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Exam 18: Short-Term Finance and Planning

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Question 51

Multiple Choice

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Rachel's has a $50,000 line of credit with Uptown Bank.The line of credit calls for an interest rate of 8 percent and a compensating balance of 4 percent.The compensating balance is based on the total amount borrowed and will be held in an interest-free account.What is the effective annual interest rate if the firm borrows $35,000 for one year?

A) 7.76 percent
B) 8.00 percent
C) 8.17 percent
D) 8.33 percent
E) 8.42 percent

F) C) and E)
G) A) and E)

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Question 52

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Brustle's Pottery either factors or assigns all of its receivables to other firms.This is known as:

A) accounts receivable financing.
B) pledged financing.
C) capital funding.
D) daily funding.
E) capital financing.

F) B) and E)
G) B) and C)

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Question 53

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Which of the following are associated with a restrictive short-term financial policy? I.little,if any,investment in marketable securities II.liberal credit terms for customers III.low cash balances IV.increasing inventory levels

Your firm has an inventory turnover rate of 14,a payables turnover rate of 8,and a receivables turnover rate of 19.How long is your firm's operating cycle?

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

Which of the following actions will tend to decrease the inventory period? I.discontinuing all slow-selling merchandise II.selling obsolete inventory below cost just to get rid of it III.buying raw materials only as needed for the manufacturing process IV.producing goods on demand versus for inventory

HG Livery Supply had a beginning accounts payable balance of $57,300 and an ending accounts payable balance of $55,100.Sales for the period were $610,000 and costs of goods sold were $458,000.What is the payables turnover rate?

Details Corp.has a book net worth of $8,150.Long-term debt is $1,800.Net working capital,other than cash,is $2,150.Fixed assets are $2,000.How much cash does the company have?

Metal Designs,Inc. ,historically produced products for inventory.Now,the firm only produces a product when it receives an actual order from a customer.All else equal,this change will:

Forest Gardens,Inc. ,has a beginning receivables balance on February 1 of $730.Sales for February through May are $720,$780,$820,and $850,respectively.The accounts receivable period is 30 days.What is the amount of the April collections? Assume a year has 360 days.

Which of the following statements is (are) correct? I.An increase in the accounts payable period shortens the cash cycle. II.The cash cycle is equal to the operating cycle minus the inventory period. III.A negative cash cycle is preferable to a positive cash cycle. IV.The cash cycle plus the accounts receivable period is equal to the operating cycle.

The operating cycle describes how a product:

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

The Delta Fish Hatchery factors its accounts receivables immediately at a 2 percent discount.The average collection period is 34 days.Assume that all accounts are collected in full.What is the effective annual interest rate on this arrangement?

If you pay your suppliers five days sooner,then:

Davis and Davis have expected sales of $490,$465,$450,and $570 for the months of January through April,respectively.The accounts receivable period is 28 days.What is the accounts receivable balance at the end of March? Assume a year has 360 days.

Josie's Craft Shack has a beginning cash balance for the quarter of $1,126.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 $480.How much will the store borrow or repay if the net cash flow for the quarter is -$280?

Breakwater Aquatics has a 45 day accounts receivable period.The estimated quarterly sales for this year,starting with the first quarter,are $6,800,$7,100,$8,200,and $6,400,respectively.What is the accounts receivable balance at the beginning of the third quarter? Assume a year has 360 days.

Here are some important figures from the budget of Nashville Nougats,Inc. ,for the second quarter of 2012: The company predicts that 3 percent of its credit sales will never be collected,36 percent of its sales will be collected in the month of sale,and the remaining 61 percent will be collected in the following month.Credit purchases will be paid in the month following the purchase. In March 2012,credit sales were $302,400,and credit purchases were $224,640.The April 1 cash balance was $403,200.What is the cash balance at the end of May?

Steve has estimated the cash inflows and outflows for his hardware store for next year.The report that he has prepared recapping these cash flows is called a: