FIN 3414 - Chapter 18/16---0

Wilt's has a 45-day collection period. If you assume a 90-day quarter, then Wilt's cash collections in Quarter 2 are equal to ___.

.5 × Quarter 1 sales + .5 × Quarter 2 sales In Quarter 2, Wilt's will collect the last half of Quarter 1 sales and the first half of Quarter 2 sales.

If the inventory period is 98 days, the receivables period is 36 days, the payables period is 43 days, and the receivables turnover is 7 times, what is the operating cycle?

134 days Operating cycle = Inventory period + Accounts receivable period 98 days + 36 days = 134 days

The operating cycle is composed of which periods?

Accounts receivable period Inventory period

Which of the following are examples of cash disbursements?

Capital expenditures Wages and taxes Payments of accounts payable

The formula for net cash inflow is

Cash collections - cash disbursements

For U.S. manufacturing, mining, and trade corporations, current assets as a percentage of total assets has declined since the 1960s. Which of the following are reasons for that decline?

Efficient cash management Efficient inventory management

A short-term financial plan will include which of the following?

Interest on short-term borrowing Minimum cash balance Cumulative surplus (deficit)

Which of the following are characteristics of non-SEC registered commercial paper?

Issued directly by the firm Interest often below prime rate Issued by large, highly rated firms

Which of the following are true of the cash budget?

It helps explore the need for short-term borrowing. It helps identify short-term financial needs.

Which of the following are true of the operating cycle?

It tells us how many days elapse between when we acquire inventory and when we collect payment for the sale of the inventory. It is the sum of the inventory and receivables periods.

A flexible short-term financing strategy implies which of the following?

Little short-term borrowing Surplus cash

Which of these are characteristics of non-SEC registered commercial paper?

Lower interest rate than that charged by a bank for a direct loan Original maturity of 270 days or less Frequently backed by a bank line of credit

Which activities are primary to short-term finance?

Operating activities Financing activities

Which short-term financial managers are involved with selling on credit?

The credit manager The marketing manager The controller

Under assigned receivables, which of the following are true?

The lender has recourse to the borrower. The lender has a lien on the receivables.

A flexible short-term financing strategy implies surplus cash and little short-term borrowing. The advantage of such a strategy is ___.

a lower probability of financial distress

Current liabilities are firm obligations that will require cash payment within ___.

a year

The shorter the cash cycle, the lower the firm's investment in ______.

accounts receivable inventories

Short-term finance is concerned with current assets and current liabilities, whereas long-term finance is concerned with ___.

capital budgeting dividend policy financial structure

Dividend payments belong to the category of ___.

capital expenditures

Deposits a firm must keep with the bank as part of a loan agreement are called ____.

compensating balances

Short-term finance is primarily concerned with ___.

current assets current liabilities

In a situation where short-term assets are always financed with short-term liabilities and where long-term assets are always financed with long-term liabilities, net working capital is always ___.

equal to zero

The two types of accounts receivable financing are ____ and ____.

factoring assignment

The marketing manager may want easier credit terms to increase sales, but the credit manager may worry about ______.

higher receivables and bad debt risk

Compensating balances effectively ______ the interest rate being paid on a loan.

increase

Current liabilities are firm obligations that will require payment within the ______ cycle if it is longer than a year.

operating

The ______ cycle is the time from when inventory is acquired until cash is collected from the sale of the product.

operating

Carrying costs are ___.

opportunity costs

Since the 1960's, the U.S. manufacturing, mining, and trade corporations have signaled a move towards a more ____ short-term financing policy.

restrictive

Carrying costs ______ with the level of investment in current assets.

rise

Ending accounts receivable equals beginning accounts receivable plus ______ minus collections.

sales

Total asset turnover is defined as

sales divided by total assets.

The firm's short-run operating and financing activities are the primary concerns in ____of ____ finance.

short-term

A short-term financial plan will include

short-term borrowing repaid. a minimum cash balance. new short-term borrowing.

The financing of current assets is measured as the proportion of ___ used to finance current assets.

short-term debt to long-term debt

The cash flow budget allows the firm to identify ___.

short-term financial needs short-term financial opportunities

Ideally, short-term assets are financed with ___.

short-term liabilities

The two major elements of a firm's short-term financial policy are ___.

the size of the firm's investment in current assets the financing of current assets

Net cash inflow is equal to ___.

total cash collections minus total cash disbursements

Another term for accounts payable is ____.

trade credit

Which of the following are true of trade credit?

Trade credit is money borrowed from suppliers. Trade credit is a source of short-term financing.