Quiz 16: Short-Term Financial Planning

Which one of the following commences on the day inventory is purchased and ends on the day the payment for that inventory is collected? Assume all sales and purchases are on credit. A) Inventory period B) Accounts receivable period C) Accounts payable period D) Operating cycle E) Cash cycle

The amount of time that a firm holds inventory in stock is referred to as which one of the following? A) Inventory period B) Accounts receivable period C) Accounts payable period D) Operating cycle E) Cash cycle

The accounts receivable period is the time that elapses between the _____ and the _____. A) purchase of inventory; payment to the supplier B) purchase of inventory; collection of the receivable C) sale of inventory; payment to supplier D) sale of inventory; collection of the receivable E) sale of inventory: billing to customer

Which one of the following is the length of time that a retailer owes its supplier for an inventory purchase? A) Inventory period B) Accounts receivable period C) Accounts payable period D) Operating cycle E) Cash cycle

Which one of the following defines the cash cycle? A) Inventory period plus the accounts receivable period B) Inventory period plus the accounts payable period C) Operating cycle minus the inventory period D) Operating cycle minus the accounts payable period E) Operating cycle minus the accounts receivable period

Which one of the following is a graphical representation of the operating and cash cycles? A) Operations line B) Production period C) Cash flow time line D) Inventory flow chart E) Customer service line

Which one of the following is directly related to increases in a firm's current assets? A) Re-order costs B) Shortage costs C) Restocking costs D) Out-of-stock events E) Carrying costs

Which of the following are inversely related to increases in a firm's current assets? I. re-order costs II) shortage costs III) restocking costs IV) carrying costs A) I and III only B) II and IV only C) I, II, and III only D) II, III, and IV only E) I, III, and IV only

Moore & Moore has just finished projecting its expected cash receipts and expenditures for next year. What is this projection called? A) Operating projection B) Receivables schedule C) Balance sheet D) Cash budget E) Compromise policy

Which one of the following best describes a line of credit? A) Long-term, prearranged, committed bank loan B) Short-term loan secured by accounts receivable C) Short-term loan secured by inventory D) Long-term, prearranged, noncommitted bank loan E) Short-term prearranged bank loan that can be either committed or noncommitted

Accounts receivable financing is the term used to describe which of the following types of loans which involve either the assignment or the factoring of a firm's accounts receivables? A) Secured short-term loan B) Unsecured short-term loan C) Secured long-term loan D) Unsecured long-term loan E) Trust receipt loan

By definition, an inventory loan is which one of the following types of loan? A) Secured short-term loan B) Unsecured short-term loan C) Secured long-term loan D) Unsecured long-term loan E) Trust receipt loan

Which one of the following activities is a source of cash? A) Decreasing long-term debt B) Increasing inventory C) Repurchasing shares of stock D) Increasing fixed assets E) Decreasing accounts receivable

Which one of the following is a use of cash? A) Issuing new shares of stock B) Increasing accounts payable C) Decreasing inventory D) Decreasing fixed assts E) Increasing accounts receivable

Which one of the following is a use of cash? A) Selling inventory at cost B) Paying a supplier for inventory you purchased last month C) Borrowing money from a local bank D) Collecting payment from a customer E) Selling a fixed asset such as a piece of machinery

Which of the following are sources of cash? I. decreasing accounts receivable II) increasing inventory III) increasing accounts payable IV) increasing common stock A) I and III only B) II and IV only C) II and III only D) I and IV only E) I, III, and IV only

Which one of the following will increase the operating cycle? A) Decreasing the days' sales in inventory B) Decreasing the accounts payable period C) Increasing the accounts receivable turnover rate D) Decreasing the inventory turnover rate E) Decreasing the accounts payable turnover rate

Which one of the following will increase the operating cycle? A) Decreasing the accounts payable period B) Increasing the accounts payable turnover rate C) Increasing the cash cycle D) Decreasing the accounts receivable turnover rate E) Decreasing the inventory period

Which one of the following actions will decrease the operating cycle? A) Increasing inventory B) Paying suppliers faster C) Buying more inventory with cash rather than with credit D) Granting customers more time to pay for their credit purchases E) Lessening the production time needed to manufacture a good for sale

The operating cycle is equal to which one of the following? A) Inventory period plus the accounts payable period B) Accounts receivable period plus the cash cycle C) Inventory period minus the accounts payable period plus the accounts receivable period D) Accounts receivable period plus the inventory period E) Inventory period plus the cash cycle

Which one of the following can occur if the operating cycle decreases while both the accounts receivable and the accounts payable periods remain constant? A) Inventory period remains constant B) Cash cycle increases C) Inventory turnover rate increases D) Accounts receivable turnover rate increases E) Cash cycle remains constant

Which one of the following statements about the operating cycle is correct? A) The operating cycle illustrates the sources and uses of cash. B) The operating cycle is equal to the cash cycle plus the accounts receivable period. C) The operating cycle begins when a product is sold to a customer. D) The operating cycle is based on a 360-day year. E) The operating cycle describes how a product moves through the current asset accounts.

Which one of the following statements is true, all else constant? A) A decrease in the accounts receivable turnover rate decreases the cash cycle. B) Paying a supplier within the discount period, rather than waiting until the end of the normal credit period, will decrease the cash cycle. C) The cash cycle can never be negative. D) An increase in the inventory turnover rate will decrease the cash cycle. E) The payables period must be shorter than the receivables period.

The cash cycle is equal to which one of the following? A) Inventory period minus the accounts payable period B) Operating cycle plus the accounts payable period C) Operating cycle minus the accounts receivable period D) Accounts receivable period minus the accounts payable period plus the inventory period E) Inventory period minus the accounts receivable period minus the accounts payable period

Which one of the following industries is most apt to have the shortest operating cycle? A) Toy store B) Car manufacturer C) Local restaurant D) Furniture store E) Plastics manufacturer

All else constant, which one of the following will decrease the cash cycle? A) Decreasing the credit period granted to a customer B) Decreasing the inventory turnover rate C) Decreasing the accounts payable period D) Decreasing the accounts receivable turnover rate E) Increasing the receivables period

Which one of the following statements related to the inventory period is correct? A) The inventory period increases as the inventory turnover rate increases. B) The length of the inventory period depends on the length of the cash cycle. C) The inventory period is the average number of days a firm holds inventory on its shelves. D) The inventory period is equal to the operating cycle minus the accounts payable period. E) The inventory period has no effect on the cash cycle.

Which one of the following firms is most apt to have the shortest inventory period? A) General merchandise retail store B) Hardware store C) Furniture store D) Locomotive manufacturer E) Delicatessen

Which one of the following activities is most apt to reduce the inventory period? A) Replacing slow-moving items with faster-selling products B) Replacing fresh foods with canned goods C) Manufacturing a product for inventory rather than for an order D) Increasing the amount of inventory on hand E) Decreasing the number of times the inventory turns over per year

Which one of the following is most apt to decrease the accounts receivable period? A) Increasing the time granted to customers to pay for purchases B) Shortening the cash cycle C) Increasing the discount for cash payment D) Selling inventory slower E) Paying suppliers faster

An increase in the accounts receivable period will do which one of the following? A) Lengthen the accounts payable period B) Shorten the inventory period C) Shorten the operating cycle D) Lengthen the cash cycle E) Shorten the accounts payable period

Suppose that Martin Metal Products changes its policy and starts requiring all of its customers to pay within 20 days rather than the 30 days that it currently allows. Which one of the following will result from this change? A) Increase in receivables period B) Increase in inventory period C) Decrease in cash cycle D) Increase in operating cycle E) Increase in accounts payable period

All else held constant, which one of the following statements is correct concerning the accounts payable period? A) The accounts payable period is equal to 365/(Sales/Average accounts payable). B) A decrease in the accounts payable period will increase the operating cycle. C) An increase in the accounts payable period will decrease the cash cycle. D) A decrease in the accounts payable period will decrease the operating cycle. E) An increase in the accounts payable turnover rate decreases the cash cycle.

Which one of the following statements is correct? A) If a firm decreases its inventory period, its accounts receivable period will also decrease. B) The longer the cash cycle, the more cash a firm typically has available to invest. C) A firm would prefer a negative cash cycle over a positive cash cycle. D) Decreasing the inventory period will also decrease the payables period. E) Both the operating cycle and the cash cycle must be positive values.

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

Which one of the following is most indicative of a flexible short-term financial policy? A) High ratio of short-term debt to long-term debt B) Relatively small investment in current assets C) High ratio of current assets to sales D) Low level of net working capital E) Relatively low level of liquidity

Which one of the following actions is indicative of a restrictive short-term financial policy? A) Granting increasing amounts of credit to customers B) Expanding the number of inventory items carried C) Increasing the firm's investment in the current accounts D) Minimizing the cash balances held by the firm E) Investing relatively large amounts in marketable securities

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 receivables II) work stoppages for lack of raw materials III) carrying costs IV) obsolete or out-of-date inventory A) I and II only B) III and IV only C) II and III only D) I, II, and III only E) I, III, and IV only

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

Which of the following costs tend to rise when a firm switches to a flexible financial policy from a restrictive financial policy? I. restocking costs II) lower prices to offset limited selection III) storage costs IV) current asset opportunity costs A) I and II only B) III and IV only C) I, III, and IV only D) I, II, and III only E) II, III, and IV only

Black Water Mills is operating at its optimal point. Which one of the following conditions exists given this firm's operating status? A) Carrying costs exceed shortage costs B) Carrying costs are equal to zero C) Both carrying costs and shortage costs are at their minimum levels D) Shortage costs are equal to zero E) Shortage costs equal carrying costs

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

Which one of the following statements is correct? A) Firms should generally finance all of their assets with long-term debt. B) Firms that follow restrictive financial policies can generally avoid short-term debt financing. C) Short-term borrowing is generally more expensive than long-term borrowing. D) Long-term interest rates tend to be more volatile than short-term rates. E) A firm is less apt to face financial distress if it adopts a flexible financial policy rather than a restrictive policy.

Which one of the following statements related to a cash budget is correct? A) Capital expenditures are treated as a cash inflow on a cash budget. B) The cumulative surplus is computed prior to adjusting for the minimum cash balance. C) A positive net cash inflow for a period indicates the cash disbursements exceed the cash collections for the period. D) Financially healthy firms can have a negative quarterly net cash inflow. E) Firms generally set the minimum cash balance at zero for planning purposes.

Alderson Metals is compiling a cash balance projection by quarter for next year. Which one of the following adjustments to this projection will decrease the cumulative surplus? A) Reducing payroll costs from its current projection amount B) Decreasing the accounts receivable period by changing the firm's credit policy effective the first of next year C) Receiving more favorable credit terms from the firm's suppliers D) Increasing the dividend per share on the firm's outstanding common stock E) Refinancing the firm's long-term debt at a lower interest rate

To ensure an unsecured line of credit is used solely for short-term purposes, the loan arrangement frequently includes which one of the following? A) Cleanup period B) Grace period C) Revolver D) Factoring arrangement E) Lien on the borrower's inventory

A committed line of credit: A) guarantees that a set amount of funds will be available to a firm for a stated period of time regardless of events that might occur during that time period. B) is a guarantee that a bank will purchase a firm's accounts receivables at full value. C) provides greater assurance than a noncommitted credit line that funds will be available when needed by a firm. D) guarantees that any funds borrowed during a stated period of time will be charged the lowest rate of interest the lending bank offers to any of its customers. E) is a loan arrangement for a stated period of time which is free of all costs and fees other than the actual interest paid on the funds borrowed.

Which type of financing is generally used by new car dealers to finance their inventories? A) Blanket inventory lien arrangement B) Trust receipt loans C) Committed line of credit D) Trade credit financing E) Field warehousing financing

The Corner Store is a small-sized, general store which stocks a minimal level of basic supplies and offers gasoline to a rural community. Which one of the following types of credit is probably best-suited for financing this store's inventory? A) Trust receipt financing B) Receivables factoring C) Field warehousing D) Blanket inventory lien E) Receivables assignment

Which one of the following characteristics applies to commercial paper? A) Maturities of 270 days or more B) Offerings registered with the SEC C) Interest rates higher than comparable bank loans D) Issued directly by large-sized firms E) Issued primarily by low-rated firms

Dexter Companies has a conventional factoring arrangement with its local bank. Which one of the following would be a common characteristic of that type of financing arrangement? A) Dexter Companies will receive the full amount of the accounts receivables included in this arrangement on an agreed upon date sometime in the future. B) The responsibility for collecting the covered receivables lies with Dexter Companies. C) Any bad debt that results from an account receivable included in this arrangement will be a cost to the bank. D) Dexter Companies will pay a monthly fee to the bank and in turn will receive payment for the full amount of its accounts receivables. E) The arrangement keeps the receivables as an asset of Dexter Companies but places a lien on those accounts in favor of the lending bank.

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 one of the following statement is correct given this information? A) Dover Wholesalers has a shorter operating cycle than does Benn Retailer. B) Benn Retailer has an operating cycle of 81 days. C) It takes Benn Retailer less time to collect payment on a sale than it does for the firm to sell its inventory. D) Dover Wholesalers is financing 100 percent of Benn Retailers operating cycle. E) Dover Wholesalers has a cash cycle of 11 days.

The Road Kill Restaurant has the following current account values for the year. These accounts represent a net _____ of cash for the year in the amount of _____. A) source; $3,100 B) source; $4,700 C) use; $3,100 D) use; $3,800 E) use; $4,700

A firm has the following account balances. Which one of the following statements is correct concerning those balances? A) Accounts receivable is a $900 source of cash. B) Common stock is a $1,500 source of cash. C) Net working capital, excluding cash, is a $1,500 use of cash. D) Long-term debt is a $5,800 source of cash. E) Total debt is a $6,100 use of cash.

Garnishes, Inc. has sales for the year of $46,300 and cost of goods sold of $21,700. The firm carries an average inventory of $4,800 and has an average accounts payable balance of $4,400. What is the inventory period? A) 12.39 days B) 18.68 days C) 31.29 days D) 80.74 days E) 91.36 days

Middleton's has sales for the year of $311,400, cost of goods sold equal to 74 percent of sales, and an average inventory of $42,800. The profit margin is 6 percent and the tax rate is 34 percent. How many days on average does it take the firm to sell an inventory item? A) 5.38 days B) 11.46 days C) 67.79 days D) 71.74 days E) 82.03 days

The local toy store has to restock a popular video game every 4 days as it completely sells out in that period of time. What is the inventory turnover rate for this game? A) 4.00 times B) 4.25 times C) 57.14 times D) 90.00 times E) 91.25 times

Jenny's has annual sales of $367,200 and cost of goods sold of $198,600. The average accounts receivable balance is $16,400. How many days on average does it take the firm to collect its accounts receivable? A) 16.08 days B) 16.30 days C) 17.27 days D) 17.50 days E) 18.33 days

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 $337,600. Cost of goods sold average 48 percent of sales and the profit margin is 5.2 percent. The average accounts receivable balance is $44,700. On average, how long does it take The Hot Truck to collect payment for its services? A) 23.84 days B) 24.17 days C) 47.67 days D) 48.33 days E) 51.90 days

The accounts receivable turnover rate for Kitlinger's Men's Wear has gone from an average of 10.6 times to 10.1 times per year. How has this change affected the firm's accounts receivable period? A) Decrease of 1.71 days B) Increase of 1.71 days C) Decrease of 2.28 days D) Increase of 2.28 days E) Increase of 2.97 days

The Green Fiddle increased its operating cycle from 139 days to 146 days while the cash cycle decreased by 3 days. How have these changes affected the accounts payable period? A) Decreased by 10 days B) Decreased by 4 days C) Decreased by 1 day D) Increased by 4 day E) Increased by 10 days

Al's Meat Market has annual sales of $523,000 and cost of goods sold of $358,000. The profit margin is 4.2 percent and the accounts payable period is 38 days. What is the average accounts payable balance? A) $9,421 B) $13,763 C) $37,271 D) $48,211 E) $54,449

Pennington's has annual sales of $1.46 million. The cost of goods sold is equal to 78 percent of sales. The firm has an average accounts receivable balance of $148,900 and an average accounts payable balance of $163,500. How many days on average does it take the firm to pay its suppliers? A) 40.88 days B) 47.72 days C) 49.81 days D) 52.40 days E) 56.67 days

Brown's Furniture Outlet has an accounts receivable period of 42 days and an accounts payable period of 96 days. The company turns over its inventory 2.8 times per year and marks up the inventory an average of 45 percent over its wholesale cost. What is the length of the firm's operating cycle? A) 168.47 days B) 172.36 days C) 189.22 days D) 201.33 days E) 205.68 days

Carter's currently has a 187 day operating cycle. The company is concentrating on increasing its inventory turnover rate from 8.4 to 9.5 times. What will the firm's new operating cycle be if it can effectively make this change? A) 181.97 days B) 183.46 days C) 187.00 days D) 195.29 days E) 196.34 days

Kurt's Enterprises has a receivables turnover rate of 11.8, a payables turnover rate of 12.4, and an inventory turnover rate of 15.6. What is the length of the firm's operating cycle? A) 24.89 days B) 39.80 days C) 54.33 days D) 72.56 days E) 83.77 days

Jackson's, Inc. currently has an operating cycle of 154 days and a cash cycle of 38 days. The firm is implementing some changes which will reduce the inventory period by 16 days and decrease the receivables period by 4 days on average. The accounts payable period will be decreased by 3 days. How many days will be in the new cash cycle once all of these changes become effective? A) 15 days B) 18 days C) 21 days D) 55 days E) 61 days

The Switch Back currently has 52 days in its cash cycle and 131 days in its operating cycle. The firm purchases its inventory from one supplier. This supplier has offered a 5 percent discount to The Switch Back if it will pay for its purchases within 10 days instead of the normal 32 days. If the Switch Back opts to take advantage of the discount offered, its new operating cycle will be _____ days and its new cash cycle will be _____ days. A) 109; 30 B) 109; 74 C) 131; 30 D) 131; 74 E) 153; 74

Webster's currently has an inventory turnover of 15.7, a payables turnover of 9.6, and a receivables turnover of 8.4. How many days are in the cash cycle? A) 28.68 days B) 33.70 days C) 56.51 days D) 84.39 days E) 104.72 days

Baxter's has the following estimated quarterly sales for next year. The accounts receivable period is 60 days. What is the expected accounts receivable balance at the end of the second quarter? Assume each month has 30 days. A) $4,400 B) $5,600 C) $8,800 D) $12,000 E) $12,600

The Green Elephant has the following estimated quarterly sales for next year. The accounts receivable period is 30 days. What is the expected accounts receivable balance at the end of the third quarter? Assume each month has 30 days. A) $3,167 B) $4,150 C) $5,600 D) $6,667 E) $9,200

Westover Products has the following estimated monthly sales. The accounts receivable period is 45 days. What is the amount of the collections in May? Assume each month has 30 days. A) $13,800 B) $11,700 C) $8,350 D) $9,050 E) $9,500

Thom's Legal Aid has the following estimated revenue. Assume each month has 30 days and the accounts receivable period is 60 days. How much does the firm expect to collect in April? A) $14,800 B) $15,600 C) $16,350 D) $16,400 E) $17,900

The Supply Hut has the following estimated sales: The accounts receivable period is 60 days. How much should the firm expect to collect in May? A) $18,600 B) $19,900 C) $21,200 D) $21,450 E) $24,300

The Lumber Mill has the following projected sales. The firm collects 55 percent of its sales in the month of sale, 42 percent in the month following the month of sale, and another 2 percent in the second month following the month of sale. The firm never collects 1 percent of its sales. What is the amount of the July collections? A) $169,819 B) $171,508 C) $173,215 D) $174,500 E) $176,735

Suzie Q's has these projected sales estimates: The company collects 18 percent of its sales in the month of sale, 69 percent in the month following the month of sale, and another 11 percent in the second month following the month of sale. Two percent of sales are never collected. What is the amount of the September collections? A) $25,863 B) $27,209 C) $29,406 D) $31,288 E) $34,516

Miller & Aberstadt has the following estimated sales. Purchases are equal to 68 percent of the following quarter's sales. What is the estimated amount of purchases for quarter two? A) $5,209 B) $5,508 C) $5,848 D) $6,460 E) $6,720

Joseph Schmidt and Co. has the following estimated sales. Purchases are equal to 64 percent of the following quarter's sales. What is the cash outlay for accounts payable for quarter three if the firm has a 30 day accounts payable period? Assume each month has 30 days. A) $9,938 B) $10,539 C) $3,488 D) $6,977 E) $7,503

Northern Woods has the following estimated sales. Purchases are equal to 72 percent of the following quarter's sales. The accounts payable period is 45 days. Assume each month has 30 days. What is the estimated accounts payable balance at the end of quarter two? A) $6,048 B) $6,520 C) $6,624 D) $4,901 E) $4,824

Aftermarket Auto Parts has the following estimated sales. Purchases are equal to 68 percent of the following quarter's sales. The accounts payable period is 60 days. Assume there are 30 days in each month. How much will the firm owe its suppliers at the end of quarter three? A) $3,718 B) $3,967 C) $5,502 D) $7,435 E) $7,933

The Corner Store has the following estimated sales. Purchases are equal to 61 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. How much will the firm pay its suppliers in the third quarter? A) $16,379 B) $16,811 C) $18,514 D) $19,947 E) $20,893

Eglon Grain and Feed has the following estimated sales. 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 60 days. Assume there are 30 days in each month. How much will the firm owe its suppliers at the end of quarter two? A) $3,692 B) $3,807 C) $4,123 D) $4,511 E) $5,027

Augustino's has the following estimated sales. Purchases are equal to 64 percent of the following quarter's sales. The accounts receivable period is 45 days and the accounts payable period is 60 days. Assume there are 30 days in each month. How much will the firm pay its suppliers in the third quarter? A) $7,211 B) $7,656 C) $8,405 D) $8,520 E) $8,889

The Bird Cage has the following estimated sales: Purchases are equal to 67 percent of the following quarter's sales. The sales for the first quarter of the following year are estimated at $42,100. 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 two? A) $9,648.50 B) $11,884.20 C) $13,383.50 D) $17,925.00 E) $24,211.70

The Cookie Stop's purchases are equal to 60 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 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 May? A) $5,990 B) $6,170 C) $6,410 D) $6,520 E) $6,730

Earth Green's monthly purchases are equal to 68 percent of the following month's sales. The accounts payable period for purchases is 30 days. All other expenses are paid when incurred. Assume each month has 30 days and August sales are $18,500. The company has compiled the following information. What is the projected amount of disbursements for the month of July? A) $13,910 B) $14,550 C) $15,220 D) $16,080 E) $16,760

The Cannon Ball has projected its first quarter sales at $11,200, second quarter sales at $10,900, and third quarter sales at $13,300. The firm's cost of goods sold is equal to 71 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 the first quarter, the firm has an accounts receivable balance of $2,800 and an accounts payable balance of $6,300. The firm pays $1,500 a month in cash expenses and $200 a month in taxes. At the beginning of the first quarter, the cash balance is $530 and the short-term loan balance is zero. During the first quarter, the firm is planning on spending $2,600 for some new equipment. The firm maintains a minimum cash balance of $20. Assume each month has 30 days. What is the cumulative cash surplus (deficit) at the end of the first quarter, prior to any short-term borrowing? A) -$2,403 B) -$1,983 C) -$857 D) -$837 E) -$667

Juno's has projected its first quarter sales at $42,000 and its second quarter sales at $45,000. The firm's cost of goods sold is equal to 70 percent of the next quarter's sales. The accounts receivable period is 30 days and the accounts payable period is 45 days. As of the beginning of the first quarter, the accounts receivable balance is $13,200 and the accounts payable balance is $14,500. The firm pays $1,800 a month in cash expenses and $100 a month in taxes. At the beginning of the first quarter, the cash balance is $380 and the short-term loan balance is zero. The firm maintains a minimum cash balance of $50. Assume each month has 30 days. What is the cumulative cash surplus (deficit) at the end of the first quarter, prior to any short-term borrowing? A) -$5,210 B) -$4,620 C) -$3,615 D) $7,880 E) $9,380

Harter's Meats has an average collection period of 36 days and factors all of its receivables immediately at a 1.2 percent discount. Assume all accounts are collected in full. What is the firm's effective cost of borrowing? A) 12.88 percent B) 12.94 percent C) 12.97 percent D) 13.02 percent E) 13.07 percent

A firm has an average collection period of 35 days and factors all of its receivables immediately at a 0.95 percent discount. Assume all accounts are collected in full. What is the firm's effective cost of borrowing? A) 9.98 percent B) 10.13 percent C) 10.24 percent D) 10.38 percent E) 10.47 percent

Lacey's has an average collection period of 32 days and factors all of its receivables immediately at a 1.1 percent discount. Assume all accounts are collected in full. What is the firm's effective cost of borrowing? A) 13.38 percent B) 13.45 percent C) 13.57 percent D) 13.63 percent E) 13.88 percent

Zeigler Marina has a line of credit with a local bank that permits it to borrow up to $1.3 million at any time. The interest rate is 0.57 percent per month. The bank charges compound interest and also requires that 5 percent of the amount borrowed be deposited into a noninterest-bearing account. What is the effective annual interest rate on this loan? A) 6.68 percent B) 7.43 percent C) 7.74 percent D) 7.80 percent E) 7.91 percent

Shane's Music has a line of credit with a local bank that permits it to borrow up to $750,000 at any time. The interest rate is 0.28 percent per month. The bank charges compound interest and also requires that 4 percent of the amount borrowed be deposited into a noninterest-bearing account. How much interest will the firm pay if it needs $500,000 of cash for four months to pay its operating expenses? A) $5,857.88 B) $5,949.21 C) $6,017.02 D) $6,039.91 E) $6,208.11

Johnson's Tree Farm has a cash balance of $33 and a short-term loan balance of $200 at the beginning of quarter one. The net cash inflow for the first quarter is $89 and for the second quarter there is a net cash outflow of $44. 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 $25. What is the short-term loan balance at the end of the first quarter? A) $107 B) $111 C) $121 D) $128 E) $133

Frank's Oil Supply has a cash balance of $27 and a short-term loan balance of $50 at the beginning of quarter one. The net cash inflow for the first quarter is $68 and for the second quarter there is a net cash outflow of $23. 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 $15. What is the short-term loan balance at the end of the first quarter? A) $0 B) $13 C) $15 D) $17 E) $18

How can a firm benefit from preparing a short-term financial plan?

Identify and briefly explain three ways in which a firm can finance its short-term assets.

Can a firm have a negative cash cycle? If yes, explain how that can occur and discuss whether or not that would be good for a firm. If no, explain why that cannot occur and why preventing it from occurring is good for a firm.

How should a firm determine whether a restrictive or a flexible financial policy is best given its current situation?

Western Feed Mills has projected the following quarterly sales amounts for the coming year: Accounts receivable at the beginning of the year are $325. Western Feed Mills has a 60-day collection period. How much cash will the firm collect in quarter 1 and quarter 2 respectively? A) $325; $498 B) $498; $347 C) $498; $530 D) $672; $367 E) $672; $540

Consider the following financial statement information for Kirkwood United. Assume all sales are on credit. How long is the cash cycle? A) 28.21 days B) 33.25 days C) 51.03 days D) 51.58 days E) 53.57 days

Pannick Motors has projected the following sales for the coming year: Sales in the year following this one are projected to be 12 percent greater in each quarter. Assume the company places orders during each quarter equal to 45 percent of projected sales for the next quarter. How much will the firm pay its suppliers in quarter 3, if the firm has a 60-day payables period? A) $408 B) $427 C) $463 D) $489 E) $511

Erin's purchases from suppliers in a quarter are equal to 67 percent of the next quarter's forecast sales. The payables period is 60 days. Wages, taxes, and other expenses are 30 percent of sales, and interest and dividends are $90 per quarter. No capital expenditures are planned. Projected quarterly sales are: Sales for the first quarter of the following year are projected at $1,510. What is the amount of the firm's total cash outlay for the third quarter? A) $1,990 B) $1,420 C) $1,480 D) $1,530 E) $1,550

Your firm has an average collection period of 51 days. Current practice is to factor all receivables immediately at a 2.2 percent discount. What is the effective cost of borrowing in this case? Assume that default is extremely unlikely. A) 17.12 percent B) 17.18 percent C) 17.26 percent D) 17.53 percent E) 17.59 percent

The following is the sales budget for Uptown Rentals, Inc. for the first quarter of 2010: Credit sales are collected as follows: 60 percent in the month of sale 32 percent in the month after the sale 8 percent in the second month after the sale The accounts receivable balance at the end of the previous quarter was $87,040 ($73,600 of which was uncollected December sales). How much did the firm collect in the month of February? A) $118,533 B) $121,212 C) $135,208 D) $138,615 E) $147,040

Here are some important figures from the budget of Wexter Enterprises for the second quarter of 2010: 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. In March 2010, credit sales were $387,000 and credit purchases were $279,500. What is the ending cash balance for April if the beginning cash balance was $97,500? A) $87,410 B) $90,060 C) $92,800 D) $94,440 E) $97,230

You've worked out a line of credit arrangement that allows you to borrow up to $55 million at any time. The interest rate is 0.55 percent per month. In addition, 3 percent of the amount you borrow must be deposited in a noninterest-bearing account. Assume that your bank uses compound interest on its line-of-credit loans. Suppose you need $12 million today and you repay it in six months. How much interest will you pay? A) $387,567 B) $413,902 C) $421,028 D) $441,414 E) $442,886

Fresh Foods, Inc. has a cash cycle of 13.2 days, an operating cycle of 21 days, and an inventory period of 2 days. The company reported cost of goods sold in the amount of $280,000, and credit sales were $430,000. What is the company's average balance in accounts payable? A) $5,984 B) $7,414 C) $10,203 D) $11,844 E) $13,515