Question 1

The Harvester collects 25 percent of sales in the month of sale,60 percent of sales in the month following the month of sale,and 15 percent of sales in the second month following the month of sale.During the month of April,the firm will collect:

Accepted Answer

In April, the firm will collect 60 percent of March sales, as collections are made in the month following the month of sale.

Question 2

A national firm has sales of $729,000 and cost of goods sold of $478,000.At the beginning of the year,the inventory was $37,000.At the end of the year,the inventory balance was $41,000.What is the inventory turnover rate?

Accepted Answer

Inventory turnover = $478,000/[($37,000 + $41,000)/2] = 12.26 times

Question 3

The primary difference between a line of credit and a revolving credit arrangement is the:

Accepted Answer

The answer of The primary difference between a line of...

Question 4

High Point Hotel (HPH)has $165,000 in accounts receivable.To finance a major purchase,the company assigns these receivables to Cross Town Bank.Which one of the following statements correctly describes this transaction?

Accepted Answer

HPH will receive some cash upfront but retains responsibility for any uncollected receivables, as the receivables are assigned, not sold outright.

Question 5

Shortage costs include which of the following?
I.disruption of production schedules
II.inventory ordering costs
III.lost customer goodwill
IV.brokerage costs

Accepted Answer

The answer of Shortage costs include which of the following?
I.disruption...

Question 6

The most common means of financing a temporary cash deficit is a:

Accepted Answer

The most common means of financing a temporary cash deficit is a short-term unsecured bank loan. Short-term unsecured loans provide quick access to cash without the need for collateral. They are typically granted for a period of less than one year and are ideal for businesses that need to finance working capital or unexpected expenses. Long-term loans (both secured and unsecured) are not appropriate for temporary cash deficits as they are designed for longer-term needs, while issuing corporate bonds is a lengthy and complex process that is usually reserved for larger businesses with more established credit ratings.

Question 7

The optimal investment in current assets for an operating firm occurs at the point where:

Accepted Answer

The optimal investment in current assets occurs at the point where the total costs of holding current assets are minimized, which takes into account both carrying costs and shortage costs. This point is where the marginal benefit of holding additional current assets (reduced shortage costs) equals the marginal cost of holding those assets (increased carrying costs). At this point, the firm is balancing the tradeoff between the costs of holding too many current assets (high carrying costs) and too few (high shortage costs). Therefore, choice E is the best answer.

Question 8

A flexible short-term financial policy:
I.increases shortage costs due to frequent cash-outs.
II.tends to increase sales as compared to a restrictive policy.
III.requires a sizeable investment in current assets.
IV.incurs more carrying costs than a restrictive policy.

Accepted Answer

A flexible short-term financial policy typically involves maintaining a higher level of current assets to meet short-term obligations, which can support sales by ensuring that the company can meet customer demand. This approach incurs more carrying costs due to the larger investment in current assets, contrasting with a restrictive policy that aims to minimize holdings in current assets to reduce costs.

Question 9

Denver Interiors,Inc.,has sales of $836,000 and cost of goods sold of $601,000.The firm had a beginning inventory of $36,000 and an ending inventory of $47,000.What is the length of the inventory period?

Accepted Answer

Inventory turnover = $601,000/[($36,000 + $47,000)/2] = 14.481928Inventory period = 365/14.481928 = 25.20 days

Question 10

Which one of the following statements is correct concerning the cash balance of a firm?

Accepted Answer

A cumulative cash deficit means that a firm has spent more cash than it has received. Therefore, it indicates a borrowing need to cover the deficit.

Question 11

Which of the following are benefits derived from short-term financial planning?
I.having advance notice of when your firm will require external financing
II.being able to determine the extent of time for which a loan is required
III.having the ability to time capital expenditures in order to place the least financial burden possible on a firm
IV.knowing for certain what your cash balance will be six months in advance

Accepted Answer

Short-term financial planning helps in forecasting the need for external financing, determining the duration for which a loan is needed, and timing capital expenditures to minimize financial strain. However, it does not guarantee knowing the exact cash balance in advance due to the inherent uncertainties in business operations.

Question 12

Assume each month has 30 days and a firm has a 60-day accounts receivable period.During the second calendar quarter of the year,that firm will collect payment for the sales it made during which of the following months?

Accepted Answer

The answer of Assume each month has 30 days and...

Question 13

Which one of the following statements is correct?

Accepted Answer

Lines of credit often require a cleanup period, which is a specific time frame (usually annually) during which the borrower must pay off the outstanding balance completely and then reapply for the line of credit. This is done to ensure that the borrower is managing the credit responsibly and not relying too heavily on credit financing. The other statements are incorrect: A) Assignment of receivables involves selling the accounts receivables at a discounted price. C) With maturity factoring, the borrower receives the loan amount when the receivables are collected. D) Commercial paper can be offered by major banks or corporations and is not necessarily offered only to highly-rated corporations. E) Credit card receivables funding can be relatively expensive due to high interest rates and fees associated with credit card companies.

Question 14

Which one of the following statements is correct?

Accepted Answer

Long-term interest rates are more stable and less volatile compared to short-term interest rates. This is because long-term rates are affected by macroeconomic factors such as inflation and economic growth, which are more stable compared to short-term economic factors such as supply and demand for money. Therefore, most lenders prefer to lend for longer durations at lower rates, thereby making long-term interest rates less volatile. The other options are incorrect as they do not reflect the general financial principles.

Question 15

Jill is the CFO of Summertime Adventures which is a seasonal firm specializing in products related to water sports.The firm purchases inventory one month before it is sold and pays for its purchases 60 days after the invoice date.Sales are highest during July and August.Currently,Jill is preparing the cash disbursements section of the firm's cash budget.Which one of the following statements is supported by this information?

Accepted Answer

Since the firm purchases inventory one month before sales peak and pays for these purchases 60 days after the invoice date, the highest payments to suppliers will occur two months after the inventory is purchased. Given that sales are highest in July and August, inventory for these sales is likely purchased in June and July, leading to the highest payments to suppliers in August and September.

Question 16

A manufacturing firm has a 90-day collection period.The firm produces seasonal merchandise and thus has the least sales during the first quarter of a year and the highest level of sales during the fourth quarter of a year.The firm maintains a relatively steady level of production which means that its cash disbursements are fairly equal in all quarters.The firm is most apt to face a cash-out situation in:

Accepted Answer

The firm collects cash 90 days after sales, so the low sales in the first quarter will result in low cash inflows in the second quarter, while cash disbursements remain steady, leading to a potential cash-out situation.

Question 17

Which two of the following are most apt to cause a cash-out for a firm that is generally financially sound?
I.fixed expenses
II.fixed asset purchases
III.flexible financing policy
IV.highly seasonal sales

Accepted Answer

Fixed asset purchases require a cash outlay, which can cause a firm to experience a cash-out even if it is financially sound. Highly seasonal sales can also lead to a cash-flow crunch due to fluctuations in revenue. Flexible financing policies and fixed expenses are not specific causes of cash-outs. Therefore, option B is the most appropriate answer.

Question 18

Which one of the following statements is correct?

Accepted Answer

A firm with a flexible financing policy often maintains a higher level of liquidity, which includes investing in marketable securities to ensure funds are available for unexpected needs or opportunities.

Question 19

A compensating balance:
I.is required when a firm acquires any bank financing other than a line of credit.
II.increases the cost of short-term bank financing.
III.may be required even if a firm never borrows funds.
IV.is often used as a means of paying for banking services received.

Accepted Answer

A compensating balance increases the effective cost of borrowing because it requires the borrower to keep a non-interest-bearing account balance, which effectively reduces the amount of loanable funds. It can be required even if a firm never borrows, as part of a banking relationship. Additionally, it is often used as a means of paying for banking services, making options II, III, and IV correct.

Question 20

A cumulative cash deficit indicates a firm:

Accepted Answer

A cumulative cash deficit means that a company's expenses have exceeded its income over time, resulting in a negative cash balance. This indicates a short-term need for external funding to cover the deficit and continue operations.

Quiz 18: Short-Term Finance and Planning

The Harvester collects 25 percent of sales in the month of sale,60 percent of sales in the month following the month of sale,and 15 percent of sales in the second month following the month of sale.During the month of April,the firm will collect:

A national firm has sales of $729,000 and cost of goods sold of $478,000.At the beginning of the year,the inventory was $37,000.At the end of the year,the inventory balance was $41,000.What is the inventory turnover rate?

The primary difference between a line of credit and a revolving credit arrangement is the:

High Point Hotel (HPH) has $165,000 in accounts receivable.To finance a major purchase,the company assigns these receivables to Cross Town Bank.Which one of the following statements correctly describes this transaction?

Shortage costs include which of the following? I.disruption of production schedules II.inventory ordering costs III.lost customer goodwill IV.brokerage costs

The most common means of financing a temporary cash deficit is a:

The optimal investment in current assets for an operating firm occurs at the point where:

A flexible short-term financial policy: I.increases shortage costs due to frequent cash-outs. II.tends to increase sales as compared to a restrictive policy. III.requires a sizeable investment in current assets. IV.incurs more carrying costs than a restrictive policy.

Denver Interiors,Inc.,has sales of $836,000 and cost of goods sold of $601,000.The firm had a beginning inventory of $36,000 and an ending inventory of $47,000.What is the length of the inventory period?

Which one of the following statements is correct concerning the cash balance of a firm?

Assume each month has 30 days and a firm has a 60-day accounts receivable period.During the second calendar quarter of the year,that firm will collect payment for the sales it made during which of the following months?

Which one of the following statements is correct?

Which one of the following statements is correct?

Which two of the following are most apt to cause a cash-out for a firm that is generally financially sound? I.fixed expenses II.fixed asset purchases III.flexible financing policy IV.highly seasonal sales

Which one of the following statements is correct?

A compensating balance: I.is required when a firm acquires any bank financing other than a line of credit. II.increases the cost of short-term bank financing. III.may be required even if a firm never borrows funds. IV.is often used as a means of paying for banking services received.

A cumulative cash deficit indicates a firm: