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Exam 18: Short-Term Finance and Planning

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Question 31

Multiple Choice

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Which one of the following will decrease the operating cycle?

A) decreasing the inventory turnover rate
B) decreasing the accounts payable period
C) increasing the accounts receivable turnover rate
D) increasing the accounts payable period
E) increasing the accounts receivable period

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

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Question 32

Multiple Choice

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A flexible short-term financial policy: I.increases shortage costs due to frequent cash-outs. II.tends to increase sales as compared to a restrictive policy. III.requires a sizeable investment in current assets. IV.incurs more carrying costs than a restrictive policy.

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

F) B) and D)
G) None of the above

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Question 33

Multiple Choice

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

Tall Guys Clothing has a 45 day collection period.Sales for the next calendar year are estimated at $2,100,$1,600,$2,500 and $2,300,respectively,by quarter,starting with the first quarter of the year.Given this information,which one of the following statements is correct? Assume a year has 360 days.

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?

Merryl Enterprises currently has an operating cycle of 59 days.The firm is analyzing some operational changes,which are expected to increase the accounts receivable period by 2 days and decrease the inventory period by 5 days.The accounts payable turnover rate is expected to increase from 42 to 46 times per year.If all of these changes are adopted,what will the firm's new operating cycle be?

Which one of the following managers determines when a supplier will be paid?

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

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?

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?

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

You've worked out a line of credit arrangement that allows you to borrow up to $50 million at any time.The interest rate is 0.5 percent per month.In addition,7 percent of the amount that you borrow must be deposited in a non-interest bearing account.Assume your bank uses compound interest on its line of credit loans.What is the effective annual interest rate on this lending arrangement?

The optimal investment in current assets for an operating firm occurs at the point where:

Using two separate graphs,illustrate a flexible and a restrictive short-term financing policy.Place costs on the vertical axis and current assets on the horizontal axis.On each graph,indicate the shortage costs,carrying costs,total costs,and indicate the optimal investment in current assets.

North Side Wholesalers has sales of $948,000.The cost of goods sold is equal to 68 percent of sales.The firm has an average inventory of $23,000.How many days on average does it take the firm to sell its inventory?

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

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

Which of the following are sources of cash? I.decrease in inventory II.increase in accounts receivable III.repayment of a bond IV.sale of preferred stock

Which one of the following is indicative of a short-term restrictive financial policy?

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