FIN 320 Chapter 16 smart book

a committed line of credit is a more formal arrangement typically involving a _________

commitment fee

inventory period equals _______ days divided by the inventory turnover

365

t/f the net payments receivable equals the cash collections minus the cash disbursements

false

a lack of safety reserves can lead to which of the following?

lost sales, lost customer goodwill

Activity matching

1. buy raw materials -> what is the desired level of inventory 2. sell a product -> should credit be extended 3. make a product -> what technology should be used 4. pay cash for purchases -> should money be borrowed or cash reserves used

receivables period equals ________ days divided by the receivables turnover

365

which of the following increase the cash cycle?

a longer inventory period, a longer receivables period

a flexible short term financing strategy implies surplus cash and little borrowing, but the advantages of such a strategy is

a reduced probability of financial distress

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 _______ 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 is composed of which periods?

accounts receivable period, inventory period

non-committed lines of credit ______

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

the optimal balance of current _________ occurs where the sum of the carrying costs and the shortage costs is at a minimum

assets

the two types of accounts receivable financing are _______ and ________

assignment, factoring

the gap between short-term cash inflows and outflows can be filled by ______

borrowing, maintaining a liquidity reserve

short term finance is concerned with current assets and current liabilities, whereas long term finance is concerned with ______

capital structure, dividend policy, capital budgeting

the opportunity costs of holding current assets are called _______ costs

carrying

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

match the titles with the duties of short term financial managers

cash manager -> marketable securities credit manager -> accounts receivable purchasing manager -> inventory payables manager -> accounts payable

a flexible short term financing strategy implies

cash surpluses, a relatively large pool of marketable securities

under a factored receivables arrangement

collection of the receivables is the factor's responsibility

ending accounts receivable equals starting accounts receivable plus ________ minus collections

credit sales

what does a receivables turnover ratio of 57 mean?

customers took, on average, 57 days to pay

commercial paper is an example of a:

debt security

t/f the collection cycle is the difference between disbursement and collection of cash

false

which activities are primary to short term finance?

financing activities, operating activities

what does maturity hedging involve?

financing fixed assets with long term financing and inventories with short term financing

a short term financing policy involving a higher proportion of long term debt then short term debt is classified as a ________ policy

flexible

short term cash flows are uncertain because ________

future sales and costs cannot be precisely predicted

a restrictive short term financial policy implies a _________ proportion of short term debt relative to long term debt

high

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 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

the main problems with maturity mismatching (financing long-term assets with long term debt) are that it ______

is risky, requires frequent refinancing

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 hedging

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

net cash inflow

what does an inventory period of 111 days mean?

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

the primary concerns in short term finance are the firms short run __________ and financing activities

operating

the difference between the _______ cycle and the accounts payable period is the _________ cycle

operating, cash

carrying costs involve:

opportunity costs

a restrictive short term financing strategy implies

possible cash shortages, a small investment in net working capital

carrying costs _______ with the level of investment in current assets

rise

either stock out or cash out costs occur when a firm _______

runs out of inventory to sell, runs out of available cash

which of the following are shortage costs?

safety reserve costs, order costs

being low on cash can force a firm to ________

sell marketable securities, borrow money, default on debt

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

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

ideally, short term assets are financed with _______

short term liabilities

which short term financial managers are involved with selling on credit and are directly responsible to the Vice President of finance?

the credit manager, the controller

the 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

t/f a stock out occurs if a store runs out of inventory and could result in lost customers

true

t/f the payables turnover equals the cost of goods sold divided by the average payables

true