Question 1

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

Accepted Answer

A)   Selling inventory at cost
B)   Collecting payment from a customer
C)   Paying a dividend to shareholders
D)   Selling a fixed asset for less than book value
E)   Paying a supplier for prior purchasesF) A) and E)
G) A) and D)

Question 2

A flexible short-term financial policy:

Accepted Answer

A)   increases the need for long-term financing.
B)   minimizes net working capital.
C)   avoids bad debts by only selling items for cash.
D)   maximizes fixed assets and minimizes current assets.
E)   is most appropriate when carrying costs are high and shortage costs are low.F) B) and D)
G) All of the above

Question 3

Juno Industrial Supply has a line of credit of $200,000 with an interest rate of 7.1 percent. The loan agreement requires a compensating balance of 3.3 percent of the total amount borrowed, which will be held in an interest-free account. What is the effective interest rate if the company requires $132,000 for operations for one year?

Accepted Answer

A)   7.27 percent
B)   7.21 percent
C)   7.38 percent
D)   7.53 percent
E)   7.34 percentF) None of the above
G) C) and D)

Question 4

Foods Galore has a line of credit of $325,000 with an interest rate of 1.85 percent per quarter. The credit line also requires that 2.5 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Food Galore's short-term investments are earning .48 percent per quarter. What is the effective annual interest rate on this arrangement if the line of credit goes unused all year? Assume any funds borrowed or invested use compound interest.

Accepted Answer

A)   7.61 percent
B)   10.38 percent
C)   1.93 percent
D)   2.14 percent
E)   3.47 percentF) D) and E)
G) C) and E)

Question 5

Auto Detailers has a book net worth of $29,700. Long-term debt is $4,800. Net working capital, other than cash, is $3,700 and fixed assets are $27,400. How much cash does the company have?

Accepted Answer

A)   $3,900
B)   $4,800
C)   $4,300
D)   $3,400
E)   $3,700F) A) and D)
G) A) and C)

Question 6

Timko has a 90-day collection period and produces seasonal merchandise. Sales are lowest during the first calendar quarter of a year and the highest during the third quarter. The company maintains a relatively steady level of production which means that its cash disbursements are fairly equal in all quarters. This company is most apt to face a cash-out situation in:

Accepted Answer

A)   the first quarter.
B)   the second quarter.
C)   the third quarter.
D)   the fourth quarter.
E)   any quarter with equal probabilities of occurrence.F) B) and E)
G) C) and D)

Question 7

An orange grower is most apt to use which type of financing for its crop?

Accepted Answer

A)   Accounts receivable assignment
B)   Blanket inventory lien
C)   Trust receipt
D)   Commercial paper
E)   Field warehouse financingF) D) and E)
G) C) and E)

Question 8

Craft Shack has a beginning cash balance for the quarter of $1,213. The store has a policy of maintaining a minimum cash balance of $1,000 and is willing to borrow funds as needed to maintain that balance. Currently, the firm has a loan balance of $410. How much will the store borrow or repay if the net cash flow for the quarter is −$260?

Accepted Answer

A)   Neither borrow nor repay
B)   Repay $47
C)   Repay $26
D)   Borrow $47
E)   Borrow $20F) A) and B)
G) C) and E)

Question 9

Which one of these activities represents a source of cash?

Accepted Answer

A)   Increasing accounts receivable
B)   Decreasing inventory
C)   Increasing fixed assets
D)   Decreasing accounts payable
E)   Decreasing common stockF) A) and C)
G) A) and B)

Question 10

New Town Bank offers you a line of credit of $50,000 with an interest rate of 2.1 percent per quarter. The loan agreement also requires that 2.5 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. Short-term investments are currently paying .68 percent per quarter. What is the effective annual interest rate on the line of credit if you borrow the entire amount for one year? Assume any funds borrowed or invested use compound interest.

Accepted Answer

A)   8.40 percent
B)   8.89 percent
C)   8.67 percent
D)   8.51 percent
E)   8.62 percentF) None of the above
G) B) and D)

Question 11

An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?

Accepted Answer

A)   Bad debts
B)   Accounts receivable turnover rate
C)   Accounts receivable period
D)   Credit sales
E)   Operating cycleF) A) and D)
G) B) and C)

Question 12

A flexible short-term financial policy:

Accepted Answer

A)   maximizes cashouts.
B)   increases shortage costs due to frequent cash-outs.
C)   tends to decrease sales as compared to a restrictive policy.
D)   incurs more carrying costs than a restrictive policy.
E)   requires only a minimum investment in current assets.F) B) and E)
G) B) and C)

Question 13

Meryl Enterprises currently has an operating cycle of 76.4 days. The company is implementing some operational changes that are expected to increase the accounts receivable period by 2.2 days, decrease the inventory period by 5.3 days, and increase the accounts payable period by 1.5 days. What is the new operating cycle expected to be?

Accepted Answer

A)   78.0 days
B)   74.8 days
C)   73.3 days
D)   79.5 days
E)   71.8 daysF) A) and B)
G) B) and D)

Question 14

On May 1, Jensen's had a beginning cash balance of $284. April sales were $810 and May sales were $960. During May, cash expenses were $360 and payments on accounts payable were $630. The accounts receivable period is 30 days. What is the beginning cash balance on June 1?

Accepted Answer

A)   $145
B)   $254
C)   $104
D)   $183
E)   $265F) All of the above
G) A) and C)

Question 15

The most common way to finance a temporary cash deficit is with a:

Accepted Answer

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

Question 16

The Dog House expects sales of $770, $860, $950, and $960 for the months of May through August, respectively. The company collects 84 percent of sales in the month of sale, 13 percent in the month following the month of sale, and 1 percent in the second month following the month of sale. The remaining sales are never collected. How much money does the company expect to collect in the month of July?

Accepted Answer

A)   $918
B)   $856
C)   $876
D)   $874
E)   $943F) B) and C)
G) A) and E)

Question 17

Rose's Gift Shop borrows money on a short-term basis by pledging its inventory as collateral. This is an example of a(n) :

Accepted Answer

A)   debenture.
B)   line of credit.
C)   banker's acceptance.
D)   working loan.
E)   inventory loan.F) C) and D)
G) A) and E)

Question 18

Which one of these statements is correct? Assume all else held constant.

Accepted Answer

A)   A decrease in the accounts receivable turnover rate decreases the cash cycle.
B)   The cash cycle is equal to the operating cycle minus the inventory period.
C)   A negative cash cycle is preferable to a positive cash cycle.
D)   A decrease in the accounts payable period shortens the cash cycle.
E)   The cash cycle plus the accounts receivable period is equal to the operating cycle.F) C) and D)
G) A) and C)

Question 19

Assume all else held constant. If you pay your suppliers three days sooner, then:

Accepted Answer

A)   your payables turnover rate will decrease.
B)   you may require additional funds from other sources to fund the cash cycle.
C)   the cash cycle will decrease.
D)   your operating cycle will decrease.
E)   the accounts receivable period will decrease.F) All of the above
G) C) and E)

Question 20

Costs that increase as a firm acquires additional current assets are called ________ costs.

Accepted Answer

A)   carrying
B)   shortage
C)   order
D)   safety
E)   tradingF) C) and D)
G) A) and D)

Exam 18: Short Term Finance and Planning

On May 1, Jensen's had a beginning cash balance of $284. April sales were $810 and May sales were $960. During May, cash expenses were $360 and payments on accounts payable were $630. The accounts receivable period is 30 days. What is the beginning cash balance on June 1?

Correct Answer
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Which one of the following will decrease net working capital? Assume the current ratio is greater than 1.0.

Correct Answer
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Assume all else held constant. If you pay your suppliers three days sooner, then:

Correct Answer
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Which one of these activities represents a source of cash?

Correct Answer
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Rose's Gift Shop borrows money on a short-term basis by pledging its inventory as collateral. This is an example of a(n) :

Correct Answer
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Auto Detailers has a book net worth of $29,700. Long-term debt is $4,800. Net working capital, other than cash, is $3,700 and fixed assets are $27,400. How much cash does the company have?

Correct Answer
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Which one of these statements is correct? Assume all else held constant.

Correct Answer
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An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?

Correct Answer
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A flexible short-term financial policy:

Correct Answer
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Correct Answer
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The most common way to finance a temporary cash deficit is with a:

Correct Answer
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An orange grower is most apt to use which type of financing for its crop?

Correct Answer
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Costs that increase as a firm acquires additional current assets are called ________ costs.

Correct Answer
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Correct Answer
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A flexible short-term financial policy:

Correct Answer
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Exam 18: Short Term Finance and Planning

On May 1, Jensen's had a beginning cash balance of $284. April sales were $810 and May sales were $960. During May, cash expenses were $360 and payments on accounts payable were $630. The accounts receivable period is 30 days. What is the beginning cash balance on June 1?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume all else held constant. If you pay your suppliers three days sooner, then:

Correct AnswerverifiedShow Answer

Which one of these activities represents a source of cash?

Correct AnswerverifiedShow Answer

Rose's Gift Shop borrows money on a short-term basis by pledging its inventory as collateral. This is an example of a(n) :

Correct AnswerverifiedShow Answer

Auto Detailers has a book net worth of $29,700. Long-term debt is $4,800. Net working capital, other than cash, is $3,700 and fixed assets are $27,400. How much cash does the company have?

Correct AnswerverifiedShow Answer

Which one of these statements is correct? Assume all else held constant.

Correct AnswerverifiedShow Answer

An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?

Correct AnswerverifiedShow Answer

A flexible short-term financial policy:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The most common way to finance a temporary cash deficit is with a:

Correct AnswerverifiedShow Answer

An orange grower is most apt to use which type of financing for its crop?

Correct AnswerverifiedShow Answer

Costs that increase as a firm acquires additional current assets are called ________ costs.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A flexible short-term financial policy:

Correct AnswerverifiedShow Answer

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