Ch. 18: Short Term Finance and Planning

Which short-term financial manager is in charge of marketable securities? a. Cash manager b. Credit manager c. Purchasing manager d. Payables manager

a

Select all that apply. Which of the following are examples of current liabilities? a. Expense accruals b. Accounts receivable c. Accounts payable d. Bonds and stocks

a, c

Select all that apply. Which of the following are examples of cash disbursements? a. Payments of accounts payable b. Depreciation and amortization c. Wages and taxes d. Capital expenditures

a, c, d

The time it takes to collect on the sale of a product is called the _____ period. a. patience b. accounts receivable c. inventory d. accounts payable

b

The ______ cycle is the time from when inventory is acquired until cash is collected from the sale of the product. a. cash b. billing c. operating d. inventory

c

The operating cycle is the sum of the ______ period and the accounts receivable period. a. notes payable b. accounts payable c. inventory d. cash

c

What is the correct order of the steps of the operating cycle? a. Sell the finished product b. Collect cash from the sale c. Order inventory

c, a, b

Select all that apply. Commercial paper is an example of a _____ security. a. capital market b. equity c. short-term d. debt

c, d

Loans financed with inventory as collateral are called ____ loans. a. inventory b. marketable c. flexible d. noncommitted

a

Net working capital equals current assets ______ current liabilities. a. minus b. times c. divided by d. plus

a

Other things constant, the shorter the inventory period, the ______ cash is collected. a. quicker b. slower

a

Short-term assets are listed on the balance sheet in decreasing order of ___. a. the time needed to convert them to cash b. the date they were acquired c. their importance to operations d. their balances

a

The balance sheet identity says _____. a. net working capital plus fixed assets equals long-term debt plus equity b. bonds plus stocks equal firm value c. net working capital plus equity equals fixed assets plus long-term debt d. total assets equal total liabilities

a

Total asset turnover is defined as ___. a. sales divided by total assets b. sales divided by net income c. total assets divided by sales d. cost of goods sold divided by total purchases

a

What is the formula for the inventory period if the inventory turnover is 10 times? a. 365/10 b. 10/100 c. 10/12 d. 100 days

a

Which of the following activities relates to the decision of what is the desired level of inventory? a. buy raw materials b. sell a product c. make a product d. pay cash for purchases

a

Select all that apply. Other important sources of short-term financing besides secured and unsecured borrowing for a company are _____. a. trade credit b. commercial paper c. short-term stocks d. asset-backed bonds

a, b

Select all that apply. Which of the following activities by a firm will increase cash? a. Selling stock b. Obtaining a loan c. Buying property d. Selling bonds

a, b, d

Select all that apply. The shorter the cash cycle, the lower the firm's investment in ______. a. accounts receivable b. fixed assets c. inventories d. accounts payable

a, c

Select all that apply. Which of the following are examples of current liabilities? a. Accrued wages b. Materials inventory c. Accounts payable d. Accrued taxes

a, c, d

Select all that apply. For U.S. corporations, current assets have fallen from 50 percent of total assets in the 1960s to 40 percent of total assets today primarily because of more efficient _____. a. cash management b. financial markets c. fixed asset management d. inventory management

a, d

Select all that apply. Which of the following are activities that increase cash? a. Increasing long-term debt b. Increasing fixed assets c. Decreasing current liabilities d. Decreasing fixed assets

a, d

One disadvantage to a flexible financing policy is that ____ rates are usually higher than _____ rates. a. short-term; long-term b. long-term; short-term

b

Select all that apply. The two types of accounts receivable financing are ___ and ____. a. accepting b. assignment c. securing d. factoring

b, d

What does maturity hedging involve? a. Financing both inventories and fixed assets with long-term financing b. Financing both inventories and fixed assets with short-term financing c. Financing fixed assets with long-term financing and inventories with short-term financing d. Financing inventories with long-term financing and fixed assets with short-term financing

c

Which of the following activities relates to the decision of what technology should be used? a. buy raw materials b. sell a product c. make a product d. pay cash for purchases

c

If the investment in accounts receivable is lower, then ___. a. total assets are higher b. total assets are lower c. total inventory is lower d. total payables are higher

b

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 ___. a. positive b. equal to zero c. negative.

b

The financing of current assets is measured by the proportion of _____. a. current assets to current liabilities used to finance current assets b. short-term debt and long-term debt used to finance current assets c. short-term debt to equity used to finance current assets d. long-term debt to equity used to finance current assets

b

The operating cycle equals the sum of the inventory period and the ______ period. a. accounts payable b. accounts receivable c. cash d. credit

b

What are the two components of the operating cycle (in order of occurrence)? a. The accounts receivable period and the inventory period b. The inventory period and the accounts receivable period c. The cash cycle period and the accounts receivable period d. The accounts payable period and the accounts receivable

b

Select all that apply. Some examples of short-term flexible financing policies include ___. a. low dividend payouts b. large cash balances c. large investments in inventory d. low accounts receivable

b, c

Select all that apply. The cash budget allows the firm to identify ___. a. future changes in the dividend growth rate b. short-term financial needs c. short-term financial opportunities d. long-term financing needs

b, c

Current liabilities are firm obligations that will require cash payment within ___. a. five years b. two years c. a year d. three years

c

Dividend payments belong to the category of ___. a. wages, taxes, and other expenses b. capital expenditures c. long-term financing expenses d. accounts payable

c

Ending accounts receivable equals beginning accounts receivable plus ______ minus collections. a. total assets b. dividends c. sales d. net income

c

Inventory loans use inventory as ____. a. a compensating balance b. payment of interest c. collateral d. evidence of firm stability

c

Shortage costs are those that ______ when the level of investment in current assets is high. a. undulate b. rise c. fall d. inflate

c

Which one of the following is an example of a flexible short-term financial policy? a. Allowing no credit sales b. Low investment in marketable securities c. Making large investments in inventory d. Keeping low cash balances

c

Carrying costs ______ with the level of investment in current assets. a. stabilize b. implode c. fall d. rise

d

Current assets are cash and other assets that will be turned into cash within ___. a. five years b. one and a half years c. two years d. a year

d

Deposits a firm must keep with the bank as part of a loan agreement are called ____. a. compensating balances b. noncommitted balances c. noncommitted cleanup reserves d. committed cleanups

a

Select all that apply. Which of the following are shortage costs? a. Depreciation costs b. Order costs c. Safety reserve costs d. Dividend payout costs

b, c

A flexible short-term financing strategy implies surplus cash and little short-term borrowing. The advantage of such a strategy is ___. a. a lower debt-equity ratio than that of a comparable firm with a restrictive policy b. lower interest costs than that incurred by a comparable firm with a restrictive policy c. a lower probability of financial distress

c

The time taken to collect on credit sales is called the ___ period. a. inventory b. accounts payable c. credit sales d. accounts receivable

d

Which of the following activities relates to the decision of should money be borrowed or cash reserves used? a. buy raw materials b. sell a product c. make a product d. pay cash for purchases

d

Which short-term financial manager is in charge of accounts payable? a. Cash manager b. Credit manager c. Purchasing manager d. Payables manager

d

Select all that apply. Short-term finance is primarily concerned with ___. a. retained earnings b. current assets c. stocks and bonds d. current liabilities

b, d

Select all that apply. The operating cycle is composed of which periods? a. Cash cycle b. Inventory period c. Accounts payable period d. Accounts receivable period

b, d

Select all that apply. The two major elements of a firm's short-term financial policy are the ___. a. firm's dividend policy b. financing of current assets c. firm's capital budgeting policy d. size of the firm's investment in current assets

b, d

Select all that apply. Which activities are primary to short-term finance? a. Investing in fixed assets b. Operating activities c. Selling stock and bonds d. Financing activities

b, d

Which short-term financial manager is in charge of inventory? a. Cash manager b. Credit manager c. Purchasing manager d. Payables manager

c

Current liabilities are firm obligations that will require payment within the ______ period if it is longer than a year. a. investment b. replacement c. business d. operating

d

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. a. 70 b. 140 c. 30 d. 60

d

Select all that apply. Some examples of restrictive short-term financial policies include ___. a. high dividend payouts b. low cash balances c. low investment in inventory d. few credit sales

b, c, d

A cash shortfall can occur because of delayed collections on ______. a. receivables b. sales tax c. inventory d. notes payable

a

Carrying costs involve _____ costs. a. opportunity b. depreciation c. overhead d. cash

a

Compensating balances effectively ______ the interest rate being paid on a loan. a. increase b. eliminate c. decrease

a

Current assets are listed on the balance sheet in ____ order. a. book value b. liquidity c. market value d. random

b

Which of the following activities relates to the decision of should credit be extended? a. buy raw materials b. sell a product c. make a product d. pay cash for purchases

b

Which of the following is an example of a restrictive short-term financial policy? a. Granting liberal credit terms b. Keeping low cash balances c. Making large investments in inventory d. Keeping a large investment in marketable securities

b

Which short-term financial manager is in charge of accounts receivable? a. Cash manager b. Credit manager c. Purchasing manager d. Payables manager

b

T/F: Companies in the United States have moved to less restrictive short-term policies throughout history.

False

Ideally, short-term assets are financed with ___. a. short-term liabilities b. corporate bonds c. equity d. long-term liabilities

a

The basic balance sheet identity can be written as Net working capital + Fixed assets = Long-term debt + ______. a. Equity b. Short-term assets c. Cash d. Current assets

a

Select all that apply. Which of the following are examples of current assets? a. Marketable securities b. Short-term notes c. Accounts payable d. Cash

a, d

If starting accounts receivable are $100, sales are $200, and cash collections are $50, then the formula for ending accounts receivable is ___. a. $100 - 200 - 50 b. $100 + 200 - 50 c. $100 - 200 + 50 d. $100 + 200 + 50

b

Select all that apply. Short-term finance is concerned with current assets and current liabilities, whereas long-term finance is concerned with ___. a. accruals policy b. capital structure c. inventory management d. dividend policy e. capital budgeting

b, d, e

A forecast of cash receipts and disbursements for the next planning period is called a cash __________.

budget

A product begins its accounting life as inventory and is converted to a(n) ______ when it is sold on credit. a. payable b. intangible c. cash flow d. receivable

d

Another name for short-term financial management is ___ management. a. current liability b. total earnings c. current asset d. working capital

d

The marketing manager may want easier credit terms to increase sales, but the credit manager may worry about ______. a. higher payables and higher receivables b. lower payables and lower receivables c. lower receivables and bad debt risk d. higher receivables and bad debt risk

d

The time between paying cash for inventory and receiving cash from selling a product is called the ______. a. accounts receivable period b. operating cycle c. accounts payable period d. cash cycle

d

The ___________ turnover is the cost of goods sold divided by the average inventory.

inventory

Accounts receivable financing is a secured ______________-term loan that involves either the assignment or the factoring of receivables.

short

Select all that apply. Short-term finance is primarily concerned with ___. a. stocks and bonds b. current assets c. current liabilities d. retained earnings

b, c