Deck 18: Short-Term Finance and Planning

Question 1

Which one of the following statements concerning the cash cycle is correct?

A)The cash cycle is equal to the operating cycle minus the inventory period.
B)The most desirable cash cycle is the one that has a small positive value.
C)Granting credit to slower paying customers tends to decrease the cash cycle.
D)The cash cycle plus the accounts receivable period is equal to the operating cycle.
E)A negative cash cycle is actually preferable to a positive cash cycle.

Answer 1

A negative cash cycle is actually preferable to a positive cash cycle.

Question 2

Which one of these managers is most apt to determine which supplier should be used as the source of a production material?

A)Marketing manager
B)Cash manager
C)Purchasing manager
D)Controller
E)Production manager

Answer 2

Purchasing manager

Question 3

Which one of the following will increase the cash cycle?

A)Increasing the cash discounts given to customers who pay their accounts early
B)Having a larger percentage of customers paying with cash instead of credit
C)Paying your suppliers earlier to receive the discount they offer
D)Buying less raw materials to have on hand
E)Ordering raw materials inventory only when you need it rather than ahead of time

Answer 3

Paying your suppliers earlier to receive the discount they offer

Question 4

Which one of these managers is most apt to post customer payments to their accounts?

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

Question 5

Which one of these statements is correct?

A)A firm might be able to charge higher prices if it switches from a flexible to a restrictive short-term financial policy.
B)If a firm adopts a restrictive short-term financial policy its current assets will be greater than if it adopts a flexible policy.
C)If a firm switches from a flexible short-term financial policy to a restrictive policy it is likely to see an increase in its uncollectible accounts receivable.
D)If a firm switches from a restrictive short-term financial policy to a flexible policy,its operating cycle will most likely decrease.
E)Future cash flows are expected to be higher if a firm adopts a flexible,rather than a restrictive,short-term financial policy.

Question 6

Which of the following are uses of cash?
I.Marketable securities are sold
II.Inventory is increased
III.Long-term bank loan is acquired
IV.Stock is repurchased

A)I and III only
B)II and IV only
C)I and IV only
D)II and III only
E)II,III,and IV only

Question 7

Which of the following could be the cause of a lengthening cash cycle?
I.Extending the time period before paying a supplier for a credit purchase
II.Issuing credit to less credit-worthy customers than in previous periods
III.Purchasing inventory that is less-desired by customers than prior inventory purchases
IV.Offering customers cash discounts for prompt payment

A)I and II only
B)II and III only
C)III and IV only
D)I,II,and III only
E)II,III,and IV only

Question 8

Which of the following actions will tend to decrease the accounts receivable period?
I.Loosening the standards for granting credit to customers
II.Increasing the discount for early payment by credit customers
III.Increasing the finance charges applied to all customer balances outstanding over thirty days
IV.Granting discounts for cash sales

A)I and III only
B)II and IV only
C)I,II,and IV only
D)II,III,and IV only
E)I,II,III,and IV

Question 9

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

A)a compensating balance.
B)an assignment.
C)a letter of credit.
D)factoring.
E)a bond.

Question 10

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:

A)roll-over.
B)cleanup loan.
C)letter of credit.
D)line of credit.
E)compensating balance.

Question 11

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

A)letter of credit.
B)revolving credit arrangement.
C)compensating balance.
D)line of credit.
E)cleanup loan.

Question 12

Assume all sales and purchases are on credit.Which one of the following statements is correct concerning 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 13

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

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

Question 14

Which one of the following will decrease the operating cycle?

A)Decreasing the speed at which inventory is sold
B)Decreasing the accounts receivable turnover rate
C)Decreasing the cash cycle by increasing the accounts payable period
D)Decreasing the accounts payable period
E)Decreasing the days' sales in inventory

Question 15

Which one of the following is a source of cash?

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

Question 16

ABC historically acquired products that were held in inventory until they could be sold to a customer.The firm is now changing its policy and only acquiring a product when it receives an actual order from a customer.All else equal,this change will:

A)increase the operating cycle.
B)shorten the accounts payable period.
C)lengthen the accounts receivable period.
D)decrease the cash cycle.
E)decrease the inventory turnover rate.

Question 17

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

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

Question 18

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

A)Selling a fixed asset
B)Selling inventory at cost for cash
C)Making a payment on a long-term debt
D)Buying inventory on credit
E)Paying an accounts payable

Question 19

Which one of the following will decrease the operating cycle?

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 20

A short-term loan where the borrower pledges its accounts receivable as security but is still responsible for any uncollectible account is referred to as:

A)a compensating balance.
B)a letter of credit.
C)an assignment.
D)factoring.
E)a repurchase.

Question 21

Which one of the following will increase the accounts payable period,all else constant?

A)An increase in the cost of goods sold account value
B)A decrease in the operating cycle
C)An increase in the cash cycle
D)A decrease in the average accounts payable balance
E)An increase in the ending accounts payable balance

Question 22

Which one of the following statements is correct?

A)A farmer generally uses a type of financing that employs trust receipts to provide financing during the growing season.
B)Floor plan arrangements are most applicable to large,easily identifiable types of inventory.
C)A drug store is more apt to have a financing arrangement involving trust receipts than one involving a blanket lien.
D)A third-party inventory manager is generally involved with the lender and the borrower in a floor plan arrangement.
E)A direct loan from a bank is generally less expensive than a loan involving commercial paper.

Question 23

If the accounts receivable balance on a firm's balance sheet decreases without any change in credit sales,the operating cycle will:

A)increase due to the increased receivables turnover rate.
B)decrease because the number of days' sales in receivables will decrease.
C)remain constant because credit sales are constant.
D)remain constant because the accounts receivable and inventory periods will be constant.
E)remain constant because cash collections affect the cash cycle,not the operating cycle.

Question 24

Flexible short-term financial policies tend to:

A)support few investments in marketable securities.
B)maintain large cash balances.
C)tightly restrict credit sales.
D)maintain low accounts receivable balances.
E)minimize the investment in inventory.

Question 25

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

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)line of credit is a long-term financing agreement while the revolving credit arrangement is a short-term financing agreement.

Question 26

The total sum of the carrying costs and the shortage costs will be lowest at the point where:

A)both the carrying costs and the shortage costs are minimized.
B)the carrying costs exceed the shortage costs.
C)the carrying costs equal the shortage costs.
D)both the carrying costs and the shortage costs are maximized.
E)the shortage costs exceed the carrying costs.

Question 27

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

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 28

If you delay paying your suppliers by an additional ten days,then:

A)you will require less bank financing of your operations.
B)your stock-out costs will rise.
C)the cash cycle will increase by ten days.
D)your operating cycle will lengthen by ten days.
E)your payables turnover rate will increase.

Question 29

A flexible short-term financial policy:

A)increases the likelihood that a firm will face financial distress.
B)increases the probability that a firm will earn high returns on all of its assets.
C)advocates a smaller investment in net working capital than a restrictive policy does.
D)utilizes short-term financing to fund all of the firm's assets.
E)incurs an opportunity cost due to the rate of return that applies to short-term assets.

Question 30

A restrictive short-term financial policy tends to:

A)grant credit to more customers.
B)reduce total ordering costs as compared to a more flexible policy.
C)encourage credit sales over cash sales.
D)incur more carrying costs than a flexible policy does.
E)reduce future sales more so than a flexible policy.

Question 31

A monthly cumulative cash deficit indicates a firm:

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 32

A compensating balance:
I.is required when a firm acquires bank financing other than a line of credit.
II.increases the cost of short-term bank financing.
III.represents an opportunity cost to the lending institution.
IV.is often used as a means of paying for banking services received.

A)I and III only
B)II and IV only
C)II and III only
D)I and IV only
E)I,II,and IV only

Question 33

Your firm collects 20 percent of sales in the month of sale,65 percent of sales in the month following the month of sale and 13 percent of sales in the second month following the month of sale.Given this,you will collect _____ sales during the month of May.

A)65 percent of May
B)20 percent of March
C)13 percent of May
D)65 percent of March
E)13 percent of March

Question 34

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 third 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.Assume all other disbursements are also equal throughout the year.Assume a 360 day year.The firm is most apt to face a cash-out situation in:

A)the first quarter.
B)the second quarter.
C)the third quarter.
D)the fourth quarter.
E)any quarter,equally.

Question 35

Southern Markets has an accounts receivable period of 30 days.In the first quarter of a calendar year,the firm's accounts receivable collections will equal its credit sales for the months of:

A)December,January,and February.
B)January,February,and March.
C)February,March,and April.
D)February and Match.
E)January and February.

Question 36

A restrictive short-term financial policy,as compared to a more flexible policy,tends to:
I.cause a firm to lose sales due to a lack of inventory on hand.
II.increase the sales of a firm due to the firm's credit availability and terms.
III.increase the probability that a firm will face a cash-out situation.
IV.increase the ability of a firm to charge premium prices.

A)I and III only
B)II and IV only
C)I and IV only
D)II and III only
E)I and II only

Question 37

A flexible short-term financial policy:

A)is associated with firms where the carrying costs are considered to be less than the shortage costs.
B)applies mostly to firms that factor their accounts receivable.
C)applies only to firms that strictly limit their credit sales.
D)tends to decrease the amount of current assets held by a firm.
E)is designed to utilize short-term external financing to fund seasonal increases in current assets.

Question 38

Assume Fido's Pets has a flexible short-term financing policy and no unusual or one-time expenditures are expected.The firm's sales vary by as much as 15 percent from one season to another.During the year,or part of the year,the firm will:
I.invest in some short-term marketable securities.
II.encounter a cash-out.
III.have sufficient funding for all of its total assets.
IV.require some short-term financing.

A)I and IV only
B)II and IV only
C)II and III only
D)I and III only
E)I,II,and IV only

Question 39

Which of the following are associated with a restrictive short-term financial policy?
I.Large investments in marketable securities
II.Liberal credit terms for customers
III.Minimal cash balances
IV.Minimal credit sales

A)I and III only
B)II and III only
C)II and IV only
D)III and IV only
E)I,II,and III only

Question 40

Which of these occur during an annual cycle if a firm with a positive rate of growth adopts a compromise financing policy?
I.Some short-term financing
II.Increase in fixed and permanent current assets
III.Short-term financing in excess of long-term financing
IV.Long-term financing sufficient to cover all asset requirements

A)I only
B)II and IV only
C)III only
D)I and II only
E)III and IV only

Question 41

Candy Corner has an inventory turnover rate of 13,an accounts payable period of 44 days,and an accounts receivable period of 35 days.What is the length of the cash cycle?

A)4.00 days
B)22.00 days
C)12.00 days
D)17.33 days
E)19.08 days

Question 42

Smith and Johnson have expected sales of $380,$340,$430,and $480 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.

A)$340
B)$360
C)$385
D)$430
E)$455

Question 43

Pat's Place has sales of $498,000 and cost of goods sold of $221,000.At the beginning of the year,inventory was $36,400.At the end of the year,the inventory balance was $31,800.What is the inventory turnover rate?

A)5.23 times
B)7.56 times
C)6.48 times
D)14.60 times
E)8.22 times

Question 44

Smiley and Sons has an inventory period of 33 days,an accounts payable period of 41 days and an accounts receivable period of 27 days.Management is considering offering a 5 percent discount if its credit customers pay for their purchases within 10 days.If the new discount is offered the accounts receivable period is expected to decline by 13 days.If the new discount is offered,the cash cycle will change from _____ days to _____ days.

A)19;6
B)60;47
C)87;74
D)101;88
E)101;91

Question 45

Blackwell Co.has sales of $518,300,costs of goods sold of $308,200,and average accounts receivable of $54,900.How long on average does it take the firm's credit customers to pay for their purchases?

A)22.99 days
B)38.66 days
C)41.23 days
D)43.37 days
E)27.95 days

Question 46

A firm has sales of $710,000.The cost of goods sold is equal to 57 percent of sales.The firm has an average inventory of $23,940.How many days on average does it take the firm to sell its inventory?

A)12.31 days
B)16.90 days
C)15.29 days
D)21.59 days
E)10.77 days

Question 47

Super Mart has sales of $626,000.The cost of goods sold is equal to 68 percent of sales.The beginning accounts receivable balance is $75,534 and the ending accounts receivable balance is $76,209.How long on average does it take the firm to collect its receivables?

A)44.24 days
B)36.18 days
C)30.08 days
D)65.06 days
E)66.52 days

Question 48

True Blue Stores had a beginning accounts payable balance of $56,900 and an ending accounts payable balance of $62,800.Sales for the period were $675,000 and costs of goods sold were $448,000.What is the payables turnover rate?

A)6.98 times
B)7.49 times
C)8.23 times
D)11.28 times
E)12.01 times

Question 49

Dewey's expects sales of $530,$560,$740,and $790 for the months of April through July,respectively.The firm collects 23 percent of sales in the month of sale,51 percent in the month following the month of sale,and 24 percent in the second month following the month of sale.The remaining 2 percent of sales is never collected.How much money does the firm expect to collect in the month of July?

A)$693.50
B)$701.40
C)$711.20
D)$742.60
E)$745.00

Question 50

Duke's Auto Parts has a beginning receivables balance on January 1^st of $560.Sales for January through April are $680,$540,$570,and $620,respectively.The accounts receivable period is 30 days.How much did the firm collect in the month of January? Assume a 360 day year.

A)$560
B)$570
C)$620
D)$625
E)$680

Question 51

Martinique's Boutique has a 45 day collection period.Sales for the next four quarters are estimated at $1,200,$1,100,$2,300,and $1,800,respectively,starting with the first quarter of the year.Given this information,which one of the following statements is correct? Assume a 360 day year.

A)The firm will collect $1,175 in Quarter 2.
B)The accounts receivable balance at the beginning of Quarter 4 will be $950.
C)The firm will collect $600 from Quarter 2 sales in Quarter 3.
D)The firm will have an accounts receivable balance of $900 at the end of the year.
E)The firm will collect a total of $2,100 in Quarter 4.

Question 52

The Down Towner has sales of $642,000 and average accounts payable of $56,400.The cost of goods sold is equivalent to 68 percent of sales.How long does it take Down Towner to pay its suppliers?

A)32.07 days
B)43.45 days
C)40.69 days
D)47.16 days
E)31.85 days

Question 53

Dallas and More (D&M)sells its inventory in 87 days on average.Its average customer charges their purchases on a credit card and payment is received in 10 days.D&M takes 56 days on average to pay for its purchases.Given this information,what is the length of D&M's cash cycle?

A)86 days
B)31 days
C)153 days
D)97 days
E)41 days

Question 54

Bruceton Farm Markets currently has an operating cycle of 76 days.The firm is analyzing some operational changes that are expected to decrease the accounts receivable period by 3 days and decrease the inventory period by 8 days.The accounts payable turnover rate is expected to increase from 7 to 9 times per year.If all of these changes are adopted,what will the firm's new operating cycle be?

A)87 days
B)58 days
C)54 days
D)65 days
E)76 days

Question 55

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?

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

Question 56

HM Industries has a beginning receivables balance on January 1^st of $420.Sales for January through April are $340,$250,$330,and $240,respectively.The accounts receivable period is 60 days.How much did the firm collect in the month of April? Assume a 360 day year.

A)$240
B)$250
C)$330
D)$290
E)$340

Question 57

Baker Industries has a 45 day accounts receivable period.The estimated quarterly sales for this year,starting with the first quarter,are $1,300,$1,500,$1,800 and $3,100,respectively.How much does the firm expect to collect in the third quarter? Assume that a year has 360 days.

A)$1,300
B)$1,400
C)$1,650
D)$1,900
E)$2,550

Question 58

A firm currently has a 36 day cash cycle.Assume the firm changes its operations such that it decreases its receivables period by 3 days,increases its inventory period by 2 days,and decreases its payables period by 3 days.What will the length of the cash cycle be after these changes?

A)32 days
B)33 days
C)35 days
D)38 days
E)39 days

Question 59

Brooke Industries has sales of $860,000 and cost of goods sold of $490,000.The firm had a beginning inventory of $98,000 and an ending inventory of $112,000.What is the length of the inventory period?

A)4.67 days
B)5.21 days
C)44.56 days
D)78.21 days
E)21.59 days

Question 60

Dywer Metals has an inventory turnover of 16 and an accounts receivable turnover of 10.The accounts payable period is 51 days.What is the length of the cash cycle?

A)8.31 days
B)9.57 days
C)-41.00 days
D)-25.00 days
E)12.79 days

Question 61

Toni's has a net cash inflow for the quarter of $387.50.The beginning cash balance is $211.21.The firm has $522 in short-term debt with a quarterly interest rate of 1.8 percent.Company policy is to maintain a minimum cash balance of $200.How much does the firm need to borrow or how much can it repay on its loan to have a zero cumulative surplus for the quarter?

A)Borrow $187.31
B)Borrow $176.69
C)Repay $276.31
D)Repay $389.31
E)Repay $187.69

Question 62

Birds Unlimited has a 45 day accounts payable period.The firm has expected sales for Quarters 1 through 4 of next year of $1,800,$2,100,$2,400,and $2,800,respectively.The cost of goods sold for a quarter is equal to 65 percent of the next quarter's sales.What is the amount of the projected cash disbursements for accounts payable for Quarter 2? Assume a 360 day year.

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

Question 63

Jupiter stores had a Quarter 2 beginning cash balance of $430.Sales for Quarters 1 through 3 are estimated at $600,$800,and $900,respectively.The cost of goods sold is equal to 70 percent of sales.Goods are purchased one quarter prior to the month of sale.The accounts payable period is 30 days and the accounts receivable period is 15 days.The firm had quarterly cash expenses of $180.What was the cash balance at the end of Quarter 2? Assume a 360 day year.

A)$350.00
B)$366.67
C)$410.00
D)$710.00
E)$680.00

Question 64

Fourth Bank offers Auto Corner a $150,000 line of credit at an annual rate of interest of 12.3 percent.The loan agreement also requires a 10 percent compensating balance on any funds used.What is the effective annual interest rate if the firm needs $120,000 for one year?

A)12.86%
B)13.45%
C)14.40%
D)13.67%
E)12.58%

Question 65

Smithfield's has a line of credit with a local bank of $50,000.The loan agreement calls for interest of 9 percent with a 5 percent compensating balance requirement that is based on the total amount borrowed.What is the effective interest rate if the firm needs $45,000 for one year to finance a fixed asset purchase?

A)8.55%
B)9.00%
C)9.13%
D)9.38%
E)9.47%

Question 66

On April 1^st,a firm had a beginning cash balance of $200.March sales were $460 and April sales were $510.During April the firm had cash expenses of $150 and payments on accounts payable of $210.The accounts receivable period is 30 days.What is the firm's beginning cash balance on May 1^st?

A)$280
B)$300
C)$450
D)$860
E)$910

Question 67

Snow Mountain Resort had a beginning cash balance of $16,200 for the quarter.During the quarter,the firm had cash collections of $338,910,wages and other cash expenses of $187,900,payments on account of $67,400,and paid dividends of $4,500.The minimum cash balance was just set to $2,500.The beginning short-term debt is $45,400 with a quarterly interest rate of 1.5 percent.At quarter end,the cumulative surplus (deficit)is _____ and the ending short-term debt is ________.

A)$0;$0
B)$0;$45,781
C)$0;$46,048
D)$1,892;$0
E)$46,729;$0

Question 68

Weisbro and Sons purchases its inventory one quarter prior to the quarter of sale.The purchase price is 60 percent of the sales price.The accounts payable period is 60 days.The accounts payable balance at the beginning of Quarter 1 is $27,500.Sales for Quarters 1 through 4 are expected to be $31,000,$34,000,$42,000,and $51,000,respectively.What is the amount of the expected disbursements for Quarter 3? Assume a 360 day year.

A)$19,200
B)$20,400
C)$27,000
D)$28,800
E)$22,000

Question 69

Jetson Co.has an $80,000 line of credit with a 12 percent interest rate and a 10 percent compensating balance requirement that is based on the total amount borrowed.What is the effective annual interest rate if the firm needs $45,000 for one year?

A)12.54%
B)12.67%
C)12.12%
D)13.33%
E)12.00%

Question 70

Prudoe Fuels factors its accounts receivable immediately at a 1.5 percent discount.The average collection period is 32 days.Assume all accounts are collected in full.What is the effective annual interest rate on this arrangement?

A)19.97%
B)18.81%
C)26.09%
D)26.67%
E)18.51%

Question 71

First Bank offers KNJ Co.a $100,000 line of credit at an annual rate of interest of 9.5 percent.The loan agreement also requires a 4 percent compensating balance on any funds used.What is the effective annual interest rate if the firm needs $60,000 for the entire year to fund its operations?

A)9.50%
B)9.62%
C)9.90%
D)9.81%
E)9.74%

Question 72

Buster's had a beginning cash balance of $3,200 for the quarter.During the quarter,the firm had cash collections of $37,280,wages and other cash expenses of $16,800,payments on account of $19,658,and paid dividends of $1,500.The beginning short-term debt is $6,500 with a quarterly interest rate of 2 percent.The firm just adopted a new policy which sets the minimum cash balance to $500.At quarter end,the cumulative surplus (deficit)is _____ and the ending short-term debt is ________.

A)$0;$6,500
B)$0;$4,608
C)$0;$4,478
D)$1,892;$6,500
E)$2,200;$6,370

Question 73

Dixie's has a net cash inflow for the quarter of -$136.The beginning cash balance is $74.Company policy is to maintain a minimum cash balance of $50 and borrow only the amount that is necessary to maintain that balance.How much does the firm need to borrow to have a zero cumulative surplus?

A)$22
B)$72
C)$82
D)$132
E)$112

Question 74

The Babco Co.has a $250,000 line of credit with a 9 percent interest rate and a 10 percent compensating balance requirement that is based on the total amount borrowed.What is the effective interest rate if the firm needs $117,000 to finance some expenses? The company plans on repaying the loan in a lump sum at the end of one year.

A)7.20%
B)7.27%
C)8.08%
D)9.80%
E)10.00%

Question 75

Midwest Meats has a net cash inflow for the quarter of $2,258.The minimum and beginning cash balance is $500 and the firm has $2,304 in short-term debt.The quarterly interest on the loan is $33.How much does the firm need to borrow or how much can it repay on its loans to have a zero cumulative surplus for the quarter?

A)Borrow and repay $0
B)Borrow $33
C)Repay $2,291
D)Repay $2,225
E)Repay $2,258

Question 76

Second Bank offers J and J Enterprises a $250,000 line of credit at an annual rate of interest of 8.75 percent.The loan agreement also requires a 5 percent compensating balance on any funds used.What is the effective annual interest rate if the firm borrows $195,000 for the entire year?

A)8.93%
B)9.06%
C)9.40%
D)9.21%
E)9.54%

Question 77

A supplier offers you credit terms of 2/15,net 45.What is the cost of forgoing the discount on a $218,400 purchase?

A)20.41%
B)26.08%
C)24.83%
D)22.69%
E)27.86%

Question 78

As of the beginning of the quarter,a firm has a cash balance of $250.During the quarter the firm pays its suppliers $310 and collects $420 from customers.It also pays an interest payment of $30 and a tax bill of $170.In addition,the firm borrows $135.What is the cash balance at the end of the quarter?

A)$225
B)$245
C)$255
D)$295
E)$305

Question 79

Upstate Farms factors its accounts receivable immediately at a 3 percent discount.The average collection period is 42 days.Assume all accounts are collected in full.What is the effective annual interest rate on this arrangement?

A)29.97%
B)30.30%
C)30.78%
D)30.90%
E)31.33%

Question 80

A supplier offers you credit terms of 1.5/10,net 30.What is the cost of forgoing the discount on a $1,200 purchase?

A)34.21%
B)27.79%
C)29.03%
D)32.33%
E)31.76%