FIN 320 chapter 16 learn smart

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

1.order inventory 2. sell the finished product 3.collect cash from sale

The two types of accounts receivable financing are ___ and ____.

assignment, factoring

The marketing manager may want easier credit terms to increase sales, but the credit manager may worry about ______.

higher receivables and bad debt risk

With the flexible approach, the firm finances-------while with the restrictive approach, the firm finances---------

internally externally

The operating cycle is composed of which periods?

inventory period and accounts receivable period

Which activities are primary to short-term finance?

operating and financing activites

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 finacning activites

operating

The difference between the------cycle and the accounts payable period is the------ cycle

operating, cash

Carrying costs involve:

opportunity costs

Ideally, short-term assets are financed with ___.

short term liabilities

The financing of current assets is measured by the proportion of:

short-term debt and long-term debt used to finance current assets

Non-committed lines of credit ___.

generally specify a maximum amount that can be borrowed are informal arrangements

Short-term finance is concerned with current assets and current liabilities, whereas long-term finance is concerned with ___.

capital structure, capital budegting, and dividend policy

he primary tool in short-term financial planning is the _______.

cash budget

True or false: Other important sources of short-term financing for a company include short-term stocks.

false -Other important sources of short-term financing besides secured and unsecured borrowing for a company are commercial paper and trade credit.

A restrictive short-term financial policy implies a ______ proportion of short-term debt relative to long-term debt. balanced

high

The two major elements of a firm's short-term financial policy are ___.

the size of the firm's investment in current assets the financing of current assets

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

true

Shortage costs are those that ______ when the level of investment in current assets is high.

fall

True or false: Cash collections equals beginning cash times sales.

false

What does an inventory period of 111 days mean?

on average inventory sat for about 111 days before it was sold

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

false

Your Answer correct The shorter the cash cycle, the lower the firm's investment in ______.

inventories, accounts receivable

The time it takes to acquire and sell inventory is called the ______ period.

inventory

A(n) ______ bank loan requires no security or collateral.

unsecured

A committed line of credit is a more formal arrangement typically involving a _______ .

commitment fee

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

false

The time it takes to collect on the sale of a product is called the ___.

accounts receivable period

Commercial paper is an example of a:

debt security

Unsecured bank loans are:

short term

Which of the following are generally used as security for short-term secured loans?

A/R, inventory

Under which type of inventory loan does the lender have a lien against all of the borrower's inventory?

a blanket inventory lien

Which of the following increase the cash cycle?

a longer inventory and receivables period

A flexible short-term financing strategy implies surplus cash and little borrowing, but the advantage of such a strategy is:

a reduced probability of financial distress

Although flexible short-term financial polices are more costly, they result in _____.

a reduced probability of financial distress

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

cash cycle

he difference between the operating cycle and the accounts payable period is the ______.

cash cycle

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

false -The net cash inflow is the difference between cash collections and cash disbursements.

True or false: Buying raw materials requires a decision about how cash should be collected.

false -requires a decision on how much inventory should be ordered

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

flexibile

with the ------- approach, a firm uses a pool of marketable securities as a buffer against changing current asset needs.

flexibile

Short-term cash flows are uncertain because ___.

future sales and costs cannot be precisely predicted

Dividend payments belong to the category of ___.

long term financing expenses

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

maturity headging

The optimal balance of current assets occurs where the sum of the carrying costs and the shortage costs is at ___.

minimum

The difference between cash collections and cash disbursements is the predicted ______

net cash inflow

Short-term cash flows are unsynchronized because the payment for raw materials usually does not match the cash flow from ___.

product sales

A product begins its accounting life as inventory and is converted to a(n) ______ when it is sold on credit.

receivable

Under a factored receivables arrangement

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

The cash cycle is equal to the operating cycle minus the ______ period.

accounts payable

The time from the acquisition of inventory to when the inventory is paid for is called the ___ period.

accounts payable

The operating cycle equals the sum of the inventory period and the ______ period.

accounts receivable

Being low on cash can force a firm to ___.

borrow money default on a debt sell marketable securities

The gap between short-term cash inflows and outflows can be filled by ___.

borrowing maintaining a liquidity reserve

Short-term finance is primarily concerned with ___.

current assets and current liabilites

What does a receivables turnover ratio of 57 mean?

customers took on average 57 days to pay

True or false: The gap between short-term outflows and inflows can be filled by holding a liquidity reserve.

true

Which of the following are typical inventory loans?

trust receipt field warehouse financing blanket inventory lien

True or false: A stock-out occurs if a store runs out of inventory and could result in lost customers.

true

Carrying costs ______ with the level of investment in current assets.

rise