Question 1

Which one of these best describes a characteristic of a flexible financing policy?

Accepted Answer

The answer of Which one of these best describes a...

Question 2

Which one of the following managers determines which customers must pay cash and which can charge their purchases?

Accepted Answer

The credit manager is responsible for determining the creditworthiness of customers and setting credit policies, including which customers can charge their purchases and which must pay in cash.

Question 3

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

Accepted Answer

Carrying costs are expenses that increase as the firm holds more current assets such as inventory, accounts receivable, and cash. Examples of carrying costs include storage fees, insurance, and obsolescence. As the firm acquires more current assets, these costs increase.

Question 4

The length of time between the sale of inventory and the collection of the payment for that sale is called the:

Accepted Answer

The accounts receivable period measures the length of time between the sale of inventory and the collection of the payment for that sale.

Question 5

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

Accepted Answer

The payables manager is responsible for managing the payment of supplier invoices and determining when they will be paid. The controller oversees financial reporting and the credit manager is responsible for managing credit risk. The purchasing manager is responsible for purchasing goods or services and the production manager is responsible for managing the manufacturing process.

Question 6

A flexible short-term financial policy:

Accepted Answer

A flexible short-term financial policy typically involves maintaining higher levels of current assets to meet unexpected needs, which leads to higher carrying costs compared to a restrictive policy that aims to minimize holdings in current assets.

Question 7

A firm with a flexible short-term financial policy will:

Accepted Answer

A flexible short-term financial policy involves maintaining higher levels of current assets, such as inventory, to ensure smooth operations and meet customer demand.

Question 8

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

Accepted Answer

Purchasing inventory on an as-needed basis indicates a short-term restrictive financial policy since the company is only buying the necessary amount of inventory, reducing the amount of cash tied up in inventory and preserving cash for other urgent needs. It shows that the company is looking to conserve cash and manage its short-term liquidity better. The other options such as granting credit to all customers, investing heavily in marketable securities, maintaining a large accounts receivable balance, and keeping inventory levels high do not necessarily reflect a short-term restrictive financial policy.

Question 9

A flexible short-term financial policy:

Accepted Answer

The answer of A flexible short-term financial policy:
...

Question 10

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

The time period between paying off an accounts payable and receiving cash from the sale of an item is called the cash cycle. This is because it represents the time it takes for the company to convert its investments (inventory) into cash. Therefore, the correct answer is E.

Question 11

The Lumber Mart recently replaced its management team. As a result, they are implementing a restrictive short-term financial policy in place of the flexible policy under which they had been operating. Which one of the following should the employees expect as a result of this policy change?

Accepted Answer

A restrictive short-term financial policy may include tightening credit terms, which could result in the loss of credit customers. The other options are not necessarily related to this policy change.

Question 12

The length of time that elapses between the day at item of inventory is purchased and the day that item sells is called the:

Accepted Answer

The length of time between purchasing inventory and selling it is known as the inventory period, which is a component of the operating cycle (answer A). The accounts receivable period (answer C) is the length of time it takes to collect payments from customers after a sale has been made, while the accounts payable period (answer D) represents the length of time that a business takes to pay its suppliers for goods or services received. The cash cycle (answer E) is a measure of how quickly a company can convert its inventory and other assets into cash to pay off its liabilities.

Question 13

The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the:

Accepted Answer

The operating cycle is the correct term for the length of time between the purchase of inventory and the receipt of cash from the sale of that inventory. It encompasses the entire process from buying inventory, selling it, and collecting the cash from sales.

Question 14

If a company adheres to a restrictive short-term financial policy, then they will generally have:

Accepted Answer

A restrictive short-term financial policy involves minimizing cash and marketable securities to reduce opportunity costs, hence little investment in marketable securities.

Question 15

A company:

Accepted Answer

A company with a flexible financing policy often maintains a higher level of liquidity, which includes investing in marketable securities to ensure they have funds available when needed.

Question 16

The optimal investment in current assets for an active company occurs at the point where:

Accepted Answer

The optimal investment in current assets for an active company occurs at the point where the sum of shortage costs and carrying costs is minimized. This point occurs when both costs are equal, which is option E. At this point, any further investment in current assets will result in an increase in carrying costs, while any reduction in current assets will result in an increase in shortage costs.

Question 17

The length of time between the day an item is purchased from a supplier until the day that supplier is paid for that purchase is called the:

Accepted Answer

The length of time between the day an item is purchased from a supplier until the day that supplier is paid for that purchase is called the accounts payable period. This is the time period for which the company has received goods or services from its suppliers but has not yet paid them.

Question 18

Shortage costs are least associated with:

Accepted Answer

The answer of Shortage costs are least associated with:
...

Question 19

Costs that decrease as a company acquires additional current assets are called ________ costs.

Accepted Answer

The answer of Costs that decrease as a company acquires...

Question 20

Which one of the following statements is correct?

Accepted Answer

Long-term interest rates are typically less volatile than short-term rates due to the longer maturity and fixed rate nature of long-term debt. This stability is why companies may choose to finance long-term needs, such as fixed asset investments, with long-term debt. The other answer choices are incorrect; seasonable needs can be financed with short-term or long-term debt, a flexible financing policy may or may not increase risk, companies tend to finance inventory with short-term debt, and short-term rates tend to be higher than long-term rates due to the additional risk associated with shorter maturities.

Quiz 18: Short Term Finance and Planning

Which one of these best describes a characteristic of a flexible financing policy?

Which one of the following managers determines which customers must pay cash and which can charge their purchases?

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

The length of time between the sale of inventory and the collection of the payment for that sale is called the:

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

A flexible short-term financial policy:

A firm with a flexible short-term financial policy will:

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

A flexible short-term financial policy:

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:

The Lumber Mart recently replaced its management team. As a result, they are implementing a restrictive short-term financial policy in place of the flexible policy under which they had been operating. Which one of the following should the employees expect as a result of this policy change?

The length of time that elapses between the day at item of inventory is purchased and the day that item sells is called the:

The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the:

If a company adheres to a restrictive short-term financial policy, then they will generally have:

A company:

The optimal investment in current assets for an active company occurs at the point where:

The length of time between the day an item is purchased from a supplier until the day that supplier is paid for that purchase is called the:

Shortage costs are least associated with:

Costs that decrease as a company acquires additional current assets are called ________ costs.

Which one of the following statements is correct?