Question 1

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 type of short-term loan where the borrower's inventory is used as collateral. This can be done directly by the lender or through an intermediary, such as a factor or inventory financing company. The loan is typically repaid once the inventory is sold.

Question 2

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

Accepted Answer

The forecast of cash receipts and disbursements for the next planning period is called a cash budget. The other options are not the appropriate terms for this particular forecast. A pro forma income statement is a forecast of expected revenues, expenses, and profits. A statement of cash flows reports on a company's cash inflows and outflows during a specified period. Receivables analysis is an evaluation of a company's accounts receivable and credit policies, while credit analysis is a review of a borrower's creditworthiness.

Question 3

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

Accepted Answer

C

Question 4

Which of the following are uses of cash?
I.marketable securities are sold
II.the amount of inventory on hand is increased
III.the firm takes out a long-term bank loan
IV.payments are paid on accounts payable

Accepted Answer

The answer of Which of the following are uses of...

Question 5

Net working capital is defined as:

Accepted Answer

Net working capital is the difference between a company's current assets (cash, accounts receivable, inventory, etc.) and its current liabilities (accounts payable, short-term loans, etc.). It indicates a company's ability to meet its short-term financial obligations. Option A is too specific, option C is referring to present value and is not related to net working capital, option D includes long-term assets and liabilities which are not relevant, and option E is incorrect as the correct answer is already provided.

Question 6

A short-term loan where the lender holds the borrower's receivables as security is called:

Accepted Answer

Assigned receivables financing is a type of short-term loan where the lender holds the borrower's receivables as security.

Question 7

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

Accepted Answer

The answer of Which one of the following will increase...

Question 8

A type of short-term loan where the borrower sells its receivables to the lender up-front,but at a discount to face value,is called:

Accepted Answer

Factored receivables financing involves selling the receivables to a lender at a discount, with the lender assuming the risk for collecting the debts from the borrower's customers. This type of loan provides the borrower with up-front cash to meet immediate financing needs.

Question 9

A prearranged,short-term bank loan made on a formal or informal basis,and typically reviewed for renewal annually,is called a:

Accepted Answer

The description provided aligns with a line of credit, which is a prearranged, short-term bank loan reviewed for renewal annually. A letter of credit is a document issued by a bank to guarantee payment to a seller, a cleanup loan is a loan made to pay off existing debt, a compensating balance is a requirement by some banks to maintain a certain minimum balance in an account, and a roll-over is the renewal of a loan or investment. Therefore, the answer is D.

Question 10

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 on a long-term debt will decrease the net working capital, as it will reduce the current assets of the firm. None of the other options will decrease the net working capital, as they either increase cash inflows or have no effect on the current assets and current liabilities of the firm.

Question 11

Costs of the firm that rise with increased levels of investment in its current assets are called _____ costs.

Accepted Answer

Carrying costs are the costs that increase with the increase in levels of investment in the current assets of a firm. These costs include expenses such as storage, insurance, maintenance, and obsolescence, which all go up as more inventory or other current assets are held by the firm. Shortage costs would be the costs incurred when a firm runs out of inventory or other current assets, order costs would be the costs of placing orders for new inventory, safety costs would be costs related to maintaining safe working conditions, and trading costs would be costs associated with buying and selling securities or other financial assets.

Question 12

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

Accepted Answer

The length of time between payment for inventory and collection of cash from receivables is known as the cash cycle. It represents the time it takes a company to convert its investments in inventory and accounts receivable back into cash.

Question 13

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 balance helps the lender to ensure that the borrower will not default on the loan and also serves as a source of collateral for the lender.

Question 14

A _____ issued by a bank is a promise by that bank to make a loan if certain conditions are met.

Accepted Answer

A letter of credit issued by a bank is a promise that the bank will make a loan if certain conditions are met. The conditions can include the borrower presenting necessary documentation and meeting certain eligibility criteria.

Question 15

The length of time between the acquisition of inventory and its sale is called the:

Accepted Answer

The inventory period specifically refers to the time it takes for inventory to be sold after it is acquired.

Question 16

Costs of the firm that fall with increased levels of investment in its current assets are called _____ costs.

Accepted Answer

Shortage costs decrease as a firm invests more in its current assets, as these investments help avoid the costs associated with running out of inventory or cash.

Question 17

The length of time between the acquisition of inventory and the collection of cash from receivables is called the:

Accepted Answer

The operating cycle is the length of time it takes for a company to acquire inventory, sell the inventory, and collect cash from customers. It includes both the inventory period and accounts receivable period. The accounts payable period and cash cycle are not part of the operating cycle.

Question 18

A prearranged credit agreement with a bank typically open for two or more years is called a:

Accepted Answer

The answer of A prearranged credit agreement with a bank...

Question 19

Which one of the following is a source of cash?

Accepted Answer

An increase in accounts payable is a source of cash because it means the company is taking longer to pay its bills, which conserves cash.

Question 20

The length of time between the acquisition of inventory by a firm and the payment by the firm for that inventory is called the:

Accepted Answer

The accounts payable period is the time between acquiring inventory and paying for it.

Quiz 18: Short-Term Finance and Planning

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