Question 1

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

Accepted Answer

C

Question 2

If the use of supplier financing decreases and is replaced by cash financing for the same level of business activity,the cash cycle will:

Accepted Answer

The cash cycle will increase because days in payables decrease when a company shifts from supplier financing to cash financing. This is because supplier financing typically allows a company to delay payment, extending the days in payables, whereas cash financing requires immediate payment, reducing the days in payables and thus increasing the cash cycle.

Question 3

Which of the following is not included in current liabilities?

Accepted Answer

Prepaid insurance is considered a current asset, as it represents a payment made for future benefits that have not yet been received. All the other options (accounts payable, accrued wages, taxes, and notes payable) are considered current liabilities as they represent obligations to be paid in the near future.

Question 4

The cash cycle is defined as the time between:

Accepted Answer

The answer of The cash cycle is defined as the...

Question 5

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

Accepted Answer

The operating cycle is the time it takes for a company to purchase inventory, sell it on credit, and receive payment from customers. The average accounts receivable is a key component of the operating cycle, and a decrease in this number means that customers are paying their bills faster. This, in turn, decreases the days sales outstanding, which is the average time it takes to collect on a credit sale. Therefore, the operating cycle will decrease.

Question 6

Sources of cash do not include:

Accepted Answer

Sources of cash represent inflows of cash into a business. Decreases in accounts payable mean that a company is paying off its debts, therefore, it is an outflow of cash and not a source of cash. Increases in net income, depreciation, notes payable, and taxes payable are all sources of cash.

Question 7

Which of the following is not included in current assets?

Accepted Answer

Accrued wages are considered a current liability, not a current asset. Current assets are assets that are expected to be converted to cash within one year or less, such as accounts receivable, cash, and inventories.

Question 8

Flexible short term financial policies are not characterized by:

Accepted Answer

Flexible short-term financial policies are designed to allow a company to adapt quickly to changes in the market. They typically include liberal credit policies and quick delivery services for customers, and may involve holding moderate amounts of inventory to meet demand. However, high levels of production stoppages would not be consistent with a flexible policy, as they would impede the company's ability to respond quickly to changes in demand or supply.

Question 9

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

Accepted Answer

Paying a payment on a long-term debt will decrease the current liabilities of the firm, which in turn decreases the net working capital.

Question 10

Cash flow from operations equals:

Accepted Answer

The answer of Cash flow from operations equals:
...

Question 11

Net working capital is defined as:

Accepted Answer

Net working capital is calculated by subtracting current liabilities from current assets. It represents the amount of liquid assets a company has available to fund its day-to-day operations.

Question 12

Which of the following statements is not true?

Accepted Answer

This statement is not true because even though net working capital deals with short-term assets and liabilities, it may still utilize the concept of present value for certain cash flows.

Question 13

The definition of cash in terms of other statement of financial position items is:

Accepted Answer

The answer of The definition of cash in terms of...

Question 14

The inventory turnover ratio for 2014 is (use average inventory):

Accepted Answer

The inventory turnover ratio is calculated as Cost of Goods Sold (COGS) divided by average inventory. Without specific figures for COGS and average inventory, we assume the correct answer is based on provided options and typical calculations.

Question 15

Which of the following would not be a short-run operating activity or decision?

Accepted Answer

Investing in a new process machine would be a long-term capital expenditure decision, rather than a short-run operating activity or decision. The other choices involve short-term cash flows and inventory levels, which are typical of short-run operating activities or decisions.

Question 16

The inventory turnover for the Sneeky Company is 8 times and its day's sales outstanding is 55.The average payables deferral period (or turnover)is 7.5.What is the cash cycle for Sneeky given a 365-day year.

Accepted Answer

The answer of The inventory turnover for the Sneeky Company...

Question 17

The average inventory in 2014 is(in thousands of dollar):

Accepted Answer

The answer of The average inventory in 2014 is(in thousands...

Question 18

The inventory turnover for the Sneeky Company is 8 times and its day's sales outstanding is 55.What is the operating cycle for Sneeky given a 365-day year.

Accepted Answer

Operating cycle = Inventory turnover period + DSO period
Inventory turnover period = 365/Inventory turnover = 365/8 = 45.63 days
DSO period = Days in year/DSO = 365/55 = 6.64 days

Operating cycle = 45.63 + 6.64 = 52.27 days

Therefore, the best choice would be C) 100.63

Question 19

Assets are classified as current or long term based on:

Accepted Answer

Assets are classified as current or long term based on their liquidity, which refers to how easily they can be converted into cash. Current assets are expected to be converted into cash or used within a year, while long-term assets are expected to provide benefits beyond that time period. Age of the asset or whether it is a physical good or not are not relevant factors in determining asset classification. Fair market value may be used in determining the value of an asset, but it is not directly related to its classification.

Question 20

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:

Accepted Answer

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 compensating balance. This is used as collateral for the loan and ensures that the borrower maintains a relationship with the bank.

Quiz 27: Short-Term Finance and Planning