Question 1

A company's cash sales for the month are $100,000 and its accounts receivable payments for the month are $100,000. What is its total incoming cash flow for the month if its beginning cash for the month is $50,000, its wages and salaries for the month are $50,000 and there are no other cash inflows for the month?
A) $150,000
B) $200,000
C) $250,000
D) Cannot tell because we do not know the beginning cash for the month.

Accepted Answer

The total incoming cash flow is the sum of cash sales and accounts receivable payments, which is $100,000 + $100,000 = $200,000. The beginning cash is not needed to calculate the incoming cash flow.

Question 2

When a company has excess funds, it has four options. Describe these options. What is the simplest thing to do with excess cash?

Accepted Answer

The answer of When a company has excess funds, it...

Question 3

Describe some uses of excess cash.

Accepted Answer

The answer of Describe some uses of excess cash....

Question 4

Often a bank will require a company to pay off its line of credit (return the balance to zero) and keep it there for a specific period of time each year. For example, a requirement might be that the line of credit remains at a zero balance for at least one sixty-day period each year. This is called the clean-up period.

Accepted Answer

The statement accurately describes the concept of a clean-up period in relation to a company's line of credit and bank requirements.

Question 5

A company's accounts payable for the month are $200,000 and its wages and salaries for the month are $100,000. What is its total outgoing cash flow for the month if its interest payments for the month are $50,000 and its beginning cash for the month is $50,000, there are no other cash outflows for the month?
A) $400,000
B) $250,000
C) $300,000
D) $350,000

Accepted Answer

The answer of A company's accounts payable for the month...

Question 6

One method a company may handle a cash shortfall is to draw cash from savings.

Accepted Answer

Drawing cash from savings is a common method for companies to handle cash shortfalls.

Question 7

A company's cash sales in January are $200,000, its accounts receivable payments for January are $100,000, its beginning cash for January is $50,000, and there are no other cash inflows for January. Its accounts payable for the January are $100,000 and its wages and salaries for January are $100,000, and its interest payments for January are $50,000. What is its net cash flow for January if there are no other outflows?
A) $50,000
B) $150,000
C) -$50,000
D) -$150,000

Accepted Answer

The net cash flow is calculated as total cash inflows minus total cash outflows. Inflows: $200,000 (cash sales) + $100,000 (accounts receivable) = $300,000. Outflows: $100,000 (accounts payable) + $100,000 (wages and salaries) + $50,000 (interest) = $250,000. Net cash flow = $300,000 - $250,000 = $50,000.

Question 8

Managers in charge of short-term cash outflow direct their attention to cash management as it pertains to the operations of the firm, much as ________.
A) they do with their daily cash needs
B) they do with their long-term cash needs
C) they do with their capital budgeting needs
D) All of these

Accepted Answer

Short-term cash outflow is related to the daily cash needs of the firm, so managers focus on cash management as it pertains to daily operations. While long-term cash needs and capital budgeting also require attention, they are not directly related to short-term cash outflow management.

Question 9

A line of credit does not resemble a personal credit card.

Accepted Answer

A line of credit resembles a personal credit card in that both provide a predetermined limit of funds that can be borrowed as needed, repaid, and then borrowed again.

Question 10

Banker's acceptances are financial assets sold by a company directly to investors, like bonds and common stock, but with very short maturity dates, while commercial paper is for self-liquidating inventories.

Accepted Answer

Banker's acceptances and commercial paper are both short-term financing instruments, but they serve different purposes. Banker's acceptances are used to finance trade transactions, while commercial paper is used to finance short-term working capital needs.

Question 11

A line of credit is a secured bank loan whereby the bank agrees to lend a company up to a specific amount of cash, at the discretion of the company. In other words, it is just a pre-arranged loan.

Accepted Answer

A line of credit is actually an unsecured bank loan, meaning it is not backed by collateral. The bank does agree to lend a company up to a specific amount of cash, but it is not up to the discretion of the company. The company can only borrow up to the pre-arranged limit set by the bank.

Question 12

In short-term cash management as it pertains to the operations of the firm, which of the below is NOT one of the general objectives?
A) Determining the cash surplus
B) Determining the job satisfaction level of employees
C) Determining the money the company can invest
D) Determining the cash deficit

Accepted Answer

The general objectives of short-term cash management are to determine the cash surplus (A), determine the money the company can invest (C), and determine the cash deficit (D). Job satisfaction level of employees (B) is not directly related to short-term cash management.

Question 13

A marketable security is an unsecured bank loan whereby the bank agrees to lend a company up to a specific amount of cash, at the discretion of the company.

Accepted Answer

A marketable security refers to a financial asset that can be easily bought, sold, or traded on a public stock exchange or a secondary market. It can include stocks, bonds, mutual funds, and other types of securities. It is not an unsecured bank loan.

Question 14

A company's cash sales for the month are $200,000 and its accounts receivable payments for the month are $100,000. What is its total incoming cash flow for the month if its beginning cash for the month is $50,000 and there are no other cash inflows for the month?
A) $100,000
B) $150,000
C) $300,000
D) $350,000

Accepted Answer

The total incoming cash flow is the sum of cash sales and accounts receivable payments, which is $200,000 + $100,000 = $300,000. The beginning cash is not part of the incoming cash flow calculation.

Question 15

A company's cash sales in January are $200,000, its accounts receivable payments for January are $100,000, its beginning cash for January is $50,000, and there are no other cash inflows for January. Its accounts payable for January are $200,000 and its wages and salaries for January are $100,000, and its interest payments for January are $50,000. What is its net cash flow for January if there are no other outflows for January?

Accepted Answer

The answer of A company's cash sales in January are...

Question 16

A company's accounts payable for the month are $100,000 and its wages and salaries for the month are $100,000. What is its total outgoing cash flow for the month if its interest payments for the month are $50,000, its accounts receivable payments for the month are $100,000, and there are no other cash outflows for the month?
A) $250,000
B) $200,000
C) $350,000
D) Cannot tell because we do not know the beginning cash for the month.

Accepted Answer

The total outgoing cash flow is the sum of accounts payable, wages and salaries, and interest payments: $100,000 + $100,000 + $50,000 = $250,000. Accounts receivable is not an outgoing cash flow.

Question 17

A line of credit is unsecured, that is, there is no pledge of specific assets backing the loan. But companies can pledge assets against borrowed funds. These are called secured loans.

Accepted Answer

The statement is true.

Question 18

We can condense the items that require cash outflow into basic categories. Which of the below is a basic category?
A) Accounts payable for materials and supplies
B) Capital expenditures
C) Wages, taxes, and other operating expenses of the business
D) All of these

Accepted Answer

All of the options listed are basic categories of cash outflow. Accounts payable for materials and supplies represent the cost of goods sold, capital expenditures represent investments in long-term assets, and wages, taxes, and other operating expenses represent the ongoing costs of running the business.

Question 19

Which of the statements below is FALSE?
A) A simple monthly cash flow estimate allows managers to anticipate periods when the company may need to borrow and periods when the company will have excess cash for investing.
B) There is a problem in managing cash if sales are low for several months, causing a negative balance and delaying payments to suppliers or employees.
C) There are four basic ways to handle cash surpluses: Savings; Unsecured Loans (Commercial Paper, Trade Credit, or Banker's Acceptance) ; Secured Loans (Using Accounts Receivable or Inventories); and Other Sources (Letters of Credit).
D) By far the simplest way to cover a cash deficit is to take money out of one's savings account--provided, of course, that one has sufficient savings to cover the necessary transfer.

Accepted Answer

Statement C is false because it incorrectly categorizes ways to handle cash surpluses. Savings is a way to utilize surplus cash, but unsecured loans, secured loans, and other sources like letters of credit are actually methods of obtaining cash or financing, not ways of handling cash surpluses.

Question 20

The following information is for Auxiliary, Inc. for the month of May: cash sales of $200,000; accounts receivable payments of $200,000; accounts payable of $200,000; wages and salaries of $100,000; and, interest payments of $50,000. There are no other cash inflows or outflows for the month of May and its beginning monthly cash balance is $50,000. What is Auxiliary's ending cash balance for May?
A) -$50,000
B) $50,000
C) $100,000
D) $150,000

Accepted Answer

- Beginning cash balance: $50,000
- Cash inflows: 
    - Cash sales: $200,000
    - Accounts receivable payments: $200,000
    - Total inflows: $400,000
- Cash outflows: 
    - Accounts payable: $200,000
    - Wages and salaries: $100,000
    - Interest payments: $50,000
    - Total outflows: $350,000 
- Ending cash balance: 
    - Beginning cash balance + Total inflows - Total outflows = 
    - $50,000 + $400,000 - $350,000 = $100,000. 
    Therefore, the correct answer is C.

Quiz 12: Forecasting and Short-Term Financial Planning

When a company has excess funds, it has four options. Describe these options. What is the simplest thing to do with excess cash?

Describe some uses of excess cash.

One method a company may handle a cash shortfall is to draw cash from savings.

Managers in charge of short-term cash outflow direct their attention to cash management as it pertains to the operations of the firm, much as ________.

A line of credit does not resemble a personal credit card.

Banker's acceptances are financial assets sold by a company directly to investors, like bonds and common stock, but with very short maturity dates, while commercial paper is for self-liquidating inventories.

A line of credit is a secured bank loan whereby the bank agrees to lend a company up to a specific amount of cash, at the discretion of the company. In other words, it is just a pre-arranged loan.

In short-term cash management as it pertains to the operations of the firm, which of the below is NOT one of the general objectives?

A marketable security is an unsecured bank loan whereby the bank agrees to lend a company up to a specific amount of cash, at the discretion of the company.

A company's cash sales for the month are $200,000 and its accounts receivable payments for the month are $100,000. What is its total incoming cash flow for the month if its beginning cash for the month is $50,000 and there are no other cash inflows for the month?

A line of credit is unsecured, that is, there is no pledge of specific assets backing the loan. But companies can pledge assets against borrowed funds. These are called secured loans.

We can condense the items that require cash outflow into basic categories. Which of the below is a basic category?

Which of the statements below is FALSE?