Chapter 18 - Short Term Finance and Planning
Payable Turnover
Cost of Goods Sold / Average Payable
Inventory Turnover
Cost of Goods Sold/Average Inventory
Effective Rate
Interest Paid/ The amount need to borrow
Operating Cycle
Inventory Period + Receivable Period
Receivable Turnover
Net Sale/ Average Receivable
Cash Cycle
Operating Cycle - Payable Period
APR
Receivable Turnover* [Factor Receivable Discounting/1-Factory Receivable Discounting]
How much do we need to borrow?
The amount need to borrow/ [1-%compensating balance requirement]
EAR
[1+Factor Receivable Discounting/1-Factory Receivable Discounting]^Receivable Turnover - 1
cash budget
a forecast of cash receipts and disbursements for the next planning period
line of credit
a formal (committed) of informal (noncommitted) prearranged, short-term bank loan
cash flow time line
a graphical representation of the operating cycle and the cash cycle
accounting receivable financing
a secured short-term loan that involves either the assignment or the factoring of receivables
inventory loan
a secured short-term loan to purchase inventory
Money deposited in a bank in a low-interest or non-interest-bearing account to fulfill a requirement in a loan agreement is called a:
compensating balance.
shortage costs
costs that fall with increases in the level of investment in current assets
carrying costs
costs that rise with increases in the level of investment in current assets
All else equal, which one of the following will decrease the operating cycle?
increase in the accounts receivable turnover rate
An increase in which one of the following is a use of cash?
inventory
compensating balance
money kept by the firm with a bank in low-interest on non-interest-bearing accounts as part of a loan agreement
A restrictive short-term financial policy:
results in relatively low inventory levels.
operating cycle
the period between the acquisition of inventory and the collection of cash from receivables
cash cycle
the time between cash disbursement and cash collection
accounts payable period
the time between receipt of inventory and payment for it
accounts receivable period
the time between sale of inventory and collection of the receivable
inventory period
the time it takes to acquire and sell inventory
Waterfront Yachts maintains a large inventory of unique yachts for sale to discriminating buyers. Which one of the following is the most appropriate form of financing this firm's inventory?
trust receipt
Tri-State Movers has projected quarterly sales of $1,800, $2,400, $2,800, and $1,200 for quarters one through four, respectively. The accounts receivable period is 30 days. How much will the firm collect in Quarter 3? Assume each quarter has 90 days.
$2,667
A firm has projected monthly sales of $800, $900, $1,100, and $1,400 for the months of January through April, respectively. The cost of goods sold is 60 percent of the selling price and the accounts payable period is 60 days. Goods are purchased one month prior to the month of sale. What is the amount of the March cash disbursements?
$540
The Corner Market has sales of $898,000 and cost of goods sold equal to 70 percent of sales. The beginning inventory is $64,000 and the ending inventory is $71,000. What is the length of the inventory period?
27.4 days
Payable Period
365/ Payable Turnover
Receivable Period
365/ Receivable Turnover
Inventory Period
365/Inventory Turnover
A firm has an accounts payable period of 54 days, an inventory period of 69 days, and an accounts receivable period of 37 days. What is the length of the cash cycle?
52 days
Russell's of Townville needs to borrow $48,000 for one year. The bank requires a 5 percent compensating balance on any amount borrowed and an annual interest rate of 9 percent. What is the effective interest rate on this loan?
9.47 percent
