Question 1

What is the inventory period?

Accepted Answer

A)  35 days 
B)  41 days 
C)  47 days 
D)  51 days 
E)  55 days 
A)  35 days 
B)  41 days 
C)  47 days 
D)  51 days 
E)  55 days D

Question 2

Evans, Inc. has an inventory period of 36 days, an accounts payable period of 44 days, and an accounts receivable turnover rate of 20. What is the length of the cash cycle?

Accepted Answer

A)  10.25 days 
B)  12.00 days 
C)  26.25 days 
D)  60.00 days 
E)  61.75 days 
A)  10.25 days 
B)  12.00 days 
C)  26.25 days 
D)  60.00 days 
E)  61.75 days A

Question 3

Credit Sales = $175,000
COGS = $125,000
How many days are in the receivables period?

Accepted Answer

A)  43 days 
B)  45 days 
C)  47 days 
D)  61 days 
E)  64 days 
A)  43 days 
B)  45 days 
C)  47 days 
D)  61 days 
E)  64 days B

Question 4

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

A)  Selling inventory at a profit. 
B)  Collecting an accounts receivable. 
C)  Paying a payment on a long-term debt. 
D)  Selling a fixed asset for book value. 
E)  Paying an accounts payable. 
A)  Selling inventory at a profit. 
B)  Collecting an accounts receivable. 
C)  Paying a payment on a long-term debt. 
D)  Selling a fixed asset for book value. 
E)  Paying an accounts payable.

Question 5

What is the length of the cash cycle?

Accepted Answer

A)  51 days 
B)  60 days 
C)  66 days 
D)  69 days 
A)  51 days 
B)  60 days 
C)  66 days 
D)  69 days

Question 6

When payments are paid on accounts payable, then it is considered a use of cash.

Accepted Answer

A) True 
 B)False

Question 7

The Pearson Co. currently has a 25 day cash cycle. Assume the firm changes its operations such that it increases its receivables period by 3 days, decreases its inventory period by 2 days, and decreases its payables period by 5 days. What will the length of the cash cycle be after these changes?

Accepted Answer

A)  19 days 
B)  23 days 
C)  29 days 
D)  31 days 
E)  35 days 
A)  19 days 
B)  23 days 
C)  29 days 
D)  31 days 
E)  35 days

Question 8

The payment of wages to an employee is a source of cash.

Accepted Answer

A) True 
 B)False

Question 9

T.J. Waxham's has a beginning receivables balance on January 1 of $1,460. Sales for January through April are $1,200, $1,450, $1,580, and $1,640, respectively. The accounts receivable period is 30 days. How much did the firm collect in the month of April? Assume that a year has 360 days.

Accepted Answer

A)  $1,200 
B)  $1,450 
C)  $1,460 
D)  $1,580 
E)  $1,640 
A)  $1,200 
B)  $1,450 
C)  $1,460 
D)  $1,580 
E)  $1,640

Question 10

Building Blocks has a beginning cash balance for the quarter of $800. The firm's president requires a minimum cash balance of $800 be maintained at all times. Further, the president has a policy of borrowing when necessary to maintain that balance. If funds have been borrowed, then the president requires they be repaid as soon as excess funds are available. How much will the firm borrow or repay this quarter if the quarterly receipts are $2,565 and the quarterly disbursements are $2,607?

Accepted Answer

A)  Borrow $42. 
B)  Borrow $38. 
C)  Neither borrow nor repay. 
D)  Repay $38. 
E)  Repay $42. 
A)  Borrow $42. 
B)  Borrow $38. 
C)  Neither borrow nor repay. 
D)  Repay $38. 
E)  Repay $42.

Question 11

Large investments in inventory is associated with a restrictive short-term financial policy.

Accepted Answer

A) True 
 B)False

Question 12

A firm has an inventory turnover rate of 16, a receivables turnover rate of 21 and a payables turnover rate of 11. How long is the operating cycle?

Accepted Answer

A)  37.00 days 
B)  40.19 days 
C)  42.87 days 
D)  63.08 days 
E)  73.37 days 
A)  37.00 days 
B)  40.19 days 
C)  42.87 days 
D)  63.08 days 
E)  73.37 days

Question 13

Delta, Inc. follows a flexible short-term financing policy. The firm produces educational toys, which is a cyclical business. When the firm needs to pay for large inventories in advance of peak sales, the firm will:

Accepted Answer

A)  Sell marketable securities. 
B)  Negotiate a banker's acceptance. 
C)  Arrange for a field warehouse loan. 
D)  Issue a trust receipt to the bank in exchange for funding. 
E)  Issue commercial paper with a maturity of 270 days or less. 
A)  Sell marketable securities. 
B)  Negotiate a banker's acceptance. 
C)  Arrange for a field warehouse loan. 
D)  Issue a trust receipt to the bank in exchange for funding. 
E)  Issue commercial paper with a maturity of 270 days or less.

Question 14

A flexible policy is most appropriate when carrying costs are low relative to shortage costs.

Accepted Answer

A) True 
 B)False

Question 15

Discontinuing all slow-selling merchandise will tend to decrease the inventory period.

Accepted Answer

A) True 
 B)False

Question 16

For the year just ended, James' Drafting Supplies had average accounts receivable of $880,000 and total credit sales of $4,800,000. Throughout the year, a factor purchased accounts receivable from the firm at a 2% discount. What was the firm's days in receivables?

Accepted Answer

A)  61 days 
B)  65 days 
C)  67 days 
D)  71 days 
E)  74 days 
A)  61 days 
B)  65 days 
C)  67 days 
D)  71 days 
E)  74 days

Question 17

Birds Unlimited has a 45 day accounts payable period. The firm has expected sales of $1,800, $2,100, $2,400 and $2,800, respectively, by quarter for the next calendar year. The cost of goods sold for a quarter is equal to 65% of the next quarter sales. What is the amount of the projected cash disbursements for accounts payable for Quarter 2 of the next year? Assume that a year has 360 days.

Accepted Answer

A)  $1,125.00 
B)  $1,462.50 
C)  $1,690.00 
D)  $2,125.50 
E)  $2,250.00 
A)  $1,125.00 
B)  $1,462.50 
C)  $1,690.00 
D)  $2,125.50 
E)  $2,250.00

Question 18

The _____________ is generally responsible for the collection and dissemination of accounting information on cash flows.

Accepted Answer

A)  Credit manager. 
B)  Controller. 
C)  Marketing manager. 
D)  Cash manager. 
E)  Payables manager. 
A)  Credit manager. 
B)  Controller. 
C)  Marketing manager. 
D)  Cash manager. 
E)  Payables manager.

Question 19

Blackberry, Inc. had sales for the past year of $38,250 and cost of goods sold of $21,038. In addition, the statement of financial position accounts was as shown in the table below. Blackberry uses average account values and a 365-day year where applicable in all of its computations.   What is the operating cycle for Blackberry, Inc.?

Accepted Answer

A)  57.70 days 
B)  58.50 days 
C)  59.40 days 
D)  62.03 days 
E)  65.11 days 
A)  57.70 days 
B)  58.50 days 
C)  59.40 days 
D)  62.03 days 
E)  65.11 days

Question 20

A firm which employs a flexible short-term financial policy will have a relatively:

Accepted Answer

A)  Low ratio of current assets to sales. 
B)  Low amount of marketable securities. 
C)  Low amount of short-term debt relative to long-term debt. 
D)  High amount of short-term debt. 
E)  High amount of accounts payable. 
A)  Low ratio of current assets to sales. 
B)  Low amount of marketable securities. 
C)  Low amount of short-term debt relative to long-term debt. 
D)  High amount of short-term debt. 
E)  High amount of accounts payable.

Exam 18: Short-Term Finance and Planning

What is the inventory period?

Evans, Inc. has an inventory period of 36 days, an accounts payable period of 44 days, and an accounts receivable turnover rate of 20. What is the length of the cash cycle?

Credit Sales = $175,000 COGS = $125,000 How many days are in the receivables period?

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

What is the length of the cash cycle?

When payments are paid on accounts payable, then it is considered a use of cash.

The Pearson Co. currently has a 25 day cash cycle. Assume the firm changes its operations such that it increases its receivables period by 3 days, decreases its inventory period by 2 days, and decreases its payables period by 5 days. What will the length of the cash cycle be after these changes?

The payment of wages to an employee is a source of cash.

T.J. Waxham's has a beginning receivables balance on January 1 of $1,460. Sales for January through April are $1,200, $1,450, $1,580, and $1,640, respectively. The accounts receivable period is 30 days. How much did the firm collect in the month of April? Assume that a year has 360 days.

Large investments in inventory is associated with a restrictive short-term financial policy.

A firm has an inventory turnover rate of 16, a receivables turnover rate of 21 and a payables turnover rate of 11. How long is the operating cycle?

Delta, Inc. follows a flexible short-term financing policy. The firm produces educational toys, which is a cyclical business. When the firm needs to pay for large inventories in advance of peak sales, the firm will:

A flexible policy is most appropriate when carrying costs are low relative to shortage costs.

Discontinuing all slow-selling merchandise will tend to decrease the inventory period.

For the year just ended, James' Drafting Supplies had average accounts receivable of $880,000 and total credit sales of $4,800,000. Throughout the year, a factor purchased accounts receivable from the firm at a 2% discount. What was the firm's days in receivables?

The _____________ is generally responsible for the collection and dissemination of accounting information on cash flows.

A firm which employs a flexible short-term financial policy will have a relatively:

Introduction to Corporate Finance

Financial Statements, Cash Flow, and Taxes

Working With Financial Statements

Long-Term Financial Planning and Corporate Growth

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Project Analysis and Evaluation

Lessons From Capital Market History

Return, Risk, and the Security Market Line

Cost of Capital

Raising Capital

Financial Leverage and Capital Structure Policy

Dividends and Dividend Policy

Cash and Liquidity Management

Credit and Inventory Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Enterprise Risk Management

Options and Corporate Securities

Behavioural Finance: Implications for Financial Management

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