 27

Flexible short-term financial policies tend to:

A)maintain low accounts receivable balances.
B)support few investments in marketable securities.
C)minimize the investment in inventory.
D)maintain large cash balances.
E)tightly restrict credit sales.

Question 28

The length of time between the payment for inventory and the collection of cash from receivables is called the:

A)operating cycle.
B)inventory period.
C)accounts receivable period.
D)accounts payable period.
E)cash cycle.

Question 29

Given a flexible financing policy,a growing firm generally has a permanent requirement for:

A)both current and long-term assets.
B)long-term assets only.
C)short-term debt.
D)both short- and long-term debt.
E)current assets and short-term debt.

Question 30

The length of time between the acquisition of inventory by a firm and the payment by the firm for that inventory is called the:

A)operating cycle.
B)inventory period.
C)accounts receivable period.
D)accounts payable period.
E)cash cycle.

Question 31

The length of time between the acquisition of inventory and the collection of cash from receivables is called the:

A)operating cycle.
B)inventory period.
C)accounts receivable period.
D)accounts payable period.
E)cash cycle.

Question 32

The length of time between the sale of inventory and the collection of cash from receivables is called the:

A)operating cycle.
B)inventory period.
C)accounts receivable period.
D)accounts payable period.
E)cash cycle.

Question 33

If the average accounts receivable that a firm holds decreases without any decrease in credit sales,the operating cycle will:

A)remain constant because sales remained constant.
B)remain constant because the change will only affect the cash cycle.
C)decrease because the days' sales outstanding will decrease.
D)increase because the accounts receivable turnover will decrease.
E)decrease because the accounts receivable turnover will decrease.

Question 34

A restrictive short-term financial policy tends to:

A)reduce future sales more so than a flexible policy.
B)grant credit to more customers.
C)incur more carrying costs than a flexible policy does.
D)encourage credit sales over cash sales.
E)reduce order costs as compared to a more flexible policy.

Question 35

Costs of the firm that fall with increased levels of investment in its current assets are called ________ costs.

A)carrying
B)shortage
C)debt
D)equity
E)payables

Question 36

The manager responsible for applying payments to customer's accounts is the:

A)controller.
B)payables manager.
C)credit manager.
D)purchasing manager.
E)production manager.

Question 37

A flexible short-term financial policy:

A)increases the likelihood that a firm will face financial distress.
B)incurs an opportunity cost due to the rate of return that applies to short-term assets.
C)advocates a smaller investment in net working capital than a restrictive policy does.
D)increases the probability that a firm will earn high returns on all its assets.
E)utilizes short-term financing to fund all the firm's assets.

Question 38

Given a fixed level of sales and a constant profit margin,an increase in the accounts payable period can result from:

A)an increase in the cost of goods sold account value.
B)an increase in the ending accounts payable balance.
C)an increase in the cash cycle.
D)a decrease in the operating cycle.
E)a decrease in the average accounts payable balance.

Question 39

A firm that adopts a flexible short-term financial policy is more apt to have:

A)lower carrying costs than shortage costs.
B)lower shortage costs than carrying costs.
C)stricter limits on credit sales than the average firm.
D)a relatively low level of current assets.
E)greater short-term financing needs than if the firm adopted a restrictive policy.

Question 40

The accounts receivable policy is generally set by the:

A)purchasing manager.
B)credit manager.
C)controller.
D)production manager.
E)payables manager.

Question 41

Baxter's collects 30 percent of its sales in the month of sale,55 percent in the month following the month of sale,and 13 percent in the second month following the month of sale.Given this,the company will collect ________ sales during the month of May.

A)30 percent of May
B)55 percent of March
C)13 percent of April
D)55 percent of May
E)13 percent of February

Question 42

Which party(ies)is(are)ultimately responsible for an invoice from a supplier that is subject to a bankers' acceptance?

A)The bank which issued the acceptance
B)The purchasing firm
C)The investors who purchased the banker's acceptance
D)The vendor who issued the invoice
E)Both the bank and the purchasing firm jointly

Question 43

Bilt Rite has sales of $610,000 and cost of goods sold equal to 68 percent of sales.The beginning accounts receivable balance is $58,900 and the ending accounts receivable balance is $61,050.How long on average does it take the firm to collect its receivables?

A)35.89 days
B)44.09 days
C)41.07 days
D)25.98 days
E)26.52 days

Question 44

A cumulative cash deficit indicates a firm:

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 its needs internally.
E)is using its cash wisely.

Question 45

Heritage Farms has sales of $1.62 million with costs of goods sold equal to 78 percent of sales.The average inventory is $369,000,accounts payable average $438,000,and receivables average $147,000.How long is the cash cycle?

A)13.19 days
B)13.30 days
C)17.29 days
D)7.54 days
E)11.77 days

Question 46

Which one of these statements is true?

A)The cumulative finance surplus requirement is computed prior to adjusting for the minimum cash balance.
B)A financially sound firm will always have a positive quarterly net cash flow.
C)A negative cumulative cash surplus indicates a borrowing need.
D)Most firms plan on maintaining a zero cash balance.
E)The minimum cash balance generally increases on a quarterly basis.

Question 47

A fraction of the available credit on a loan agreement deposited by the borrower with the bank in a low or non-interest-bearing account is called a:

A)compensating balance.
B)cleanup loan.
C)letter of credit.
D)line of credit.
E)roll-over.

Question 48

A type of short-term loan where the borrower sells its receivables to the lender up-front,but at a discount to face value,is called:

A)a compensating balance.
B)assigned receivables financing.
C)a letter of credit.
D)factored receivables financing.
E)a bond.

Question 49

A compensating balance:

A)requirement generally applies to inventory-type loans.
B)is a means of paying for banking services received.
C)requirement is generally set equal to one percent of the amount borrowed.
D)decreases the cost of short-term bank financing.
E)refunds a portion of the borrower's interest if a loan is repaid early.

Question 50

A financially solid firm is most apt to have a quarterly cash shortfall when it encounters a:

A)period of relatively constant sales.
B)major fixed asset expenditure.
C)period of rising interest rates.
D)period of declining interest rates.
E)period of increased cash collections.

Question 51

Commercial paper is generally issued:

A)by large firms.
B)for 190 days or less.
C)by commercial banks.
D)for 90 to 180 days.
E)at the prime rate offered by the firm's bank.

Question 52

Which one of these statements is correct?

A)A farmer generally uses trust receipt financing to finance operations during the growing season.
B)An auto dealer is most apt to use purchase order financing.
C)A drug store is most apt to use trust receipt financing.
D)Trust receipt financing is most applicable to large,easily identifiable types of inventory.
E)Blanket inventory lien financing is another term for purchase order financing.

Question 53

Last year,Wilson's had credit sales of $927,000 and cost of goods sold of $762,000.The beginning of the year inventory was $138,000 and the end of the year inventory was $154,300.If the accounts receivables average $87,400,what is the operating cycle?

A)88.23 days
B)104.42 days
C)78.60 days
D)70.01 days
E)92.09 days

Question 54

A prearranged,short-term bank loan up to a specified limit,made on a formal or informal basis,is called a:

A)letter of credit.
B)cleanup loan.
C)compensating balance.
D)line of credit.
E)roll-over.

Question 55

A short-term loan where the lender holds the borrower's receivables as security is called:

A)a compensating balance.
B)assigned receivables financing.
C)a letter of credit.
D)factored receivables financing.
E)a bond.

Question 56

Brook Side reported sales of $738,000 and cost of goods sold of $584,000 for the year.The firm had a beginning inventory of $51,000 and an ending inventory of $46,000.What is the length of the inventory period?

A)15.24 days
B)15.16 days
C)31.19 days
D)29.87 days
E)30.31 days

Question 57

If your accounts receivable period is 30 days,you will collect payment for your ________ sales during the second quarter of a calendar year.

A)December,January,and February
B)January,February,and March
C)February and March
D)February,March,and April
E)March,April and May

Question 58

A short-term loan which is secured by inventory that is held in trust is referred to as:

A)a blanket inventory lien.
B)a secured line of credit.
C)a banker's acceptance.
D)a trust receipt financing arrangement.
E)field warehousing financing.

Question 59

A manufacturing firm has a 90-day collection period.The firm produces seasonal merchandise and thus has the least sales during the first quarter of a year and the highest level of sales during the third quarter of a year.The firm maintains a relatively steady level of production which means that its cash disbursements are approximately equal in all quarters.The firm is most apt to face a cash-out situation in:

A)the first quarter.
B)the second quarter.
C)the third quarter.
D)the fourth quarter.
E)any quarter,equally.

Question 60

The most common means of financing a temporary cash deficit is a:

A)long-term secured bank loan.
B)short-term secured bank loan.
C)short-term issue of corporate bonds.
D)long-term unsecured bank loan.
E)short-term unsecured bank loan.

Question 61

Brown's Market currently has an operating cycle of 76.8 days.It is planning some operational changes that are expected to decrease the accounts receivable period by 2.8 days and decrease the inventory period by 3.1 days.The accounts payable turnover rate is expected to increase from 9 to 11.5 times per year.If all these changes are adopted,what will be the firm's new operating cycle?

A)68.4 days
B)73.4 days
C)63.3 days
D)57.9 days
E)70.9 days

Question 62

On average,D & M sells its inventory in 37 days,collects on its receivables in 3.4 days,and takes 35 days to pay for its purchases.What is the length of the firm's operating cycle?

A)−1.4 days
B)5.4 days
C)33.6 days
D)40.4 days
E)41.6 days

Question 63

A firm currently has a cash cycle of 36 days.Assume the firm changes its operations such that it decreases its receivables period by 4 days,decreases its inventory period by 1 day,and decreases its payables period by 2 days.What will be the length of the cash cycle after these changes?

A)31 days
B)35 days
C)33 days
D)37 days
E)38 days

Question 64

Wilson's has an inventory turnover rate of 16,an accounts payable period of 47 days,and an accounts receivable period of 37 days.What is the length of the cash cycle?

A)32.81 days
B)−6.00 days
C)2.00 days
D)6.00 days
E)12.81 days

Question 65

Wilco's currently has a cash cycle of 43 days.Assume the firm changes its operations such that it decreases its receivables period by 2 days,increases its inventory period by 1 day,and increases its payables period by 3 days.What will be the length of the cash cycle after these changes?

A)38 days
B)41 days
C)39 days
D)43 days
E)45 days

Question 66

For 2018,Blue Moon had sales of $318,000,cost of goods sold of $249,000,and ending inventory of $138,000.For 2019,sales were $349,000,cost of goods sold were $256,000,and ending inventory was $151,000.What was the inventory period for 2019?

A)194.01 days
B)216.99 days
C)231.09 days
D)206.03 days
E)189.42 days

Question 67

The inventory turnover for the Lambkin Company was 9.4 times and its days' sales in receivables was 46.What is the operating cycle given a 365-day year?

A)45.63 days
B)55.40 days
C)63.25 days
D)84.83 days
E)74.29 days

Question 68

Dixon's has a beginning receivables balance on January 1st of $930.Sales for January through April are $970,$1,050,$1,330,and $1,460,respectively.The accounts receivable period is 36 days.How much did the firm collect in the month of March? Assume a 30-day month.

A)$1,034
B)$1,316
C)$1,289
D)$1,350
E)$1,180

Question 69

Jordan and Sons has an inventory period of 48.6 days,an accounts payable period of 36.2 days,and an accounts receivable period of 29.3 days.Management is considering offering a discount of 5 percent if its credit customers pay for their purchases within 10 days.This discount is expected to reduce the receivables period by 17 days.If the discount is offered,the operating cycle will decrease from ________ days to ________ days.

A)28.3; 11.3
B)77.9; 60.9
C)28.3; 45.3
D)77.9; 94.9
E)54.2; 37.2

Question 70

A firm has an inventory turnover rate of 15.7,a receivables turnover rate of 20.2,and a payables turnover rate of 14.6.How long is the cash cycle?

A)28.46 days
B)16.32 days
C)32.87 days
D)13.08 days
E)23.37 days

Question 71

Orio Inc.has a beginning receivables balance on January 1st of $685.Sales for January through April are $735,$690,$770,and $850,respectively.The accounts receivable period is 30 days.How much did the firm collect in the month of April? Assume a 30-day month.

A)$735
B)$690
C)$730
D)$810
E)$770

Question 72

Salem Inc.has an inventory turnover of 15 and an accounts receivable turnover of 9.The accounts payable period is 51 days.What is the length of the cash cycle?

A)13.89 days
B)14.07 days
C)14.23 days
D)18.79 days
E)23.00 days

Question 73

Martinique's has a collection period of 60 days.Sales for the next calendar year are estimated at $1,550,$1,230,$1,780 and $2,800,respectively,by quarter starting with the first quarter of the year.Given this information,which one of the following statements is correct? Assume a 360-day year.

A)The firm will collect $1,133.33 in Quarter 2.
B)The accounts receivable balance at the beginning of Quarter 4 will be $1,066.67.
C)The firm will collect $593.33 from Quarter 2 sales in Quarter 3.
D)The firm will have an accounts receivable balance of $1,866.67 at the end of the year.
E)The firm will collect a total of $1,033.33 in Quarter 4.

Question 74

Amanda's Interior Design has credit sales of $783,000,costs of goods sold of $418,000,and average accounts receivable of $107,900.How long does it take its credit customers to pay for their purchases?

A)36.09 days
B)50.30 days
C)31.23 days
D)35.20 days
E)27.95 days

Question 75

For 2018,Tree Top Farms had sales of $438,000,cost of goods sold of $286,000,ending inventory of $154,000,ending accounts receivable of $46,000,and ending accounts payable of $38,000.For 2019,sales were $413,000,cost of goods sold was $281,000,ending inventory was $149,000,ending accounts receivables were $48,000,and ending accounts payable were $36,000.What was the cash cycle for 2019 based on a 365-day year?

A)202.96
B)190.27
C)203.17
D)185.87
E)186.05

Question 76

Gonzalez Mercantile has an inventory turnover of 8.3,days' sales in receivables of 57,and an average payables turnover of 7.2.What is the cash cycle given a 365-day year?

A)50.28 days
B)58.04 days
C)55.00 days
D)49.29 days
E)61.37 days

Question 77

Smith and Johnson have expected sales of $2,380,$2,840,$4,430,and $4,480 for the months of January through April,respectively.The accounts receivable period is 15 days.How much did the firm collect in the month of March? Assume a 30-day month.

A)$2,215
B)$4,160
C)$3,635
D)$3,430
E)$1,420

Question 78

Modern Sound has sales of $811,000 and average accounts payable of $87,400.The cost of goods sold is equivalent to 72 percent of sales.How long does it take the firm to pay its suppliers?

A)41.46 days
B)33.45 days
C)48.69 days
D)66.18 days
E)54.63 days

Question 79

Alpha Companies has an operating cycle of 328 days,a receivables period of 64 days,and a payables period of 98 days.If the firm revises its credit policy,it believes it can reduce its receivables period by 9 days.Given this revision,what will be the firm's new cash cycle?

A)239 days
B)241 days
C)230 days
D)221 days
E)218 days

Question 80

Young's had a beginning accounts payable balance of $42,900 and an ending accounts payable balance of $44,800.Sales for the period were $770,000 and costs of goods sold were $598,000.If the operating cycle is 129 days,how long is the firm's cash cycle?

A)102.24 days
B)79.35 days
C)97.13 days
D)81.19 days
E)107.78 days