Question 1

Which one of the following will increase the accounts payable period, all else constant?

Accepted Answer

The accounts payable period is the time it takes for a company to pay off its suppliers. An increase in the ending accounts payable balance means the company is taking longer to pay its bills, thus increasing the accounts payable period.

Question 2

A firm needs to raise cash and at the same time reduce the level of its accounts receivable. This firm would likely benefit most by  _______________.

Accepted Answer

Factoring receivables allows a firm to immediately convert its accounts receivable into cash, directly addressing the need to raise cash and reduce accounts receivable levels.

Question 3

A short-term loan secured by the borrower's inventory, either directly or via an intermediary, is called a (n) ____________________.

Accepted Answer

An inventory loan is a short-term loan secured by the inventory of the borrower. This type of loan provides businesses with the capital needed to purchase products for sale before revenue is generated from sales.

Question 4

________ fall with increases in the level of investment in current assets, while ________ increase.

Accepted Answer

Carrying costs increase with the level of investment in current assets because they include expenses such as storage and insurance. Shortage costs, on the other hand, decrease as more is invested in current assets, reducing the likelihood of running out of stock.

Question 5

The length of time between the acquisition of inventory and payment for it is called the _____________.

Accepted Answer

The accounts payable period is the length of time between the acquisition of inventory and payment for it.

Question 6

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

Accepted Answer

The cash cycle refers to the time interval between the payment for inventory and the collection of cash from receivables, highlighting the period a company's cash is tied up in inventory and accounts receivable before it is received from sales.

Question 7

Delta, Inc. follows a flexible short-term financing policy. The firm produces educational toys, which is a cyclical business. When the firm needs to pay for large inventories in advance of peak sales, the firm will:

Accepted Answer

Flexible short-term financing policies often involve using liquid assets like marketable securities to meet temporary cash needs, such as paying for large inventories before peak sales periods.

Question 8

Which one of the following will increase the cash cycle?

Accepted Answer

Paying suppliers earlier reduces accounts payable, which shortens the time you hold onto cash, thus increasing the cash cycle.

Question 9

The forecast of cash receipts and disbursements for the next planning period is called a:

Accepted Answer

A cash budget is specifically designed to forecast the cash receipts and disbursements for a future period, helping in planning and managing cash flows.

Question 10

Holly's Meat Markets has accumulated $128,900 in net working capital. Which one of the following will reduce this amount?

Accepted Answer

An increase in a current liability will reduce net working capital.

Question 11

A flexible short-term financial policy:

Accepted Answer

A flexible short-term financial policy is associated with firms where the carrying costs are considered to be less than the shortage costs, allowing them to hold more current assets.

Question 12

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

Accepted Answer

The answer of The length of time between the sale...

Question 13

Bristol Machinery has a conventional receivables factoring arrangement with a factor. This indicates that:

Accepted Answer

Bristol will receive a discounted amount but will not be responsible for any bad debts.

Question 14

At the ideal level of inventory, the:

Accepted Answer

At the ideal level of inventory, the goal is to balance the costs associated with maintaining inventory. This means that the costs of having too little inventory (shortage costs) are balanced with the costs of having too much inventory (carrying costs), leading to the conclusion that at the ideal level, the shortage costs will equal the carrying costs.

Question 15

An agreement by a bank which guarantees payment on the prompt arrival of a shipment of goods from an overseas supplier is called a:

Accepted Answer

A Letter of Credit is a document issued by a bank that guarantees the payment of a buyer's obligations to a seller, provided that the seller meets the terms and conditions of the letter of credit, typically including the prompt arrival of the shipment. This financial instrument is widely used in international trade to reduce the risk of non-payment.

Question 16

The operating cycle must lengthen when the:

Accepted Answer

The operating cycle lengthens when the inventory turnover rate decreases because it means inventory stays in stock longer before being sold, thus extending the time from purchasing inventory to receiving cash from sales.

Question 17

The operating cycle is defined as the period of time between the _____ and the _____.

Accepted Answer

The operating cycle is the time it takes for a company to purchase inventory, sell it, and collect cash from the sale, which is accurately described in option C.

Question 18

A ___________ is an informal arrangement between a bank and a business that allows the firm to periodically borrow up to a pre-specified limit.

Accepted Answer

A non-committed operating loan is an informal arrangement that allows a business to borrow up to a certain limit without a formal commitment from the bank.

Question 19

An increase in which one of the following is most apt to be an indicator of an accounts receivable policy that is too restrictive?

Accepted Answer

An increase in the accounts receivable turnover rate indicates that a company is collecting its receivables more quickly. If the policy is too restrictive, fewer customers may be allowed to purchase on credit, leading to faster collections and a higher turnover rate.

Question 20

A flexible short-term financial policy:

Accepted Answer

A flexible short-term financial policy involves maintaining higher levels of current assets, which incurs an opportunity cost due to the lower rate of return on these assets compared to long-term investments.

Quiz 18: Short-Term Finance and Planning

Which one of the following will increase the accounts payable period, all else constant?

A firm needs to raise cash and at the same time reduce the level of its accounts receivable. This firm would likely benefit most by _______________.

A short-term loan secured by the borrower's inventory, either directly or via an intermediary, is called a (n) ____________________.

fall with increases in the level of investment in current assets, while increase.

The length of time between the acquisition of inventory and payment for it is called the _____________.

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

Delta, Inc. follows a flexible short-term financing policy. The firm produces educational toys, which is a cyclical business. When the firm needs to pay for large inventories in advance of peak sales, the firm will:

Which one of the following will increase the cash cycle?

The forecast of cash receipts and disbursements for the next planning period is called a:

Holly's Meat Markets has accumulated $128,900 in net working capital. Which one of the following will reduce this amount?

A flexible short-term financial policy:

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

Bristol Machinery has a conventional receivables factoring arrangement with a factor. This indicates that:

At the ideal level of inventory, the:

An agreement by a bank which guarantees payment on the prompt arrival of a shipment of goods from an overseas supplier is called a:

The operating cycle must lengthen when the:

The operating cycle is defined as the period of time between the _ and the _.

A ___________ is an informal arrangement between a bank and a business that allows the firm to periodically borrow up to a pre-specified limit.

An increase in which one of the following is most apt to be an indicator of an accounts receivable policy that is too restrictive?

A flexible short-term financial policy: