Question 1

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

Accepted Answer

A) length of the time period covered by the loan agreement. 
B) type of collateral used to secure the loan. 
C) fact that the line of credit is a secured loan and the revolving credit arrangement is unsecured. 
D) fact that the line of credit is an unsecured loan and the revolving credit arrangement is secured. 
E) fact that the revolving credit arrangement requires a cleanup period but the line of credit does not. 
A) length of the time period covered by the loan agreement. 
B) type of collateral used to secure the loan. 
C) fact that the line of credit is a secured loan and the revolving credit arrangement is unsecured. 
D) fact that the line of credit is an unsecured loan and the revolving credit arrangement is secured. 
E) fact that the revolving credit arrangement requires a cleanup period but the line of credit does not. A

Question 2

Which one of the following will increase net working capital? Assume the current ratio is positive.

Accepted Answer

A) Using cash to pay an accounts payable 
B) Using cash to pay a long-term debt 
C) Selling inventory at cost 
D) Collecting an accounts receivable 
E) Using a long-term loan to buy inventory 
A) Using cash to pay an accounts payable 
B) Using cash to pay a long-term debt 
C) Selling inventory at cost 
D) Collecting an accounts receivable 
E) Using a long-term loan to buy inventory E

Question 3

Which of the following could be the cause of a lengthening cash cycle?

Accepted Answer

A) Increasing the inventory turnover 
B) Issuing credit to less credit-worthy customers than in previous periods 
C) Increasing the accounts payable period 
D) Extending the time period before paying a supplier for a credit purchase 
E) Offering customers cash discounts for prompt payment 
A) Increasing the inventory turnover 
B) Issuing credit to less credit-worthy customers than in previous periods 
C) Increasing the accounts payable period 
D) Extending the time period before paying a supplier for a credit purchase 
E) Offering customers cash discounts for prompt payment B

Question 4

An increase in which one of the following will decrease the cash cycle,all else equal?

Accepted Answer

A) Payables turnover 
B) Days sales in inventory 
C) Operating cycle 
D) Inventory turnover rate 
E) Accounts receivable period 
A) Payables turnover 
B) Days sales in inventory 
C) Operating cycle 
D) Inventory turnover rate 
E) Accounts receivable period

Question 5

Which financial policy,or policies,uses both marketable securities and short-term financing to fund seasonal variations in asset needs?

Accepted Answer

A) Both the flexible and the compromise financial policies 
B) Flexible financial policy only 
C) Compromise financial policy only 
D) Restrictive financial policy only 
E) Both the restrictive and the compromise financial policies 
A) Both the flexible and the compromise financial policies 
B) Flexible financial policy only 
C) Compromise financial policy only 
D) Restrictive financial policy only 
E) Both the restrictive and the compromise financial policies

Question 6

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

Accepted Answer

A) short-term issue of corporate bonds. 
B) short-term secured bank loan. 
C) short-term unsecured bank loan. 
D) long-term unsecured bank loan. 
E) long-term secured bank loan. 
A) short-term issue of corporate bonds. 
B) short-term secured bank loan. 
C) short-term unsecured bank loan. 
D) long-term unsecured bank loan. 
E) long-term secured bank loan.

Question 7

Assume all sales and purchases are on credit.Which one of the following statements is correct concerning the cash cycle?

Accepted Answer

A) The cash cycle starts when inventory is purchased. 
B) The longer the cash cycle,the more likely a firm will need external financing. 
C) Increasing the accounts payable period increases the cash cycle. 
D) The cash cycle can exceed the operating cycle if the payables period is equal to zero. 
E) Adopting a more liberal accounts receivable policy will tend to decrease the cash cycle. 
A) The cash cycle starts when inventory is purchased. 
B) The longer the cash cycle,the more likely a firm will need external financing. 
C) Increasing the accounts payable period increases the cash cycle. 
D) The cash cycle can exceed the operating cycle if the payables period is equal to zero. 
E) Adopting a more liberal accounts receivable policy will tend to decrease the cash cycle.

Question 8

True Blue Stores had a beginning accounts payable balance of $87,300 and an ending accounts payable balance of $79,460.Sales for the period were $702,000,and costs of goods sold were $423,600.What is the payables turnover rate?

Accepted Answer

A) 6.98 times 
B) 5.08 times 
C) 8.23 times 
D) 9.28 times 
E) 7.01 times 
A) 6.98 times 
B) 5.08 times 
C) 8.23 times 
D) 9.28 times 
E) 7.01 times

Question 9

A supplier offers credit terms of 2/15,net 45.This means that

Accepted Answer

A) a 2 percent surcharge will be added to any invoice not paid within 15 days. 
B) all purchases must be paid in full within 30 days. 
C) a monthly interest rate equal to 2/15ths of one percent will be added to any invoice not paid within 45 days. 
D) a 2 percent discount can be taken if a purchase is paid within 15 days with the full amount due in 45 days. 
E) 2 percent of the invoice must be paid within 15 days with the balance paid within 45 days. 
A) a 2 percent surcharge will be added to any invoice not paid within 15 days. 
B) all purchases must be paid in full within 30 days. 
C) a monthly interest rate equal to 2/15ths of one percent will be added to any invoice not paid within 45 days. 
D) a 2 percent discount can be taken if a purchase is paid within 15 days with the full amount due in 45 days. 
E) 2 percent of the invoice must be paid within 15 days with the balance paid within 45 days.

Question 10

Super Mart has sales of $542,300.The cost of goods sold is equal to 59 percent of sales.The beginning accounts receivable balance is $86,534,and the ending accounts receivable balance is $84,209.How long on average does it take the firm to collect its receivables?

Accepted Answer

A) 57.46 days 
B) 66.08 days 
C) 39.19 days 
D) 43.92 days 
E) 49.11 days 
A) 57.46 days 
B) 66.08 days 
C) 39.19 days 
D) 43.92 days 
E) 49.11 days

Question 11

Blackwell Co.has credit sales of $317,428,costs of goods sold of $151,217,and average accounts receivable of $28,744.How long on average does it take the firm's credit customers to pay for their purchases?

Accepted Answer

A) 27.99 days 
B) 33.05 days 
C) 38.23 days 
D) 31.37 days 
E) 29.95 days 
A) 27.99 days 
B) 33.05 days 
C) 38.23 days 
D) 31.37 days 
E) 29.95 days

Question 12

Which one of the following is a use of cash?

Accepted Answer

A) Acquisition of bank loan 
B) Sale of common stock 
C) Sale of marketable securities 
D) Decrease in accounts payable 
E) Decrease in inventory 
A) Acquisition of bank loan 
B) Sale of common stock 
C) Sale of marketable securities 
D) Decrease in accounts payable 
E) Decrease in inventory

Question 13

Which one of the following is a source of cash?

Accepted Answer

A) An increase in inventory 
B) An increase in fixed assets 
C) A decrease in long-term debt 
D) The payment of a cash dividend 
E) A decrease in accounts receivable 
A) An increase in inventory 
B) An increase in fixed assets 
C) A decrease in long-term debt 
D) The payment of a cash dividend 
E) A decrease in accounts receivable

Question 14

Candy Corner has an inventory turnover rate of 14.6,an accounts payable period of 43.7 days,and an accounts receivable period of 32.4 days.What is the length of the cash cycle?

Accepted Answer

A) 14.2 days 
B) 11.8 days 
C) 12.1 days 
D) 17.3 days 
E) 13.7 days 
A) 14.2 days 
B) 11.8 days 
C) 12.1 days 
D) 17.3 days 
E) 13.7 days

Question 15

Smith and Johnson have expected sales of $427,$489,$626,and $738 for the months of January through April,respectively.The accounts receivable period is 15 days.How much did the firm collect in the month of April? Assume a 360-day year.

Accepted Answer

A) $626 
B) $558 
C) $738 
D) $313 
E) $682 
A) $626 
B) $558 
C) $738 
D) $313 
E) $682

Question 16

HM Industries has a beginning receivables balance on January 1st of $484.Sales for January through April are $420,$364,$390,and $433,respectively.The accounts receivable period is 60 days.How much did the firm collect in the month of April? Assume a 360-day year.

Accepted Answer

A) $420 
B) $364 
C) $377 
D) $390 
E) $392 
A) $420 
B) $364 
C) $377 
D) $390 
E) $392

Question 17

Which one of the following actions will tend to increase the accounts receivable period?

Accepted Answer

A) Increasing the finance charges applied to all customer balances outstanding over 30 days 
B) Increasing the discount for early payment by credit customers 
C) Granting discounts for cash sales 
D) Loosening the standards for granting credit to customers 
E) Refusing credit to all existing and future customers 
A) Increasing the finance charges applied to all customer balances outstanding over 30 days 
B) Increasing the discount for early payment by credit customers 
C) Granting discounts for cash sales 
D) Loosening the standards for granting credit to customers 
E) Refusing credit to all existing and future customers

Question 18

Which one of the following will decrease the operating cycle?

Accepted Answer

A) Paying accounts payable faster 
B) Discontinuing the discount given for early payment of an accounts receivable 
C) Decreasing the inventory turnover rate 
D) Collecting accounts receivable faster 
E) Increasing the accounts payable turnover rate 
A) Paying accounts payable faster 
B) Discontinuing the discount given for early payment of an accounts receivable 
C) Decreasing the inventory turnover rate 
D) Collecting accounts receivable faster 
E) Increasing the accounts payable turnover rate

Question 19

A monthly cumulative cash deficit indicates that a firm

Accepted Answer

A) is facing long-term financial distress. 
B) will go out of business within the year. 
C) is using its cash wisely. 
D) is capable of funding all of its needs internally. 
E) has at least a short-term need for external funding. 
A) is facing long-term financial distress. 
B) will go out of business within the year. 
C) is using its cash wisely. 
D) is capable of funding all of its needs internally. 
E) has at least a short-term need for external funding.

Question 20

Shortage costs include

Accepted Answer

A) all costs that increase with increased current assets. 
B) production stoppages due to lack of materials and also lost customer goodwill. 
C) increased sales due to inventory selection and increased order costs. 
D) increased insurance costs on inventory and an increased rate of return on assets. 
E) increased uses of cash for net working capital and stockouts. 
A) all costs that increase with increased current assets. 
B) production stoppages due to lack of materials and also lost customer goodwill. 
C) increased sales due to inventory selection and increased order costs. 
D) increased insurance costs on inventory and an increased rate of return on assets. 
E) increased uses of cash for net working capital and stockouts.

Exam 18: Short-Term Finance and Planning

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

Which one of the following will increase net working capital? Assume the current ratio is positive.

Which of the following could be the cause of a lengthening cash cycle?

An increase in which one of the following will decrease the cash cycle,all else equal?

Which financial policy,or policies,uses both marketable securities and short-term financing to fund seasonal variations in asset needs?

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

Assume all sales and purchases are on credit.Which one of the following statements is correct concerning the cash cycle?

True Blue Stores had a beginning accounts payable balance of $87,300 and an ending accounts payable balance of $79,460.Sales for the period were $702,000,and costs of goods sold were $423,600.What is the payables turnover rate?

A supplier offers credit terms of 2/15,net 45.This means that

Super Mart has sales of $542,300.The cost of goods sold is equal to 59 percent of sales.The beginning accounts receivable balance is $86,534,and the ending accounts receivable balance is $84,209.How long on average does it take the firm to collect its receivables?

Blackwell Co.has credit sales of $317,428,costs of goods sold of $151,217,and average accounts receivable of $28,744.How long on average does it take the firm's credit customers to pay for their purchases?

Which one of the following is a use of cash?

Which one of the following is a source of cash?

Candy Corner has an inventory turnover rate of 14.6,an accounts payable period of 43.7 days,and an accounts receivable period of 32.4 days.What is the length of the cash cycle?

Smith and Johnson have expected sales of $427,$489,$626,and $738 for the months of January through April,respectively.The accounts receivable period is 15 days.How much did the firm collect in the month of April? Assume a 360-day year.

HM Industries has a beginning receivables balance on January 1st of $484.Sales for January through April are $420,$364,$390,and $433,respectively.The accounts receivable period is 60 days.How much did the firm collect in the month of April? Assume a 360-day year.

Which one of the following actions will tend to increase the accounts receivable period?

Which one of the following will decrease the operating cycle?

A monthly cumulative cash deficit indicates that a firm

Shortage costs include

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Financial Models

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Stock Valuation

Net Present Value and Other Investment Rules

Making Capital Investment Decisions

Risk Analysis, Real Options, and Capital Budgeting

Risk and Return: Lessons From Market History

Return and Risk: The Capital Asset Pricing Model Capm

Risk, Cost of Capital, and Valuation

Efficient Capital Markets and Behavioral Challenges

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Dividends and Other Payouts

Options and Corporate Finance

Raising Capital

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HM Industries has a beginning receivables balance on January 1^st of $484.Sales for January through April are $420,$364,$390,and $433,respectively.The accounts receivable period is 60 days.How much did the firm collect in the month of April? Assume a 360-day year.