Ch. 16: Short-Term Financial Planning

Which of the following are examples of cash disbursements?

1.) Wages and taxes 2.) Capital expenditures 3.) Payments of accounts payable

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

1.) Capital structure 2.) Dividend policy 3.) Capital budgeting

For U.S. corporations, current assets have fallen from 50% of total assets in the 1960s to 40% of total assets today primarily because of more efficient:

1.) Cash management 2.) Inventory management

Under a factored receivables arrangement....

1.) Collection of the receivables is the factor's responsibility 2.) Receivables are sold at a discount

Short-term financing is primarily concerned with ______.

1.) Current liabilities 2.) Current assets

Sources of cash can involve increasing a _____ account.

1.) Equity 2.) Liability

Uses of cash can involve increasing a(n)______ account.

1.) Non cash current asset 2.) Fixed asset

Operating Cycle Steps

1.) Order inventory 2.) Sell the finished product 3.) Collect cash from the sale

A restrictive short-term financing strategy implies______.

1.) Possible cash shortages 2.) A small investment in net working capital

The main problems with maturity mismatching (financing long-term assets with short-term debt) are that it _______.

1.) Requires frequent refinancing 2.) Is risky

If the cost of goods sold is $10 million and the average payables is $5 million, then the payables turnover is _______ times.

$10m / $5m = 2 times

Which of the following increase the cash cycle?

1.) A longer inventory period 2.) A longer receivables period

A flexible short-term financing strategy implies:

1.) A relatively large pool of marketable securities. 2.) Cash surpluses.

Which of the following are generally used as security for short-term secured loans?

1.) Accounts receivable 2.) Inventory

Which of the following are typical inventory loans?

1.) Blanket inventory lien 2.) Field warehouse financing 3.) Trust receipt

The gap between short-term cash inflows and outflows can be filled by __________.

1.) Borrowing 2.) Maintaining a liquidity reserve

Either stock-out or cash-out costs occur when a firm ______.

1.) Runs out of available cash 2.) Runs out of inventory to sell

The cash budget allows the firm to identify:

1.) Short-term financial needs 2.) Short-term financial opportunities

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

1.) The financing of current assets 2.) The size of the firm's investment in current assets.

Other important sources of short-term financing besides secured and unsecured borrowing for a company are:

1.) Trade credit 2.) Commercial paper

If the receivables turnover ratio is 36.5, then the receivables period is _______ days.

10

If a firm has an inventory period of 100 days and an accounts receivable period of 42 days, then their operating cycle is ______ days.

100 + 42 = 142 days

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.

100 - 40 = 60 days

If the payables turnover is 14 times, what is the payables period?

365/14 = 26 days

Under which type of inventory loan does the lender have a lien against all of the borrower's inventory?

A blanket inventory lien

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.

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

A year.

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 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

Ending accounts receivable equals starting accounts receivable plus _______ minus collections.

Credit sales

Commercial paper is an example of a:

Debt security

Shortage costs are those that ______ when the level of investment in current assets is high.

Fall

What does maturity hedging involve?

Financing fixed assets with long-term financing and inventories with short-term financing.

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 is not a characteristic of commercial paper?

Maturities of 1 year or more.

The difference between cash collections and cash disbursements is the predicted _______.

Net cash inflow

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

Rise

Unsecured bank loans are:

Short term

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

What's the difference between the operating cycle and the accounts payable period?

The cash cycle.

The balance sheet identity says:

net working capital plus fixed assets equals long-term debt plus equity

A flexible short-term financing strategy implies:

1.) Cash surpluses 2.) A relatively large pool of marketable securities

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

1.) Factoring 2.) Assignment

Which activities are primary to short-term finance?

1.) Financing activities 2.) Operating activities

Non-committed lines of credit ______.

1.) Generally specify a maximum amount that can be borrowed. 2.) Are informal arrangements

Which of the following are activities that increase cash?

1.) Increasing long-term debt 2.) Decreasing fixed assets

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

1.) Lost customer goodwill 2.) Lost sales