Question 1

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   Blue Moon Corporation's accounts receivable turnover ratio for 2011 is (use average accounts receivable) _______.

Accepted Answer

The answer of Blue Moon Corporation's Balance Sheet and Income...

Question 2

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   Blue Moon Corporation's payables period 2011 is (use average payables) _________.

Accepted Answer

The answer of Blue Moon Corporation's Balance Sheet and Income...

Question 3

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   The inventory turnover ratio for 2011 for Blue Moon Corporation is (use average inventory) _______.

Accepted Answer

The answer of Blue Moon Corporation's Balance Sheet and Income...

Question 4

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   Blue Moon Corporation's days' sales in receivable for 2011 is (use average accounts receivable) ______.

Accepted Answer

The answer of Blue Moon Corporation's Balance Sheet and Income...

Question 5

At the beginning of the year,you have an outstanding short-term loan of $10 which was used to cover your cash needs for the previous year. During the current year,you expect to pay $2 interest and have an annual net cash inflow of -$10 (negative),excluding the interest payment. What is your anticipated loan balance at year end?

Accepted Answer

The initial loan balance is $10. With a net cash outflow of $10 and an interest payment of $2, you need an additional $12, resulting in a total loan balance of $22 at year end.

Question 6

Your bank offers you a $70,000 line of credit with an interest rate of 2.75% per quarter. The loan agreement also requires that 5% of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Your short-term investments are paying ½ of 1% per month. What is your effective annual interest rate on this arrangement if you do not borrow any money on this credit line during the year? Assume that both the funds you borrow and the funds you invest use compound interest.

Accepted Answer

The answer of Your bank offers you a $70,000 line...

Question 7

The inventory turnover for the Lambkin Company was 8 times and its days' sales in receivables was 55. The average payables deferral period (or turnover) was 7.5. What is the cash cycle for Lambkin given a 365-day year?

Accepted Answer

The cash cycle is the sum of the inventory turnover period, the days' sales in receivables, and the average payables deferral period. The inventory turnover period is 365 days / 8 = 45.63 days. The days' sales in receivables is 55 days. The average payables deferral period is 365 days / 7.5 = 48.67 days. Therefore, the cash cycle is 45.63 days + 55 days + 48.67 days = 149.29 days.

Question 8

The inventory turnover for the Lambkin Company was 8 times and its days sales in receivables was 55. What is the operating cycle for Lambkin given a 365-day year?

Accepted Answer

The operating cycle is calculated as Days Inventory Outstanding (DIO) plus Days Sales Outstanding (DSO). DIO is 365 divided by inventory turnover (365/8 = 45.63 days). Adding DSO (55 days) gives an operating cycle of 100.63 days.

Question 9

Your firm has a net cash inflow for the quarter of $60. The beginning cash balance is $35. Company policy is to maintain a minimum cash balance of $15 and borrow only the amount that is necessary to maintain that balance. How much does your firm need to borrow or how much can it repay on its loans to have a zero cumulative surplus?

Accepted Answer

The answer of Your firm has a net cash inflow...

Question 10

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   The average inventory for the Blue Moon Corporation in 2011 is __________.

Accepted Answer

The answer of Blue Moon Corporation's Balance Sheet and Income...

Question 11

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   Blue Moon Corporation's cash cycle for 2011 is:

Accepted Answer

To calculate the cash cycle, we need to add the inventory conversion period and receivables collection period, then subtract the payables deferral period.

Inventory conversion period = 365 / Cost of goods sold / Average inventory = 365 / 586.9 / [(238 + 284.5) / 2] = 39.27 days

Receivables collection period = 365 / Net sales / Average accounts receivable = 365 / 920 / [(78.5 + 84.5) / 2] = 42.04 days

Payables deferral period = 365 / Cost of goods sold / Average accounts payable = 365 / 586.9 / [(65.5 + 63.5) / 2] = 5.39 days

Cash cycle = Inventory conversion period + Receivables collection period - Payables deferral period = 39.27 + 42.04 - 5.39 = 95.92 days

Therefore, the answer is C.

Question 12

Your firm has a net cash inflow for the quarter of -$30 (negative). The beginning cash balance is $15. Company policy is to maintain a minimum cash balance of $5 and borrow only the amount that is necessary to maintain that balance. How much does your firm need to borrow to have a zero cumulative surplus?

Accepted Answer

Since the net cash inflow is negative, the company needs to borrow money to reach the minimum cash balance of $5. Thus, the initial borrowing required is $15 - $5 = $10. 
However, since the question asks for the amount needed to have a zero cumulative surplus, we need to subtract the cumulative negative cash inflow of -$30 from the initial borrowing of $10. Thus, the total borrowing required is $10 - (-$30) = $10 + $30 = $40. 
Since the company policy is to borrow only the amount necessary, we choose the option that is closest to the total borrowing required, which is C) $20.

Question 13

Your bank offers you a $100,000 line of credit with an interest rate of 2.5% per quarter. The loan agreement also requires that 4% of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Your short-term investments are paying 1.25% per quarter. What is your effective annual interest rate if you borrow the whole $100,000 for the entire year? Assume that both the funds you borrow and the funds you invest use compound interest.

Accepted Answer

First, let's calculate the interest expense on the $100,000 line of credit for one quarter:

Interest expense = $100,000 x 2.5% = $2,500

Next, we need to calculate the compensating balance requirement:

Compensating balance = 4% x $100,000 = $4,000

This means that we must keep $4,000 of the credit line unused and deposited in a non-interest bearing account, which is a cost to us since we could be earning interest on that money.

The effective interest rate on the loan for one quarter is:

Effective interest rate = (interest expense + compensating balance requirement) / (funds borrowed - compensating balance requirement)

Effective interest rate = ($2,500 + $4,000) / ($100,000 - $4,000)

Effective interest rate = 6.5%

Note that we subtract the compensating balance requirement from the funds borrowed to calculate the effective interest rate, since we are not paying interest on the compensating balance but we are not able to use it for investments either.

Now we need to calculate the effective annual interest rate by compounding the interest rate for four quarters:

Effective annual interest rate = (1 + quarterly rate)^4 - 1

Effective annual interest rate = (1 + 0.065)^4 - 1

Effective annual interest rate = 10.38%

Therefore, the best choice is C with an effective annual interest rate of 10.38%.

Question 14

As the CFO of Jonathan's Auto Recycling,you plan to implement a system whereby customers who pay their bills on time will receive a 10% rebate on their purchases. Those who pay earlier than required will receive a 15% rebate. Explain the impact of this proposal on the firm.

Accepted Answer

The answer of As the CFO of Jonathan's Auto Recycling,you...

Question 15

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   Blue Moon Corporation's accounts payable turnover for 2011 is (use average payables) ______.

Accepted Answer

The answer of Blue Moon Corporation's Balance Sheet and Income...

Question 16

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   The inventory period for 2011 for Blue Moon Corporation is (use average inventory) _______.

Accepted Answer

The answer of Blue Moon Corporation's Balance Sheet and Income...

Question 17

Restrictive short-term financial policies regarding current asset management include three basic actions. List and briefly describe each action.

Accepted Answer

The answer of Restrictive short-term financial policies regarding current asset...

Question 18

List and describe the three basic types of secured inventory loans. What are the advantages and disadvantages of each type of loan?

Accepted Answer

The answer of List and describe the three basic types...

Question 19

Blue Moon Corporation's Balance Sheet and Income Statement as shown below:   The operating cycle for 2011 for Blue Moon Corporation is:

Accepted Answer

The answer of Blue Moon Corporation's Balance Sheet and Income...

Question 20

Your bank offers you a $40,000 line of credit with an interest rate of 2.35% per quarter. The loan agreement also requires that 5% of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance. Your short-term investments are paying 1.75% per quarter. What is your effective annual interest rate if you borrow the whole $40,000 for the entire year? Assume that both the funds you borrow and the funds you invest use compound interest.

Accepted Answer

The effective annual interest rate is 9.74%. This is because the interest rate on the loan is 2.35% per quarter, and the compensating balance requirement means that 5% of the unused portion of the credit line must be deposited in a non-interest bearing account. This means that the effective interest rate on the loan is 2.35% * (1 - 5%) = 2.24%. The effective annual interest rate is then 2.24% * 4 = 9.74%.

Quiz 26: Short-Term Finance and Planning

Blue Moon Corporation's Balance Sheet and Income Statement as shown below: Blue Moon Corporation's accounts receivable turnover ratio for 2011 is (use average accounts receivable) _______.

Blue Moon Corporation's Balance Sheet and Income Statement as shown below: Blue Moon Corporation's payables period 2011 is (use average payables) _________.

Blue Moon Corporation's Balance Sheet and Income Statement as shown below: The inventory turnover ratio for 2011 for Blue Moon Corporation is (use average inventory) _______.

Blue Moon Corporation's Balance Sheet and Income Statement as shown below: Blue Moon Corporation's days' sales in receivable for 2011 is (use average accounts receivable) ______.

The inventory turnover for the Lambkin Company was 8 times and its days' sales in receivables was 55. The average payables deferral period (or turnover) was 7.5. What is the cash cycle for Lambkin given a 365-day year?

The inventory turnover for the Lambkin Company was 8 times and its days sales in receivables was 55. What is the operating cycle for Lambkin given a 365-day year?

Blue Moon Corporation's Balance Sheet and Income Statement as shown below: The average inventory for the Blue Moon Corporation in 2011 is __________.

Blue Moon Corporation's Balance Sheet and Income Statement as shown below: Blue Moon Corporation's cash cycle for 2011 is:

As the CFO of Jonathan's Auto Recycling,you plan to implement a system whereby customers who pay their bills on time will receive a 10% rebate on their purchases. Those who pay earlier than required will receive a 15% rebate. Explain the impact of this proposal on the firm.

Blue Moon Corporation's Balance Sheet and Income Statement as shown below: Blue Moon Corporation's accounts payable turnover for 2011 is (use average payables) ______.

Blue Moon Corporation's Balance Sheet and Income Statement as shown below: The inventory period for 2011 for Blue Moon Corporation is (use average inventory) _______.

Restrictive short-term financial policies regarding current asset management include three basic actions. List and briefly describe each action.

List and describe the three basic types of secured inventory loans. What are the advantages and disadvantages of each type of loan?

Blue Moon Corporation's Balance Sheet and Income Statement as shown below: The operating cycle for 2011 for Blue Moon Corporation is: