Chapter 16. Short-Term Financial Planning

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Uses of cash can involve increasing a(n)

1.) Non cash current asset 2.) Fixed asset

Receivables period equals how many days divided by the receivables turnover

365 Days

Inventory period equals how many days divided by the inventory turnover

365 days

The payables period equals how many days divided by the payables turnover

365 days

The cash cycle is equal to the operating cycle minus the

Accounts Payable Period

Which of the following represents a source of cash?

Accounts payable increases

The opportunity costs of holding current assets are called

Carrying Costs

The primary tool in short-term financial planning is the

Cash Budget

Ending accounts receivable equals starting accounts receivable plus ______ minus collections

Credit Sales

What does a receivables turnover ratio of 57 mean?

Customers took, on average, 57 days to pay.

True or false: Cash collections equal beginning cash times sales

False

True or false: The collection cycle is the difference between disbursement and collection of cash

False

True or false: The net payments receivable equals the cash collections minus the cash disbursements

False

True or false: The operating cycle equals current assets minus current liabilities

False

Which activities are primary to short-term finance?

Finance & operating activities

A short-term financial policy involving a higher proportion of long-term debt than short-term debt is classified as a(n)

Flexible Policy

Firms who attempt to match the maturity of assets and liabilities are said to employ

Maturity hedging

The difference between cash collections and cash disbursements is the predicted

Net cash flow

Which of the following activities by a firm will increase cash?

Obtaining a loan, Selling stock, Selling bonds

What does an inventory period of 111 days mean?

On average, inventory sat for about 111 days before it was sold.

The ______ cycle is the time from when inventory is acquired until cash is collected from the sale of the product

Operating

The primary concerns in short-term finance are the firm's short-run _________ and financing activities

Operating

Which of the following firm activities decrease cash?

Repurchasing stock & Paying off debt

Those firm activities that increase cash are called

Sources of cash

True or false: The cash cycle is equal to the operating cycle minus the accounts payable period

True

True or false: The payables turnover equals the cost of goods sold divided by the average payables

True

A flexible short-term financing strategy implies

a relatively large pool of marketable securities & cash surpluses

Which of the following represents a use of cash?

accounts receivable increases, paying off a loan, repurchasing stock

The operating cycle equals the sum of the inventory period and the?

accounts receivable period

The operating cycle is composed of which periods?

accounts receivable period & inventory period

Being low on cash can force a firm to

borrow money, sell marketable securities, default on debt

The time between paying cash for inventory and receiving cash from selling a product is called the

cash cycle

Commercial paper is an example of a(n)

debt security

The two types of accounts receivable financing are

factoring and assignment

A lack of safety reserves can lead to which of the following?

lost sales & lost customer goodwill

Which of the following is not a characteristic of commercial paper?

maturities of one year or more

Carrying costs involve

opportunity costs

Place the steps of the operating cycle in order from first to last

order inventory, sell the finished product, collect cash from the sale

Unsecured bank loans are

short term

Ideally, short-term assets are financed with

short term liabilities

The cash budget allows the firm to identify

short-term financial opportunities & short-term financial needs

Under a conventional factoring

the collection of the receivables is the factor's responsibility & the receivables are sold at a discount

Which bank loan requires no security or collateral

unsecured

Those firm activities that decrease cash are called

uses of cash


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