Question 1

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

Accepted Answer

A)   Paying a supplier for a previous purchase
B)   Paying off a long-term debt
C)   Selling inventory at cost for cash
D)   Purchasing inventory on credit
E)   Selling inventory at a profit on creditF) A) and B)
G) All of the above

Question 2

The Sports Store has a $230,000 line of credit that requires 1.5 percent of the unused portion of the credit line be deposited in a non-interest-bearing account as a compensating balance. The interest rate on the borrowed funds is 2.05 percent per quarter. The Sports Store's short-term investments are paying 1.5 percent per quarter. What is the effective annual interest rate on the line of credit if the entire credit line is borrowed for one year? Assume any funds borrowed or invested use compound interest.

Accepted Answer

A)   8.46 percent
B)   8.20 percent
C)   8.61 percent
D)   8.68 percent
E)   8.54 percentF) C) and D)
G) B) and C)

Question 3

Tall Guys Clothing has a 30-day collection period. Sales for the next calendar year are estimated at $1,950, $2,100, $2,650 and $3,200, 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.

Accepted Answer

A)   The Quarter 2 collections will be $2,000.
B)   The accounts receivable balance at the beginning of Quarter 4 will be $940.
C)   The Quarter 3 collections will be $2,375.
D)   The end of Quarter 4 accounts receivable balance will be $2,133.
E)   The Quarter 4 collections will be $3,017.F) B) and E)
G) C) and D)

Question 4

Central Supply paid off an accounts payable for a toboggan it had purchased on credit three weeks ago. The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the:

Accepted Answer

A)   operating cycle.
B)   inventory period.
C)   accounts receivable period.
D)   accounts payable period.
E)   cash cycle.F) A) and B)
G) A) and C)

Question 5

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

Accepted Answer

A)   The longer the cash cycle, the more likely a company will need external financing.
B)   Increasing the accounts payable period increases the cash cycle.
C)   Accepting a supplier's discount for early payment decreases the cash cycle.
D)   The cash cycle can exceed the operating cycle if the payables period is equal to zero.
E)   Offering early payment discounts to customers will tend to increase the cash cycle.F) A) and B)
G) C) and D)

Question 6

Which one of the following combinations is most apt to cause a company that is generally financially sound to have a negative net cash inflow for a particular quarter?

Accepted Answer

A)   Low fixed expenses and level monthly sales
B)   A one-time asset purchase and approaching high seasonal sales
C)   Highly seasonal sales and a flexible financing policy
D)   A flexible financing policy and level monthly sales
E)   A large cash sale and low fixed expensesF) A) and B)
G) D) and E)

Question 7

Which one of the following statements is correct?

Accepted Answer

A)   Seasonal needs are financed with short-term loans when companies adhere to a flexible financing policy.
B)   A flexible financing policy tends to increase the risk of encountering financial distress.
C)   Long-term interest rates tend to be less volatile than short-term rates.
D)   Most companies tend to finance inventory with long-term debt.
E)   Short-term interest rates are generally higher than long-term rates.F) D) and E)
G) A) and B)

Question 8

Money deposited by a borrower with a bank in a low or non-interest-bearing account as a condition of a loan agreement is called a:

Accepted Answer

A)   compensating balance.
B)   secured credit deposit.
C)   letter of credit.
D)   line of cash.
E)   pledge.F) B) and E)
G) B) and D)

Question 9

Marci's has an average collection period of 34 days. Current practice is to factor all receivables immediately at a discount rate of 1.8 percent. Assume that default is extremely unlikely. What is the effective cost of borrowing?

Accepted Answer

A)   18.79 percent
B)   16.20 percent
C)   17.78 percent
D)   20.97 percent
E)   21.53 percentF) D) and E)
G) None of the above

Exam 18: Short Term Finance and Planning

Which one of the following combinations is most apt to cause a company that is generally financially sound to have a negative net cash inflow for a particular quarter?

Correct Answer
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Which one of the following statements is correct?

Correct Answer
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Correct Answer
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Correct Answer
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Central Supply paid off an accounts payable for a toboggan it had purchased on credit three weeks ago. The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the:

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

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

Correct Answer
verified

Marci's has an average collection period of 34 days. Current practice is to factor all receivables immediately at a discount rate of 1.8 percent. Assume that default is extremely unlikely. What is the effective cost of borrowing?

Correct Answer
verified

Money deposited by a borrower with a bank in a low or non-interest-bearing account as a condition of a loan agreement is called a:

Correct Answer
verified

Exam 18: Short Term Finance and Planning

Which one of the following combinations is most apt to cause a company that is generally financially sound to have a negative net cash inflow for a particular quarter?

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Central Supply paid off an accounts payable for a toboggan it had purchased on credit three weeks ago. The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Marci's has an average collection period of 34 days. Current practice is to factor all receivables immediately at a discount rate of 1.8 percent. Assume that default is extremely unlikely. What is the effective cost of borrowing?

Correct AnswerverifiedShow Answer

Money deposited by a borrower with a bank in a low or non-interest-bearing account as a condition of a loan agreement is called a:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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