Ch 19 Study Questions - Short-term Financial Planning

Based on the cash forecast, Mahan Corporation has a beginning cash balance of $5,000 in February, requires a minimum operating cash balance of $5,000, and has a net cash inflow of $25,000. How much will Mahan Corporation need to borrow?

$0

Based on the cash forecast, Mahan Corporation has a cash deficit of $30,000 in January, requires a minimum operating cash balance of $5,000, and has a beginning cash balance of $2,000. How much will Mahan Corporation need to borrow?

$33,000

Mahan Corporation had sales on account of $30,000 in January, $40,000 in February, and $37,000 in March. 75% is collected in the month of the sale and 25% is collected in the month following the sale. The amount of cash collected in February is anticipated to be _____.

$37,500

Mahan Corporation had sales on account of $30,000 in January, $40,000 in February, and $37,000 in March. 75% is collected in the month of the sale and 25% is collected in the month following the sale. The amount of cash collected in March is anticipated to be _____.

$37,750

XYZ company has current liabilities of $100,000 and current assets of $175,000. The company's net working capital is _____.

$75,000

Which of the following are questions financial managers ask when determining the appropriate short-term financial plan for their firm?

-Does the plan set the firm up for success for the following year in addition to the current year? -Does the plan yield appropriate current and quick ratios? -Does the firm need more cash on hand or marketable securities to protect against risks such as customers stretching their payables?

Which of the following are purposes for forecasting future sources and uses of cash?

-alert managers to future cash needs -ensure the firm can pay its bills

Which of the following are considered sources of short-term financing?

-bank loan -stretching payables

A sales forecast enables financial managers to determine

-collections of accounts receivable -anticipated sales -inventory levels

A sales forecast enables financial mangers to determine

-collections of accounts receivable -inventory levels -anticipated sales

Stretching payables can be a costly term of short-term financing because:

-delayed payment may create ill will with the supplier -suppliers may offer discounts for prompt payment

The financial statement of cash flows shows the increases and decreases in cash corresponding to which of the following activities?

-financing -investing -operating

Which of the following are identified as uses of cash for forecasting purposes?

-taxes -payment of accounts payable -capital expenditures

A bank loan that is 3% per quarter has an annual rate of

12%

If a supplier offers a 1% discount monthly, and we forego the discount to stretch payables, this suggests an annualized rate of borrowing of

12.68%

Starting in 2018, the United States moved to a territorial system with a corporate tax rate of:

21%

True or false: Starting in 2018 with a reduced tax rate in place, U.S. corporations no longer have an incentive to leave profits abroad.

True

True or false: There are advantages to holding a reservoir of cash for smaller firms, who may face higher costs to raise funds on short notice.

True

True or false: Using a bank loan to its limit is typically preferable to stretching payables.

True

When firms need short-term financing, which strategy is most common?

Use a bank loan up to its limit, then stretch payables if necessary

Holdings of marketable securities are best at at what investment for a taxpaying firm?

Zero-NPV

With _______, a firm can borrow up to a certain amount with an agreed upon interest rate.

a bank loan

Short-term borrowing is classified as

a current liability

Which of the following items is a current liability on the balance sheet?

accounts payable

Short-term and long-term financing are used to meet the firm's

cumulative capital requirement

Net working capital is equal to

current assets minus current liabilities

The second step in preparing a cash budget is to:

forecast uses of cash

Financial mangers use _____ to anticipate future sources and uses of cash.

forecasts

If the firm is a short-term lender

long-term financing is greater than the cumulative capital requirement

When financial managers forecast future sources and uses of cash they must first create a _________ forecast

sales

The financial statement used to report changes that took place in the cash account is the

statement of cash flows

When a company puts off paying its bills, it is using a form of short-term financing called:

stretching payables

The best way for a firm to determine its short-term financing plan is through:

trial and error