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