Ch. 26

A cumulative cash deficit indicates a firm: A. has at least a short-term need for external funding. B. is facing long-term financial distress. C. will go out of business within the year. D. is capable of funding all of its needs internally. E. is using its cash wisely.

A. has at least a short-term need for external funding.

Dixon's has a beginning receivables balance on January 1st of $930. Sales for January through April are $970, $1,050, $1,330, and $1,460, respectively. The accounts receivable period is 36 days. How much did the firm collect in the month of March? Assume a 30-day month. A. $1,034 B. $1,316 C. $1,289 D. $1,350 E. $1,180

A. $1,034

On April 1st, Morning Coffee had a beginning cash balance of $318. Sales for March were $460 and April sales were $510. During April the firm had cash expenses of $327 and payments on accounts payable of $262. The accounts receivable period is 30 days. What is the firm's beginning cash balance on May 1st? A. $189 B. $173 C. $211 D. $239 E. $210

A. $189

As of the beginning of the quarter, Lester's Market had a cash balance of $326. During the quarter the market paid suppliers $310, collected $418 on its accounts receivables, paid an interest payment of $32 and a tax bill of $184. In addition, the market borrowed $80. What was the cash balance at the end of the quarter? A. $298 B. $267 C. $255 D. $272 E. $286

A. $298

Young's had a beginning accounts payable balance of $42,900 and an ending accounts payable balance of $44,800. Sales for the period were $770,000 and costs of goods sold were $598,000. If the operating cycle is 129 days, how long is the firm's cash cycle? A. 102.24 days B. 79.35 days C. 97.13 days D. 81.19 days E. 107.78 days

A. 102.24 days

Heritage Farms has sales of $1.62 million with costs of goods sold equal to 78 percent of sales. The average inventory is $369,000, accounts payable average $438,000, and receivables average $147,000. How long is the cash cycle? A. 13.30 days B. 13.19 days C. 17.29 days D. 7.54 days E. 11.77 days

A. 13.30 days

Salem, Inc. has an inventory turnover of 15 and an accounts receivable turnover of 9. The accounts payable period is 51 days. What is the length of the cash cycle? A. 13.89 days B. 14.07 days C. 14.23 days D. 18.79 days E. 23.00 days

A. 13.89 days

Baxter's collects 30 percent of its sales in the month of sale, 55 percent in the month following the month of sale, and 13 percent in the second month following the month of sale. Given this, the company will collect _____ sales during the month of May. A. 30 percent of May B. 55 percent of March C. 13 percent of April D. 55 percent of May E. 13 percent of February

A. 30 percent of May

Bilt Rite has sales of $610,000 and cost of goods sold equal to 68 percent of sales. The beginning accounts receivable balance is $58,900 and the ending accounts receivable balance is $61,050. How long on average does it take the firm to collect its receivables? A. 35.89 days B. 44.09 days C. 41.07 days D. 25.98 days E. 26.52 days

A. 35.89 days

Gonzalez Mercantile has an inventory turnover of 8.3, days' sales in receivables of 57, and an average payables turnover of 7.2. What is the cash cycle given a 365-day year? A. 50.28 days B. 58.04 days C. 55.00 days D. 49.29 days E. 61.37 days

A. 50.28 days

Which one of these statements is correct concerning the cash cycle? A. The longer the cash cycle, the more likely a firm will need external financing. B. Increasing the accounts payable period increases the cash cycle. C. A positive cash cycle is preferable to a negative cash cycle. D. The cash cycle can exceed the operating cycle if the payables period is equal to zero. E. Adopting a more liberal accounts receivable policy will tend to decrease the cash cycle.

A. The longer the cash cycle, the more likely a firm will need external financing.

Commercial paper is generally issued: A. by large firms. B. for 190 days or less. C. by commercial banks. D. for 90 to 180 days. E. at the prime rate offered by the firm's bank.

A. by large firms.

Costs of the firm that rise with increased levels of investment in its current assets are called _____ costs. A. carrying B. shortage C. order D. safety E. trading

A. carrying

A fraction of the available credit on a loan agreement deposited by the borrower with the bank in a low or non-interest-bearing account is called a: A. compensating balance. B. cleanup loan. C. letter of credit. D. line of credit. E. roll-over.

A. compensating balance

The manager responsible for applying payments to customer's accounts is the: A. controller. B. payables manager. C. credit manager. D. purchasing manager. E. production manager.

A. controller.

Cash decreases when: A. current assets other than cash increase. B. fixed assets decrease. C. current liabilities increase. D. retained earnings increase. E. long-term debt increases.

A. current assets other than cash increase.

The operating cycle will decrease if you decrease the: A. days sales in inventory. B. days in accounts payable. C. cash cycle by increasing the accounts payable period. D. accounts receivable turnover rate. E. speed at which inventory is sold.

A. days sales in inventory.

Which one of the following will not affect the operating cycle? A. decreasing the payables turnover from 7 times to 6 times B. increasing the days sales in receivables C. decreasing the inventory turnover rate D. increasing the average receivables balance E. decreasing the credit repayment times for the firm's customers

A. decreasing the payables turnover from 7 times to 6 times

You can decrease the cash cycle by: A. improving the cash discount offered to customers who pay their accounts early. B. increasing the percentage of customers paying with credit rather than cash. C. increasing the amount of raw materials kept in inventory. D. paying your suppliers earlier to receive a discount on your purchases. E. increasing your inventory to prevent stock-outs.

A. improving the cash discount offered to customers who pay their accounts early.

A firm that adopts a flexible short-term financial policy is more apt to have: A. lower carrying costs than shortage costs. B. lower shortage costs than carrying costs. C. stricter limits on credit sales than the average firm. D. a relatively low level of current assets. E. greater short-term financing needs than if the firm adopted a restrictive policy.

A. lower carrying costs than shortage costs.

The length of time between the acquisition of inventory and the collection of cash from receivables is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

A. operating cycle.

Shortage costs include all of the following except: A. opportunity cost related to low return on assets. B. order costs. C. disruption of production schedules. D. production setup costs. E. lost sales.

A. opportunity cost related to low return on assets.

A restrictive short-term financial policy tends to: A. reduce future sales more so than a flexible policy. B. grant credit to more customers. C. incur more carrying costs than a flexible policy does. D. encourage credit sales over cash sales. E. reduce order costs as compared to a more flexible policy.

A. reduce future sales more so than a flexible policy.

Which party(ies) is(are) ultimately responsible for an invoice from a supplier that is subject to a bankers' acceptance? A. the bank which issued the acceptance B. the purchasing firm C. the investors who purchased the banker's acceptance D. the vendor who issued the invoice E. both the bank and the purchasing firm jointly

A. the bank which issued the acceptance

A firm has an inventory turnover rate of 15.7, a receivables turnover rate of 20.2, and a payables turnover rate of 14.6. How long is the operating cycle? A. 28.46 days B. 16.32 days C. 32.87 days D. 13.08 days E. 23.37 days

B. 16.32 days

For 2014, Tree Top Farms had sales of $438,000, cost of goods sold of $286,000, inventory of $154,000, accounts receivable of $46,000, and accounts payable of $38,000. For 2015, sales were $413,000, cost of goods sold was $281,000, inventory was $149,000, accounts receivables were $48,000, and accounts payable were $36,000. What was the cash cycle for 2015 based on a 365-day year? A. 202.96 B. 190.27 C. 203.17 D. 185.87 E. 186.05

B. 190.27

D & F, Inc. expects credit sales of $980, $1,460, $1,730 and $950 for the months of April through July, respectively. The firm collects 25 percent of sales in the month of sale, 65 percent of sales in the month following the month of sale, and 8 percent in the second month following the month of sale. The remaining sales are never collected. How much money does the firm expect to collect in the month of July? A. $1,645.50 B. $1,478.80 C. $1,571.10 D. $1,374.20 E. $1,475.50

B. $1,478.80

Birds Unlimited has a 60-day accounts payable period. The firm has expected sales of $17,800, $22,100, $24,400 and $28,800, respectively, by quarter for the next calendar year. The purchases for a quarter are equal to 65 percent of the following quarter's sales. What is the amount of the projected cash disbursements for accounts payable for Quarter 3? Assume a 360-day year. A. $11,126.67 B. $16,813.33 C. $12,693.33 D. $17,125.50 E. $12,250.33

B. $16,813.33

Last year, Wilson's had credit sales of $927,000 and cost of goods sold of $762,000. The beginning of the year inventory was $138,000 and the end of the year inventory was $154,300. If the accounts receivables average $87,400, what is the operating cycle? A. 88.23 days B. 104.42 days C. 78.60 days D. 70.01 days E. 92.09 days

B. 104.42 days

Amanda's Interior Design has credit sales of $783,000, costs of goods sold of $418,000, and average accounts receivable of $107,900. How long does it take its credit customers to pay for their purchases? A. 36.09 days B. 50.30 days C. 31.23 days D. 35.20 days E. 27.95 days

B. 50.30 days

Jordan and Sons has an inventory period of 48.6 days, an accounts payable period of 36.2 days, and an accounts receivable period of 29.3 days. Management is considering offering a 5 percent discount if its credit customers pay for their purchases within 10 days. This discount is expected to reduce the receivables period by 17 days. If the discount is offered, the operating cycle will decrease from ___ days to ___ days. A. 28.3; 11.3 B. 77.9; 60.9 C. 28.3; 45.3 D. 77.9; 94.9 E. 54.2; 37.2

B. 77.9; 60.9

Which one of these statements concerning the cash cycle is correct? A. The cash cycle is equal to the operating cycle minus the inventory period. B. A negative cash cycle is actually preferable to a positive cash cycle. C. Granting credit to slower paying customers tends to decrease the cash cycle. D. The cash cycle plus the accounts receivable period is equal to the operating cycle. E. The most desirable cash cycle is the one that equals zero days.

B. A negative cash cycle is actually preferable to a positive cash cycle.

Given a fixed level of sales and a constant profit margin, an increase in the accounts payable period can result from: A. an increase in the cost of goods sold account value. B. an increase in the ending accounts payable balance. C. an increase in the cash cycle. D. a decrease in the operating cycle. E. a decrease in the average accounts payable balance.

B. an increase in the ending accounts payable balance.

A short-term loan where the lender holds the borrower's receivables as security is called: A. a compensating balance. B. assigned receivables financing. C. a letter of credit. D. factored receivables financing. E. a bond.

B. assigned receivables financing.

The accounts receivable policy is generally set by the: A. purchasing manager. B. credit manager. C. controller. D. production manager. E. payables manager.

B. credit manager.

Net working capital is defined as the: A. current assets of a business. B. difference between current assets and current liabilities. C. present value of short-term cash flows. D. difference between all assets and liabilities. E. difference between total current assets and cash.

B. difference between current assets and current liabilities.

A flexible short-term financial policy: A. increases the likelihood that a firm will face financial distress. B. incurs an opportunity cost due to the rate of return that applies to short-term assets. C. advocates a smaller investment in net working capital than a restrictive policy does. D. increases the probability that a firm will earn high returns on all of its assets. E. utilizes short-term financing to fund all of the firm's assets.

B. incurs an opportunity cost due to the rate of return that applies to short-term assets.

The length of time between the acquisition of inventory and its sale is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

B. inventory period.

Miller's Hardware has a flexible short-term financing policy. Over the course of one year, the firm should expect to have some months that allow it to: A. repay all of its debts. B. invest in marketable securities. C. reduce its total costs below the firm's normal minimum total cost point. D. finance all of its assets with short-term loans. E. earn high returns on all its current assets.

B. invest in marketable securities.

A compensating balance: A. requirement generally applies to inventory-type loans. B. is a means of paying for banking services received. C. requirement is generally set equal to one percent of the amount borrowed. D. decreases the cost of short-term bank financing. E. refunds a portion of the borrower's interest if a loan is repaid early.

B. is a means of paying for banking services received.

If The Deli delays paying its suppliers by an additional ten days, then: A. its payables turnover rate will increase. B. it should require less bank financing of its daily operations. C. its cash cycle will increase by ten days. D. its operating cycle will increase by ten days. E. its stock-out costs will rise.

B. it should require less bank financing of its daily operations.

A financially solid firm is most apt to have a quarterly cash shortfall when it encounters a: A. period of relatively constant sales. B. major fixed asset expenditure. C. period of rising interest rates. D. period of declining interest rates. E. period of increased cash collections.

B. major fixed asset expenditure.

7. Costs of the firm that fall with increased levels of investment in its current assets are called _____ costs. A. carrying B. shortage C. debt D. equity E. payables

B. shortage

A manufacturing firm has a 90-day collection period. The firm produces seasonal merchandise and thus has the least sales during the first quarter of a year and the highest level of sales during the third quarter of a year. The firm maintains a relatively steady level of production which means that its cash disbursements are fairly equal in all quarters. The firm is most apt to face a cash-out situation in: A. the first quarter. B. the second quarter. C. the third quarter. D. the fourth quarter. E. any quarter, equally.

B. the second quarter.

The operating cycle can be decreased by: A. paying accounts payable faster. B. discontinuing the discount given for early payment of an accounts receivable. C. decreasing the inventory turnover rate. D. collecting accounts receivable faster. E. increasing the accounts payable turnover rate.

D. collecting accounts receivable faster.

Quiet Press has a 38-day accounts receivable period. The estimated quarterly sales for this year, starting with the first quarter, are $1,200, $1,400, $1,900, and $1,200, respectively. How much does the firm expect to collect in the fourth quarter? Assume a 360-day year. A. $1,592.08 B. $1,604.44 C. $1,495.56 D. $1,509.11 E. $1,660.02

C. $1,495.56

Weisbro and Sons purchases its inventory one quarter prior to the quarter of sale. The purchase price is 60 percent of the sales price. The accounts payable period is 45 days. The accounts payable balance at the beginning of Quarter 1 is $39,500. The expected sales are: Quarter 1 = $32,000; Quarter 2 = $34,500; Quarter 3 = $40,600; Quarter 4 = $50,200. What is the amount of the expected disbursements for Quarter 2? Assume a 360-day year. A. $19,280 B. $20,470 C. $22,530 D. $25,220 E. $19,950

C. $22,530

Smith and Johnson have expected sales of $2,380, $2,840, $4,430, and $4,480 for the months of January through April, respectively. The accounts receivable period is 15 days. How much did the firm collect in the month of March? Assume a 30-day month. A. $2,215 B. $4,160 C. $3,635 D. $3,430 E. $1,420

C. $3,635

Clancy's has a beginning cash balance of $27 and a net cash inflow for the quarter of -$52. Company policy is to maintain a minimum cash balance of $20 and borrow only the amount that is necessary to maintain that balance. How much does the firm need to borrow this quarter? A. $17 B. $52 C. $45 D. $20 E. $59

C. $45

New World has a beginning cash balance of $536 on February 1st. The firm has projected sales of $660 in January, $810 in February and $890 in March. The cost of goods sold is equal to 70 percent of sales. Goods are purchased one month prior to the month of sale. The accounts payable period is 30 days and the accounts receivable period is 15 days. The firm has monthly cash expenses of $225. What is the projected ending cash balance at the end of February? Assume 30-day months. A. $437 B. $502 C. $479 D. $423 E. $486

C. $479

A firm currently has a 36-day cash cycle. Assume the firm changes its operations such that it decreases its receivables period by 4 days, decreases its inventory period by 1 day, and decreases its payables period by 2 days. What will the length of the cash cycle be after these changes? A. 31 days B. 35 days C. 33 days D. 37 days E. 38 days

C. 33 days

Wilco's currently has a 43-day cash cycle. Assume the firm changes its operations such that it decreases its receivables period by 2 days, increases its inventory period by 1 day, and increases its payables period by 3 days. What will the length of the cash cycle be after these changes? A. 38 days B. 41 days C. 39 days D. 43 days E. 45 days

C. 39 days

Which one of these statements is true? A. The cumulative finance surplus requirement is computed prior to adjusting for the minimum cash balance. B. A financially sound firm will always have a positive quarterly net cash flow. C. A negative cumulative cash surplus indicates a borrowing need. D. Most firms plan on maintaining a zero cash balance. E. The minimum cash balance generally increases on a quarterly basis.

C. A negative cumulative cash surplus indicates a borrowing need.

One use of cash is represented by: A. an increase in borrowing. B. an increase in operating cash flow. C. a decrease in accounts payable. D. an increase in notes payable. E. a decrease in inventory.

C. a decrease in accounts payable.

The length of time between the sale of inventory and the collection of cash from receivables is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

C. accounts receivable period.

The forecast of cash receipts and disbursements for the next planning period is called a: A. pro forma income statement. B. statement of cash flows. C. cash budget. D. receivables analysis. E. credit analysis.

C. cash budget.

If the average accounts receivable that a firm holds decreases without any decrease in credit sales, the operating cycle will: A. remain constant because sales remained constant. B. remain constant because the change will only affect the cash cycle. C. decrease because days' sales outstanding will decrease. D. increase because the accounts receivable turnover will decrease. E. decrease because the accounts receivable turnover will decrease.

C. decrease because days' sales outstanding will decrease.

Which one of the following will decrease the net working capital of a firm? Assume the current ratio is greater than 1.0. A. selling inventory at a profit B. collecting an accounts receivable C. paying a payment on a long-term debt D. selling a fixed asset for book value E. paying an accounts payable

C. paying a payment on a long-term debt

Which one of the following is a use of cash? A. selling goods from inventory B. sale of a marketable security held by the firm C. submitting taxes to the government D. obtainment of a long-term loan E. collection of a past-due accounts receivable

C. submitting taxes to the government

For 2014, Blue Moon had sales of $318,000, cost of goods sold of $249,000 and inventory of $138,000. For 2015, sales were $349,000, cost of goods sold were $256,000, and inventory was $151,000. What was the inventory period for 2015? A. 194.01 days B. 216.99 days C. 231.09 days D. 206.03 days E. 189.42 days

D. 206.03 days

Alpha Companies has an operating cycle of 328 days, a receivables period of 64 days, and a payables period of 98 days. If the firm revises its credit policy it believes it can reduce its receivable period by 9 days. Given this revision, what will be the firm's new cash cycle? A. 239 days B. 241 days C. 230 days D. 221 days E. 218 days

D. 221 days

On average, D & M sells its inventory in 37 days, collects on its receivables in 3.4 days, and takes 35 days to pay for its purchases. What is the length of the firm's operating cycle? A. -1.4 days B. 5.4 days C. 33.6 days D. 40.4 days E. 41.6 days

D. 40.4 days

Uptown Bank has granted a line of credit of $80,000 with an interest rate of 7.5 percent and a compensating balance requirement of 2.5 percent to Jones Hardware. The compensating balance requirement is based on the total amount borrowed. What is the effective annual interest rate if the firm needs $55,000 for one year to finance its inventory? A. 8.80% B. 9.44% C. 8.12% D. 7.69% E. 7.78%

D. 7.69%

The inventory turnover for the Lambkin Company was 9.4 times and its days' sales in receivables was 46. What is the operating cycle given a 365-day year? A. 45.63 days B. 55.40 days C. 63.25 days D. 84.83 days E. 74.29 days

D. 84.83 days

Martinique's has a 60-day collection period. Sales for the next calendar year are estimated at $1,550, $1,230, $1,780 and $2,800, respectively, by quarter starting with the first quarter of the year. Given this information, which one of the following statements is correct? Assume a 360-day year. A. The firm will collect $1,133.33 in Quarter 2. B. The accounts receivable balance at the beginning of Quarter 4 will be $1,066.67. C. The firm will collect $593.33 from Quarter 2 sales in Quarter 3. D. The firm will have an accounts receivable balance of $1,866.67 at the end of the year. E. The firm will collect a total of $1,033.33 in Quarter 4.

D. The firm will have an accounts receivable balance of $1,866.67 at the end of the year.

Which one of these statements is correct? A. A farmer generally uses trust receipt financing to finance operations during the growing season. B. An auto dealer is most apt to use purchase order financing. C. A drug store is most apt to use trust receipt financing. D. Trust receipt financing is most applicable to large, easily identifiable types of inventory. E. Blanket inventory lien financing is another term for purchase order financing.

D. Trust receipt financing is most applicable to large, easily identifiable types of inventory.

A short-term loan which is secured by inventory that is housed and supervised by a third party is referred to as: A. a blanket inventory lien. B. a secured line of credit. C. banker's acceptance. D. a trust receipt financing arrangement. E. field warehousing financing.

D. a trust receipt financing arrangement.

Cash increases when: A. long-term debt decreases. B. equity decreases. C. current liabilities decrease. D. accounts payable increases. E. fixed assets increase.

D. accounts payable increases.

The length of time between the acquisition of inventory by a firm and the payment by the firm for that inventory is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

D. accounts payable period.

A use of cash is associated with: A. a decrease in a liability. B. an increase in an asset. C. an increase in retained earnings. D. both an increase in an asset and an increase in retained earnings. E. both a decrease in a liability and an increase in an asset.

D. both an increase in an asset and an increase in retained earnings.

The short-term financial policy a firm adopts will be reflected in: A. the size of the firm's investment in current assets. B. the financing of current assets. C. the financing of fixed assets. D. both the size and the financing of current assets. E. both the size and the financing of fixed assets.

D. both the size and the financing of current assets.

The cash cycle is defined as the time between: A. the arrival of inventory and cash collected from receivables. B. selling a product and paying the supplier of that product. C. selling a product and collecting the accounts receivable. D. cash disbursements and cash collection for an item. E. the sale of inventory and cash collection.

D. cash disbursements and cash collection for an item.

ABC Manufacturing historically produced products that were held in inventory until they could be sold to a customer. The firm is now changing its policy and only producing a product when it receives an actual order from a customer. All else equal, this change will: A. increase the operating cycle. B. lengthen the accounts receivable period. C. shorten the accounts payable period. D. decrease the cash cycle. E. decrease the inventory turnover rate.

D. decrease the cash cycle.

A type of short-term loan where the borrower sells its receivables to the lender up-front, but at a discount to face value, is called: A. a compensating balance. B. assigned receivables financing. C. a letter of credit. D. factored receivables financing. E. a bond.

D. factored receivables financing.

The cash cycle will decrease as a result of increasing the: A. payables turnover. B. days sales in inventory. C. operating cycle. D. inventory turnover rate. E. accounts receivable period.

D. inventory turnover rate.

A prearranged, short-term bank loan made on a formal or informal basis, and typically reviewed for renewal annually, is called a: A. letter of credit. B. cleanup loan. C. compensating balance. D. line of credit. E. roll-over.

D. line of credit.

Flexible short-term financial policies tend to: A. maintain low accounts receivable balances. B. support few investments in marketable securities. C. minimize the investment in inventory. D. maintain large cash balances. E. tightly restrict credit sales.

D. maintain large cash balances.

The term maturity hedging refers to: A. staggering debt so the total amount due remains relatively constant. B. adjusting all financing to match the lowest available interest rates. C. increasing financing when interest rates decline and lowering financing when rates increase. D. matching the life of an asset with the life of the asset's financing. E. creating a financial package that has one loan maturing each year over a stated number of years.

D. matching the life of an asset with the life of the asset's financing.

Orio, Inc. has a beginning receivables balance on January 1st of $685. Sales for January through April are $735, $690, $770, and $850, respectively. The accounts receivable period is 30 days. How much did the firm collect in the month of April? Assume a 30-day month. A. $735 B. $690 C. $730 D. $810 E. $770

E. $770

Wilson, Inc. has an inventory turnover rate of 16, an accounts payable period of 47 days and an accounts receivable period of 37 days. What is the length of the cash cycle? A. 32.81 days B. -6.00 days C. 2.00 days D. 6.00 days E. 12.81 days

E. 12.81 days

Brook Side reported sales of $738,000 and cost of goods sold of $584,000 for the year. The firm had a beginning inventory of $51,000 and an ending inventory of $46,000. What is the length of the inventory period? A. 15.24 days B. 15.16 days C. 31.19 days D. 29.87 days E. 30.31 days

E. 30.31 days

Modern Sound has sales of $811,000 and average accounts payable of $87,400. The cost of goods sold is equivalent to 72 percent of sales. How long does it take the firm to pay its suppliers? A. 41.46 days B. 33.45 days C. 48.69 days D. 66.18 days E. 54.63 days

E. 54.63 days

Brown's Market currently has an operating cycle of 76.8 days. It is planning some operational changes that are expected to decrease the accounts receivable period by 2.8 days and decrease the inventory period by 3.1 days. The accounts payable turnover rate is expected to increase from 9 to 11.5 times per year. If all of these changes are adopted, what will be the firm's new operating cycle? A. 68.4 days B. 73.4 days C. 63.3 days D. 57.9 days E. 70.9 days

E. 70.9 days

Wilson's Dry Goods has a line of credit with a local bank for $250,000. The loan agreement calls for interest of 7.6 percent with a compensating balance requirement of 5 percent, which is based on the total amount borrowed. What is the effective interest rate if the firm needed $138,000 for one year to cover its expansion costs? A. 8.55% B. 7.60% C. 8.13% D. 8.38% E. 8.00%

E. 8.00%

All Rite Co. has arranged a line of credit of $225,000 with an interest rate of 8.25 percent and a compensating balance requirement of 1.5 percent, which is based on the total amount borrowed. Assume the firm uses this source of funding to purchase a $167,000 piece of equipment and repays the loan in a lump sum at the end of one year. What is the effective interest rate? A. 9.75% B. 9.27% C. 8.08% D. 8.26% E. 8.38%

E. 8.38%

If your accounts receivable period is 30 days, you will collect payment for your _____ sales during the second quarter of a calendar year. A. December, January, and February B. January, February, and March C. February and March D. February, March, and April E. March, April and May

E. March, April and May

Which one of the following is a source of cash? A. an increase in accounts receivable B. an increase in fixed assets C. a decrease in long-term debt D. the payment of a cash dividend E. an increase in accounts payable

E. an increase in accounts payable

The length of time between the payment for inventory and the collection of cash from receivables is called the: A. operating cycle. B. inventory period. C. accounts receivable period. D. accounts payable period. E. cash cycle.

E. cash cycle.

If a firm needs to increase its cash holdings it could:

E. increase current liabilities.

Baxter Trucking has a net cash inflow for the quarter of $38 including interest, a beginning cash balance of $22, and a beginning loan balance of $45. Company policy is to maintain a minimum cash balance of $20. What is the minimum amount the firm must borrow or can repay to end the month with a zero cumulative surplus? A. borrow $4 B. borrow $9 C. repay $36 D. repay $422 E. repay $40

E. repay $40

The most common means of financing a temporary cash deficit is a: A. long-term secured bank loan. B. short-term secured bank loan. C. short-term issue of corporate bonds. D. long-term unsecured bank loan. E. short-term unsecured bank loan.

E. short-term unsecured bank loan.

Which one of the following will increase net working capital? Assume the current ratio is greater than 1.0. A. using cash to pay an accounts payable B. using cash to pay a long-term debt C. selling inventory at cost D. collecting an accounts receivable E. using a long-term loan to buy inventory

E. using a long-term loan to buy inventory