Corporate Finance MGMT 332 Chapter 16
Which of the following firm activities decrease cash?
Repurchasing stock Paying off debt
The cash budget allows the firm to identify:
Short term financial opportunities short term financial needs
Those firm activities that increase cash are called _____.
Sources of cash
The time it takes to collect on the sale of a product is called the ----.
accounts receivable period
Under which type of inventory loan does the lender have a lien against all of the borrower's inventory?
A blanket inventory lien
The basic balance sheet identity can be written as Net working Capital + Fixed assets = Long-term debt + ______ .
equity
If the payables turnover is 14 times, what is the payables period?
26 days
A flexible short-term financing strategy implies:
Cash surpluses A relatively large pool of marketable securities
Either stock-out or cash-out costs occur when a firm _____.
runs out of inventory to sell runs out of available cash
If starting accounts receivable are $100, credit sales are $200, and cash collections are $50, then ending accounts receivable are:
$100+$200-$50=$250
If the costs of goods sold is $10m and the average payables is $5m, then the payables turnover is _____ times.
$10m/$5m = 2 times
Which of the following activities by a firm will increase cash?
Obtaining a loan Selling stock Selling bonds
if the operating cycle is 200 days and the accounts receivable is 80 days, then the inventory period is ____ days
120
If a firm has an inventory period of 100 days and an accounts receivable period of 42 days, then their operating cycle is _____ days.
142
When cost of goods sold is $9m and average inventory is $3m, then the inventory turnover is _____.
3
Between the 1960's and the present time, current liabilities have risen from about 20% of total liabilities to almost _____ percent.
30
What is the inventory period if the inventory turnover is 10 times
36.5 days 365/10=36.5
if credit sales are $12m and the average accounts receivable is $2m, then the receivables turnover ratio is _____ times.
6
If a firm has an operating cycle of 100 days and an accounts payable period of 40 days then its cash cycle is ______ .
60
If a firm has an operating cycle of 100days and an accounts payable period of 40 days, then its cash cycle is _____.
60
If inventory is acquired on day zero and paid for on day 40, and then the product is sold and cash is collected for the sale on day 100, the cash cycle equals _____ days.
60
Which of the following increases the cash cycle?
A longer inventory period A longer receivables period
Which of the following are typical inventory loans?
Blanket inventory lien Field warehouse financing Trust receipt
Being low on cash can force a firm to _____.
Borrow money Default on debt Sell marketable securities
Match the activity with the related decision.
Buy raw materials-what is the desired level of inventory? sell a product-should credit be extended? make a product-what technology should be used? pay cash for purchases-should money be borrowed or cash reserves used?
Which of the following are examples of cash disbursements?
Capital expenditures Payments of accounts payable Wages and taxes
Match the titles
Cash manager-marketable securities Credit manager-Accounts receivable Purchasing manager-Inventory Payables manager-Accounts payable
Under a factored receivables arrangement
Collection of the receivables is the factor's responsibility. Receivables are sold at a discount.
If credit sales are $100m and the average accounts receivable is $25m, then the receivables turnover is ----.
Credit sales $100m/average accounts receivable$25m = 4 100/25 = 4
Short-term finance is primarily concerned with _____ .
Current assets and liabilities
Which of the following are activities that increase cash?
Decreasing fixed assets; Increasing long-term debt
What does maturity hedging involve?
Financing fixed assets with long-term financing and inventories with short-term financing
Which of the following decrease cash?
Increasing fixed assets Decreasing equity
For US corporations, current assets have fallen from 50% of total assets in the 1960s to 40% of total assets today primarily because of more efficient:
Inventory management cash managment
A lack of safety reserves can lead to which of the following?
Lost customer goodwill Lost sales
Which of the following is NOT a characteristic of commercial paper?
Maturities of 1 year or more
Net working capital equals current assets ---- current liabilies
Minus
The balance sheet identity says:
Net working capital plus fixed assets equals long term debt plus equity.
Which activities are primary to short-term finance?
Operating and financial
Which of the following are shortage costs?
Order costs Safety reserve costs
Order of operating cycle
Order inventory sell the finished product collect cash from the sale
Two major elements of a firm's short-term financial policy are _____.
The financing of current assets The size of the firm's investment in current assets
The optimal balance of current assets occurs where the sum of the carrying costs and the shortage costs is at ----.
a minimum
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 policies are more costly, they result in ____.
a reduced probability of financial distress
Current assets are cash and other assets that will be turned into cash within ----.
a year
Current liabilities are firm obligations that will require cash payment within ----.
a year
The _____ period is the time between the receipt of inventory and actually paying for that inventory.
accounts payable
The cash cycle is equal to the operating cycle minus the _____ period.
accounts payable
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
The time taken to collect on credit sales is called the ____ period.
accounts receivable
The shorter the cash cycle, the lower the firm's investment in ___.
accounts receivable inventories
The gap between short-term cash flows and outflows can be filled by _____.
borrowing maintaining a liquid reserve
Short-term finance is concerned with current assets and current liabilities, whereas long-term finance is concerned with ----.
capital budgeting; capital structure; dividend policy
The opportunity costs of holding current assets are called _____ costs.
carrying
The primary tool in short-term financial planning is the _____ .
cash budget
The primary tool in short-term financial planning is the _____.
cash budget
The difference between the operating cycle and the accounts payable period is the _____.
cash cycle
The time between paying cash for inventory and receiving cash from selling a product is called the ______.
cash cycle
A committed line of credit is a more formal arrangement typically involving a _____.
commitment fee
Ending accounts receivable equals starting accounts receivable plus ____ minus collections.
credit sales
Commercial paper is an example of a:
debt security
Sources of cash can involve increasing a _____ account
equity and liability
The two types of accounts receivables financing are --- and ---.
factoring; assignment
Shortage costs are those that _____ when the level of investment in current assets is high.
fall
A short term financial policy involving a higher proportion of long term debt than short term debt is classified as a
flexible
A short-term financial policy involving a higher proportion of long-term debt than short-term debt is classified as a _____ policy.
flexible
Short-term cash flows are uncertain because ____.
future sales and costs cannot be precisely predicted
The time it takes to acquire and sell inventory is called the ___period.
inventory
Which of the following are generally used as security for short-term secured loans?
inventory accounts receivable
Dividend payments belong to the category of _____.
long-term financing expenses
The difference between cash collections and cash disbursements is the predicted _____.
net cash inflow
Uses of cash can involve increasing a _____ account.
non cash current asset fixed asset
Carrying costs involve:
opportunity costs
A restrictive short-term financing strategy implies _____.
possible cash shortages a small investment in net working capital
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 _____ when it is sold on credit.
receivable
The main problems with maturity mismatching are that it _____.
requires frequent refinancing is risky
Carrying costs _____ with the level of investment in current assets.
rise
Unsecure bank loans are:
short-term
Unsecured bank loans are:
short-term
Ideally, short-term assets are financed with _____.
short-term liabilities
Other important sources of short-term financing besides secured and unsecured borrowing for a company are:
trade credit commercial paper
A ____ bank loan requires no security or collateral.
unsecured
Those firm activities that decrease cash are called:
uses of cash
Non-committed lines of credit _____.
are informal arrangements generally specify a maximum amount that can be borrowed
The two types of accounts receivable financing are _____ and _____.
assignment and factoring