Question 1

A committed line of credit:

Accepted Answer

The answer of A committed line of credit:
...

Question 2

The Appliance Giant has annual credit sales of $2,846,334 and cost of goods sold of $2,112,882.The average accounts receivable balance is $47,280.How many days on average does it take the firm to collect its accounts receivable?

Accepted Answer

The answer of The Appliance Giant has annual credit sales...

Question 3

Which characteristic applies to commercial paper?

Accepted Answer

Commercial paper is typically issued directly by large-sized firms to meet short-term financing needs.

Question 4

Which statement related to a cash budget is correct?

Accepted Answer

Financially healthy firms can have a negative quarterly net cash inflow due to timing differences between cash inflows and outflows, but they manage this with cash reserves or financing.

Question 5

The HOT Truck operates several specialty vehicles that provide hot food and beverages for firms that have workers employed in outlying regions.The company has annual sales of $489,500.Cost of goods sold average 59 percent of sales and the profit margin is 6.1 percent.The average accounts receivable balance is $41,700.On average, how long does it take this food truck to collect payment for its services?

Accepted Answer

The average collection period is calculated as (Accounts Receivable / Sales) * 365. Using the given data: ($41,700 / $489,500) * 365 = 31.09 days.

Question 6

Alderson Metals is compiling a cash balance projection by quarter for next year.Which one of the following adjustments to this projection will decrease the cumulative surplus?

Accepted Answer

Increasing the dividend per share on the firm's outstanding common stock will decrease the cumulative surplus as it represents a cash outflow.

Question 7

Gaming Station has to restock a popular electronic game every five days as it completely sells out in that period of time.What is the inventory turnover rate for this game?

Accepted Answer

The answer of Gaming Station has to restock a popular...

Question 8

The Happy Flapjack Diner increased its operating cycle from 72 days to 74 days while the cash cycle decreased by 3 days.How have these changes affected the accounts payable period?

Accepted Answer

The answer of The Happy Flapjack Diner increased its operating...

Question 9

The High Water Mark is operating at its optimal point.Which one of the following conditions exists given this firm's operating status?

Accepted Answer

At the optimal point, the High Water Mark ensures that carrying costs equal shortage costs, balancing the two to minimize total costs.

Question 10

The accounts receivable turnover rate for Tough Pants Clothing has gone from an average of 12.6 times to 14.1 times per year.How has this change affected the firm's accounts receivable period?

Accepted Answer

The accounts receivable turnover rate increase indicates that the firm is collecting its receivables faster. The accounts receivable period is calculated as 365 divided by the turnover rate. The change from 12.6 to 14.1 times results in a decrease of approximately 3.08 days in the accounts receivable period.

Question 11

To ensure an unsecured line of credit is used solely for short-term purposes, the loan arrangement frequently includes which one of the following?

Accepted Answer

A cleanup period is a time during which the borrower must pay off the entire balance of the line of credit, ensuring it is used for short-term needs and not as a permanent source of funds.

Question 12

Dexter Companies has a conventional factoring arrangement with its local bank.Which of these would be a common characteristic of that type of financing arrangement?

Accepted Answer

In a conventional factoring arrangement, the factor (bank) assumes the risk of bad debts, meaning any bad debt from the receivables is a cost to the bank.

Question 13

Which statement is correct?

Accepted Answer

A flexible financial policy provides a firm with more liquidity and access to cash, reducing the risk of financial distress compared to a restrictive policy.

Question 14

Birdview Construction has the following current account values.These accounts represent a net _____ of cash for the period in the amount of ____.

Accepted Answer

The answer of Birdview Construction has the following current account...

Question 15

The Corner Store is a small-sized, general store that stocks a minimal level of basic supplies and offers gasoline to a rural community.Which type of credit is probably best-suited for financing this store's inventory?

Accepted Answer

A blanket inventory lien is suitable for financing inventory as it allows the store to use its entire inventory as collateral for a loan, which is practical for a small store with minimal supplies.

Question 16

Which type of financing is generally used by new car dealers to finance their inventories?

Accepted Answer

Trust receipt loans are commonly used by car dealers to finance their inventories, allowing them to hold and sell the cars while the lender retains the title until the loan is repaid.

Question 17

Generally speaking, which of the following situations will occur if a seasonal company adopts a compromise financial policy?
I.Periods where short-term financing is required
II.Less long-term debt than if the firm followed a restrictive financial policy
III.Periods of excess funds which can be invested in short-term marketable securities
IV.Lower investment in fixed assets than if the firm adopted a flexible financial policy

Accepted Answer

A compromise financial policy balances between aggressive and conservative approaches, leading to periods of short-term financing needs (I) and times when excess funds are available for short-term investments (III).

Question 18

Wrecker Automotive has sales for the year of $356,450, cost of goods sold equal to 59 percent of sales, and an average inventory of $42,500.The profit margin is 6 percent and the tax rate is 21 percent.How many days on average does it take the firm to sell an inventory item?

Accepted Answer

The answer of Wrecker Automotive has sales for the year...

Question 19

Dover Wholesalers sells products exclusively to Benn Retailer.Benn Retailer buys exclusively from Dover Wholesalers.Dover Wholesalers has a receivables period of 44 days, an inventory period of 8 days, and a payables period of 63 days.Benn Retailer has an inventory period of 15 days, a receivables period of 22 days, and a payables period of 44 days.Which statement is correct given this information?

Accepted Answer

The answer of Dover Wholesalers sells products exclusively to Benn...

Question 20

A company has the following account balances.Which statement is correct concerning these balances?

Accepted Answer

The answer of A company has the following account balances.Which...

Quiz 16: Short-Term Financial Planning