Question 1

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 2

Which one of the following statements is correct?

Accepted Answer

Lines of credit often require a cleanup period, which is a period of time during which the borrower must reduce the outstanding balance to zero or to a specified level before borrowing again. This is a common feature of lines of credit to ensure that the borrower is using the funds for short-term needs and not as a long-term solution to their financial problems. The other options are incorrect: A) The assignment of receivables involves selling the firm's accounts receivables at a discount, not full price. C) Maturity factoring means the borrower receives funds at the end of the factoring period, not immediately. D) Commercial paper is short-term financing offered by highly-rated corporations, not to them. E) Credit card receivables funding can be expensive due to high interest rates and fees.

Question 3

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 4

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 5

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 answer of A manufacturing firm has a 90-day collection...

Question 6

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 7

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 8

A cumulative cash deficit indicates a firm:

Accepted Answer

A cumulative cash deficit indicates that the firm is spending more cash than it is generating, potentially indicating a need for external funding to cover short-term expenses. This does not necessarily mean the firm is in long-term financial distress or will go out of business, but it does suggest a need for additional funds in the near future.

Question 9

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. This type of loan provides quick access to cash without the need for collateral, making it easier for businesses to obtain. It is also a short-term solution, which means that the loan can be paid off relatively quickly once the cash flow situation improves. Long-term loans or bond issues are not suitable for temporary cash deficits, as they are meant for more permanent financing needs. Secured loans may also require collateral, which may be difficult to obtain in a short period of time.

Question 10

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

Accepted Answer

The optimal investment in current assets for an operating firm occurs at the point where the total costs of holding current assets is minimized. This means that the sum of the carrying costs and the shortage costs is at its lowest point. At this point, the costs of holding too much inventory (carrying costs) and the costs of not having enough inventory (shortage costs) are both balanced, resulting in the minimum total cost of holding current assets.

Question 11

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 12

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 13

Which one of the following statements is correct?

Accepted Answer

Long-term interest rates are less affected by short-term fluctuations in the economy, and therefore tend to be less volatile than short-term rates. This is due to the fact that long-term rates are influenced more by expectations about future economic conditions and inflation, while short-term rates are influenced more by current market conditions and monetary policy. Therefore, firms may prefer to finance long-term projects or investments using long-term debt to hedge against interest rate risk.

Question 14

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

The answer of High Point Hotel (HPH)has $165,000 in accounts...

Question 15

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 large amount of cash up front and can cause a cash-out for a firm, even if they are financially sound. Highly seasonal sales can also cause a cash-out as the firm may need to increase inventory and hire extra staff in order to meet demand during the busy season. Flexible financing policy and fixed expenses do not necessarily cause a cash-out for a financially sound firm.

Question 16

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 17

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

During the month of April, the Harvester collects 60 percent of sales in the month following the month of sale. This means that the Harvester will collect 60 percent of March sales in April. Therefore, the correct answer is C) 60 percent of March sales.

Question 18

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

Accepted Answer

A cumulative cash deficit indicates that the firm has spent more cash than it has collected, and therefore needs to borrow or find other financing sources to cover the shortfall. The ending cash balance may or may not be equal to the minimum desired cash balance, depending on the firm's cash management strategy. Option A is incorrect because maintaining a zero cash balance at all times is not a practical or desirable goal for most firms. Option B is incorrect because the cumulative cash surplus is not equal to the minimum desired cash balance, but rather reflects the net cash inflows and outflows over a given period. Option C is incorrect because the June beginning cash balance would normally include any cash on hand from the previous month, in addition to any cash surplus.

Question 19

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 20

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 period = (Average inventory / Cost of goods sold) x 365

Average inventory = (Beginning inventory + Ending inventory) / 2
Average inventory = ($36,000 + $47,000) / 2
Average inventory = $41,500

Inventory period = ($41,500 / $601,000) x 365
Inventory period = 25.20 days

Quiz 18: Short-Term Finance and Planning

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?

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

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:

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 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:

Which one of the following statements is correct?

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?

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?

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:

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

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?