Finance
A cash budget seeks to determine estimated costs and revenues in order to forecast earnings.
False
A doubling of carrying costs will cut in half the economic order quantity.
False
An increase in accounts payable and in inventory suggests that net working capital also increased.
False
An origination fee reduces the cost of credit.
False
Cash outflows that are not expenses (e.g., mortgage payments) are excluded from the cash budget.
False
Commercial paper is primarily sold in small denominations of less than $10,000.
False
Commercial paper is usually secured by inventory.
False
If a firm has an excellent credit rating, it may use commercial paper as a source of long‑term finance
False
Increasing the speed with which receivables are collected has no impact on the cash budget.
False
Negotiable CDs are an example of a money market instrument for which there is no secondary market.
False
Since commercial bank loans are cheaper than trade credit, few firms use trade credit.
False
Since not all new credit sales will be collected, that implies the firm should not grant credit.
False
The safety stock is the maximum amount of inventory that the firm should seek to carry.
False
The smaller the trade discount, the more expensive is the trade credit.
False
Warehouse financing reduces risk to borrowers.
False
When a commercial bank grants a loan, it may decrease the cost of the loan by requiring an origination fee
False
The cash budget includes
cash receipts and disbursements
The cost of commercial paper (i.e., the interest rate)
decreases as the paper's price increases.
The cash budget excludes
depreciation
An origination fee
increases the yield on a loan to the bank.
The cash budget is constructed using
receipts and disbursements
More lenient terms of credit will probably decrease
receivables turnover
Generally it is not wise to use
short term debt to finance long term assets.
The lower the rate of interest, the smaller is
the cost of carrying inventory.
To determine the effective cost of a loan, the borrower needs to know
the length (or term) on the loan.
Which of the following increases financial risk?
the substitution of short-term debt for long-term debt
It is not wise to use a line of credit to finance the acquisition of plant.
true
The more lenient the terms of credit, the riskier is the firm's credit policy.
true
The cash budget includes 1. tax payments 2. collection of accounts receivable 3. principal repayments
1, 2, and 3
Which of the following terms of trade credit is the least expensive?
1/10, n45
Which of the following argues for extending credit?
an increase in both sales and inventory turnover
Which of the following should tend to decrease the firm's profitability? 1. a decrease the speed with which receipts are processed 2. an increase in the allowance for doubtful accounts 3. riding the credit of the firm's suppliers
1 and 2
A cash budget differs from an income statement because the cash budget 1. does not determine profits or losses 2. excludes depreciation expense 3. uses disbursements and not expenses
1 and 3
Which of the following argues against extending credit? 1. increased collection expense 2. reduced collection expense 3. increased bad debt expense 4. reduced bad debt expense
1 and 3
Which of the following money market securities are sold at a discount? 1. commercial paper 2. corporate stock 3. certificates of deposit 4. Treasury bills
1 and 4
A cash budget differs from a balance sheet because the cash budget 1. does not enumerate the firm's assets 2. does not enumerate the firm's liabilities 3. does not indicate the firm's retained earnings
1, 2, and 3
Credit policy requires 1. establishing the terms of credit 2. determining to the amount of any discount 3. determining the collection policy
1, 2, and 3
The matching principle suggests that 1. equipment should be financed with long-term sources 2. current assets may be financed with short-term sources 3. plant should not be financed with short-term sources
1, 2, and 3
3/10, n60 implies 1. a 3% discount if paid in 60 days 2. a 3% discount if paid in 10 days 3. payment must be made by the 60th day
2 and 3
The prime rate is 1. the rate banks charge their customers 2. the rate banks charge their best customers 3. generally less than the rate on Treasury bills 4. generally greater than the rate on Treasury bills
2 and 4
2/10, n30 implies
2% discount if the bill is paid in 10 days.
The cash budget excludes
accruals
Secured loans imply
an asset is pledged to support the loan.
A cash budget enumerates receipts and disbursements.
True
Accounts payable are excluding from the cash budget.
True
Collecting accounts receivable are including when constructing a cash budget.
True
Depreciation is excluded from the cash budget.
True
If a firm uses short-term sources of finance instead of long-term, its financial risk is increased
True
If goods cost $100 and the terms of credit are n30, the firm has 30 free days use of the goods.
True
Only firms with good credit ratings are able to sell commercial paper.
True
Short-term financing is an inappropriate source of finance to acquire long-term assets.
True
The bottom line of a cash budget shows the firm's excess cash or need for external f
True
The use of short-term instead of long-term debt financing tends to increase both earnings and risk.
True
Treasury bills and commercial paper are examples of liquid assets.
True
Treasury bills do not pay a set rate of interest but are sold at a discount.
True
