## Essentials of Corporate Finance Study Set 4

Business

## Quiz 16 :

Short-Term Financial Planning

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Q35 Q35 Q35

Tri-City Grocers is a chain of grocery stores that just hired a new CFO.Which of the following actions would you expect this CFO to adopt given her statement that she wants to implement a more flexible financing policy for the firm?
I)Easing the credit terms given to customers
II)Increasing the amount of inventory carried by each grocery store
III)Borrowing funds to keep more cash available for store operations
IV)Decreasing the firms' investments in marketable securities

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Q38 Q38 Q38

A flexible short-term financial policy will tend to have more of which of the following than a restrictive short-term financial policy will?
I)Uncollectable accounts receivable
II)Work stoppages for lack of raw materials
III)Carrying costs
IV)Obsolete or out-of-date inventory

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Q39 Q39 Q39

Which of the following costs will tend to increase if a firm switches to a restrictive short-term financial policy from a flexible short-term policy?
I)Lost sales due to out-of-stock items
II)Inventory warehousing costs
III)Cash-outs
IV)Total annual order costs

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Q42 Q42 Q42

Generally speaking, which of the following situations will occur if a seasonal company adopts a compromise financial policy?
I)Periods where short-term financing is required
II)Less long-term debt than if the firm followed a restrictive financial policy
III)Periods of excess funds which can be invested in short-term marketable securities
IV)Lower investment in fixed assets than if the firm adopted a flexible financial policy

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Q52 Q52 Q52

Dover Wholesalers sells products exclusively to Benn Retailer.Benn Retailer buys exclusively from Dover Wholesalers.Dover Wholesalers has a receivables period of 44 days, an inventory period of 8 days, and a payables period of 63 days.Benn Retailer has an inventory period of 15 days, a receivables period of 22 days, and a payables period of 44 days.Which statement is correct given this information?

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Q55 Q55 Q55

Wrecker Automotive has sales for the year of $356,450, cost of goods sold equal to 59 percent of sales, and an average inventory of $42,500.The profit margin is 6 percent and the tax rate is 21 percent.How many days on average does it take the firm to sell an inventory item?

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Q58 Q58 Q58

The HOT Truck operates several specialty vehicles that provide hot food and beverages for firms that have workers employed in outlying regions.The company has annual sales of $489,500.Cost of goods sold average 59 percent of sales and the profit margin is 6.1 percent.The average accounts receivable balance is $41,700.On average, how long does it take this food truck to collect payment for its services?

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Q62 Q62 Q62

AW Jones has annual sales of $2.438 million.The cost of goods sold is equal to 81 percent of sales.The average accounts receivable balance is $197,800 and the average accounts payable balance is $205,735.How many days on average does it take the firm to pay its suppliers?

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Q63 Q63 Q63

Furniture Outlet has an accounts receivable period of 63 days and an accounts payable period of 87 days.The company turns over its inventory 4.3 times per year and marks up the inventory an average of 38 percent over its wholesale cost.What is the length of the firm's operating cycle?

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Q66 Q66 Q66

The Shoe Tree currently has an operating cycle of 199 days and a cash cycle of 54 days.The company is implementing some changes that will reduce the inventory period by 11 days, decrease the receivables period by 6 days, and decrease the accounts payable period by 4 days.How many days will be in the new cash cycle once all of these changes become effective?

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Q67 Q67 Q67

Metropolitan Realty currently has 54 days in its cash cycle and 98 days in its operating cycle.The firm purchases its entire inventory from one supplier.This supplier has offered a 2.5 percent discount on all purchases if Metropolitan will pay in 7 days.If the market opts to take advantage of the discount offered, its new operating cycle will be _____ days and its new cash cycle will be _____ days.

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Q69 Q69 Q69

Robert's Cards and Gifts has estimated quarterly sales for next year, starting with Quarter 1, of $43,930, $47,495, $37,835, and $91,655.The accounts receivable period is 13 days.What is the expected accounts receivable balance at the end of the second quarter? Assume each month has 30 days.

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Q70 Q70 Q70

The Green Pickle has estimated quarterly sales for next year, starting with Quarter I, of $18,600, $21,300, $24,500, and $19,600.The accounts receivable period is 18 days.What is the expected accounts receivable balance at the end of the third quarter? Assume each month has 30 days.

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Q73 Q73 Q73

The Brown Squirrel has estimated sales for January through May of $14,700, $16,900, $23,500, $36,700, and $42,300, respectively.Assume there are 30 days in each month and the accounts receivable period is 45 days.How much should the firm expect to collect in May?

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Q74 Q74 Q74

The Lumber Yard has projected sales for April through July of $152,400, $161,800, $189,700, and $196,400, respectively.The firm collects 52 percent of its sales in the month of sale, 46 percent in the month following the month of sale, and the remainder in the second month following the month of sale.What is the amount of the July collections?

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Q75 Q75 Q75

The Warehouse has projected sales for June through September of $56,700, $68,900, $70,200, and $54,300.The company collects 46 percent of its sales in the month of sale, 51 percent in the month following the month of sale, and 2 percent in the second month following the month of sale.The remaining sales are never collected.What is the amount of the August collections?

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Q77 Q77 Q77

Brilliant J Company has estimated quarterly sales for next year, starting with Quarter 1, of $16,974, $18,696, $21,279, and $20,295.Purchases are equal to 60 percent of the following quarter's sales.What is the cash outlay for accounts payable for Quarter 3 if the firm has a 30-day accounts payable period? Assume each month has 30 days.

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Q78 Q78 Q78

Show Place Decor has estimated quarterly sales for next year, starting with Quarter 1, of $38,600, $53,400, $48,900, and $69,800.Purchases are equal to 62 percent of the following quarter's sales and the accounts payable period is 30 days.Assume each month has 30 days.What is the estimated accounts payable balance at the end of Quarter 2?

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Q79 Q79 Q79

NuParts, Inc., has estimated quarterly sales for next year, starting with Quarter 1, of $15,900, $16,800, $17,500, and $16,400.Purchases are equal to 67 percent of the following quarter's sales and the accounts payable period is 60 days.Assume 30 days in each month.How much will the firm owe its suppliers at the end of Quarter 3?

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Q80 Q80 Q80

Candy Supplies purchases are equal to 68 percent of the following quarter's sales.Assume each month has 30 days, the accounts receivable period is 30 days, and the accounts payable period is 45 days.The estimated quarterly sales for next year, starting with Quarter 1, are $38,900, $40,600, $58,900, and $69,200, respectively.How much will the firm pay its suppliers in the third quarter?

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Q81 Q81 Q81

The Grain and Feed Store purchases are equal to 68 percent of the following quarter's sales.The accounts receivable period is 15 days and the accounts payable period is 30 days.Assume there are 30 days in each month.The store has estimated quarterly sales for the next year, starting with Quarter 1, of $16,750, $18,220, $17,560, and $19,710, respectively.How much will the store owe its suppliers at the end of Quarter 3?

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Q82 Q82 Q82

Theo's has estimated quarterly sales, starting with Quarter 1, of $9,800, $10,700, $12,400, and $14,600.Purchases are equal to 66 percent of the following quarter's sales and are payable in 90 days.Assume there are 30 days in each month.How much will Theo's pay its suppliers in the third quarter?

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Q83 Q83 Q83

Red Barn has estimated quarterly sales, starting with Quarter 1, of $42,600, $45,300, $44,800, and $42,700.Purchases are equal to 71 percent of the following quarter's sales.The accounts receivable period is 30 days and the accounts payable period is 45 days.Assume there are 30 days in each month.By how much will the firm's collections exceed its payments for Quarter 3?

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Q84 Q84 Q84

Diva Donuts purchases are equal to 79 percent of the following month's sales.The accounts payable period for purchases is 30 days while all other expenditures are paid in the month in which they are incurred.Assume each month has 30 days.The company has compiled the following information. What is the total amount of the firm's disbursements for the month of June?

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Q85 Q85 Q85

D's Hardware's monthly purchases are equal to 72 percent of the following month's sales.The accounts payable period for purchases is 45 days.All other expenses are paid when incurred.Assume each month has 30 days.The company has compiled the following information: What is the projected amount of disbursements for the month of September?

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Q86 Q86 Q86

Industrial Supply has projected Q1 sales at $38,200, Q2 sales at $44,900, and Q3 sales at $42,300.Purchasesequal69 percent of the next quarter's sales.The accounts receivable period is 30 days and the accounts payable period is 60 days.At the beginning of Q1, the firm has an accounts receivable balance of $11,800 and an accounts payable balance of $23,300.The firm pays $1,600 a month in cash expenses and $800 a month in interest and taxes.At the beginning of the Q1, the cash balance is $500 and the short-term loan balance is zero.During Q1, capital spending will be $2,100.The firm maintains a minimum cash balance of $200.Assume each month has 30 days.What is the cumulative cash surplus (deficit) at the end of Q1, prior to any short-term borrowing?

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Q87 Q87 Q87

Juno's has projected its Q1 sales at $46,000 and its Q2 sales at $48,000.Purchases equal 71 percent of the next quarter's sales.The accounts receivable period is 30 days and the accounts payable period is 45 days.At the beginning of Q1, the accounts receivable balance is $12,200 and the accounts payable balance is $14,800.The firm pays $1,500 a month in cash expenses and $400 a month in taxes.At the beginning Q1, the cash balance is $280 and the short-term loan balance is zero.The firm maintains a minimum cash balance of $250.Assume each month has 30 days.What is the cumulative cash surplus (deficit) at the end of the Q1, prior to any short-term borrowing?

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Q91 Q91 Q91

Palm Beach Yachts has a line of credit with a local bank that permits it to borrow up to $1.8 million at any time.The interest rate is .78 percent per month.The bank charges compound interest and also requires that 5 percent of the amount borrowed be deposited into a non-interest-bearing account.What is the effective annual interest rate on this loan?

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Q92 Q92 Q92

Kurt's Music has a line of credit with a local bank that permits it to borrow up to $650,000 at any time.The interest rate is .64 percent per month.The bank charges compound interest and also requires that 2 percent of the amount borrowed be deposited into a non-interest-bearing account.How much interest will the firm pay if it needs $200,000 of cash for three months to pay its operating expenses?

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Q93 Q93 Q93

Holiday Tree Farm has a cash balance of $34 and a short-term loan balance of $180 at the beginning of Q1.The net cash inflow for the first quarter is $36 and for the second quarter there is a net cash outflow of $48.All cash shortfalls are funded with short-term debt.The firm pays 2 percent of its prior quarter's ending loan balance as interest each quarter.The minimum cash balance is $20.What is the short-term loan balance at the end of Q2?

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Q94 Q94 Q94

Steep Mountain Oil has a cash balance of $15and a short-term loan balance of $53 at the beginning of Q1.The net cash outflow for Q1of $39and for Q2 there is a net cash inflow of $23.All cash shortfalls are funded with short-term debt.The firm pays 1.1 percent of its prior quarter's ending loan balance as interest each quarter.The minimum cash balance is $15.What is the short-term loan balance at the end of the Q2?

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Q95 Q95 Q95

Northern Beef has estimated quarterly sales for the coming year, starting with Quarter 1, of $680, $725, $740, and $720, respectively.The accounts receivable balance at the beginning of Q1 is $330 and the collection period is 60 days.How much cash will the firm collect in Q1, Q2, and Q3, respectively?

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Q97 Q97 Q97

P&M Industries has projected quarterly sales for the coming year, starting with Quarter 1, of $6,200, $6,500, $6,300, and $6,700, respectively.Sales in the year following this one are projected to be 4 percent greater in each quarter.Assume the company places orders during each quarter equal to 74 percent of projected sales for the next quarter.How much will the firm pay its suppliers in Q3 if the firm has a 30-day payables period?

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Q98 Q98 Q98

Big Red's purchases from suppliers in a quarter are equal to 71 percent of the next quarter's forecast sales.The payables period is 60 days; other expenses are paid when incurred Wages, taxes, and other expenses are 24 percent of sales, and interest and dividends are $40 per quarter.No capital expenditures are planned.Projected quarterly sales, starting with Q1, are $1,520, $1,580, $1,630, and $1,590, respectively.Sales for the first quarter of the following year are projected at $1,540.What is the amount of the total disbursements for Q2?

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Q100 Q100 Q100

Kelso's has projected sales for January through April of $136,000, $148,000, $144,000, and $146,000, respectively.The firm collects 59 percent of sales in the month of sale, 36 percent in the month following the sale, and the remainder in the second month following the sale.Assume all sales are collected.The accounts receivable balance at the end of the beginning of January was $56,050 ($47,643 of which was uncollected December sales).How much did the firm collect in the month of February?

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Q101 Q101 Q101

Here are some important figures from the budget of Global Enterprises for the second quarter: The company predicts that 2 percent of its credit sales will never be collected, 45 percent of its sales will be collected in the month of sale, and the remaining 53 percent will be collected in the following month.Credit purchases will be paid in the month following the purchase.March credit sales were $487,900 and credit purchases were $349,500.What is the ending cash balance for April if the beginning cash balance was $39,500?

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Q102 Q102 Q102

You've worked out a line of credit arrangement that allows you to borrow up to $2.1 million at any time.The interest rate is .72 percent per month.In addition, 3 percent of the amount you borrow must be deposited in a non-interest-bearing account.Assume your lender uses compound interest and that you need $1.3 million today which you will repay in five months.How much interest will you pay?

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Q103 Q103 Q103

Fido's Markets has a cash cycle of 24 days, an operating cycle of 39 days, and an inventory period of 2.3 days.The company reported cost of goods sold in the amount of $465,250, and credit sales were $600,000.What is the company's average balance in accounts payable?

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Q105 Q105 Q105

French Vertical Systems has sales for the year of $425,860, cost of goods sold equal to 64 percent of sales, and an average inventory of $53,600.The profit margin is 6 percent and the tax rate is 21 percent.How many days on average does it take the firm to sell an inventory item?

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Q111 Q111 Q111

DA West has annual sales of $2.8 million.The cost of goods sold is equal to 71 percent of sales.The average accounts receivable balance is $227,470 and the average accounts payable balance is $236,595.How many days on average does it take the firm to pay its suppliers?

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Q113 Q113 Q113

Midwest Candles has estimated quarterly sales for next year, starting with Quarter 1, of $50.020, $54,619, $105,403, and $46,510.The accounts receivable period is 15 days.What is the expected accounts receivable balance at the end of the second quarter? Assume each month has 30 days.

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