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The cash cycle is equal to which one of the following?


A) Inventory period minus the accounts payable period
B) Operating cycle plus the accounts payable period
C) Operating cycle minus the accounts receivable period
D) Accounts receivable period minus the accounts payable period plus the inventory period
E) Inventory period minus the accounts receivable period minus the accounts payable period

Correct Answer

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Generally speaking, which of the following situations will occur if a seasonal company adopts a compromise financial policy? I. periods where short-term financing is required II less long-term debt than if the firm followed a restrictive financial policy III) periods of excess funds which can be invested in short-term marketable securities IV) lower investment in fixed assets than if the firm adopted a flexible financial policy


A) I only
B) II only
C) I and III only
D) II and IV only
E) I, III, and IV only

Correct Answer

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Which one of the following firms is most apt to have the shortest inventory period?


A) General merchandise retail store
B) Hardware store
C) Furniture store
D) Locomotive manufacturer
E) Delicatessen

Correct Answer

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Which one of the following statements related to a cash budget is correct?


A) Capital expenditures are treated as a cash inflow on a cash budget.
B) The cumulative surplus is computed prior to adjusting for the minimum cash balance.
C) A positive net cash inflow for a period indicates the cash disbursements exceed the cash collections for the period.
D) Financially healthy firms can have a negative quarterly net cash inflow.
E) Firms generally set the minimum cash balance at zero for planning purposes.

Correct Answer

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Lacey's has an average collection period of 32 days and factors all of its receivables immediately at a 1.1 percent discount. Assume all accounts are collected in full. What is the firm's effective cost of borrowing?


A) 13.38 percent
B) 13.45 percent
C) 13.57 percent
D) 13.63 percent
E) 13.88 percent

Correct Answer

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Which one of the following is a use of cash?


A) Issuing new shares of stock
B) Increasing accounts payable
C) Decreasing inventory
D) Decreasing fixed assts
E) Increasing accounts receivable

Correct Answer

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Miller & Aberstadt has the following estimated sales. Miller & Aberstadt has the following estimated sales. Purchases are equal to 68 percent of the following quarter's sales. What is the estimated amount of purchases for quarter two? A) $5,209 B) $5,508 C) $5,848 D) $6,460 E) $6,720 Purchases are equal to 68 percent of the following quarter's sales. What is the estimated amount of purchases for quarter two?


A) $5,209
B) $5,508
C) $5,848
D) $6,460
E) $6,720

Correct Answer

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Suppose that Martin Metal Products changes its policy and starts requiring all of its customers to pay within 20 days rather than the 30 days that it currently allows. Which one of the following will result from this change?


A) Increase in receivables period
B) Increase in inventory period
C) Decrease in cash cycle
D) Increase in operating cycle
E) Increase in accounts payable period

Correct Answer

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A firm has the following account balances. Which one of the following statements is correct concerning those balances? A firm has the following account balances. Which one of the following statements is correct concerning those balances? A) Accounts receivable is a $900 source of cash. B) Common stock is a $1,500 source of cash. C) Net working capital, excluding cash, is a $1,500 use of cash. D) Long-term debt is a $5,800 source of cash. E) Total debt is a $6,100 use of cash.


A) Accounts receivable is a $900 source of cash.
B) Common stock is a $1,500 source of cash.
C) Net working capital, excluding cash, is a $1,500 use of cash.
D) Long-term debt is a $5,800 source of cash.
E) Total debt is a $6,100 use of cash.

Correct Answer

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Which one of the following statements is true, all else constant?


A) A decrease in the accounts receivable turnover rate decreases the cash cycle.
B) Paying a supplier within the discount period, rather than waiting until the end of the normal credit period, will decrease the cash cycle.
C) The cash cycle can never be negative.
D) An increase in the inventory turnover rate will decrease the cash cycle.
E) The payables period must be shorter than the receivables period.

Correct Answer

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All else held constant, which one of the following statements is correct concerning the accounts payable period?


A) The accounts payable period is equal to 365/(Sales/Average accounts payable) .
B) A decrease in the accounts payable period will increase the operating cycle.
C) An increase in the accounts payable period will decrease the cash cycle.
D) A decrease in the accounts payable period will decrease the operating cycle.
E) An increase in the accounts payable turnover rate decreases the cash cycle.

Correct Answer

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Which one of the following industries is most apt to have the shortest operating cycle?


A) Toy store
B) Car manufacturer
C) Local restaurant
D) Furniture store
E) Plastics manufacturer

Correct Answer

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Identify and briefly explain three ways in which a firm can finance its short-term assets.

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Students should identify and explain thr...

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Frank's Oil Supply has a cash balance of $27 and a short-term loan balance of $50 at the beginning of quarter one. The net cash inflow for the first quarter is $68 and for the second quarter there is a net cash outflow of $23. All cash shortfalls are funded with short-term debt. The firm pays 2 percent of its prior quarter's ending loan balance as interest each quarter. The minimum cash balance is $15. What is the short-term loan balance at the end of the first quarter?


A) $0
B) $13
C) $15
D) $17
E) $18

Correct Answer

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Shane's Music has a line of credit with a local bank that permits it to borrow up to $750,000 at any time. The interest rate is 0.28 percent per month. The bank charges compound interest and also requires that 4 percent of the amount borrowed be deposited into a noninterest-bearing account. How much interest will the firm pay if it needs $500,000 of cash for four months to pay its operating expenses?


A) $5,857.88
B) $5,949.21
C) $6,017.02
D) $6,039.91
E) $6,208.11

Correct Answer

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The Bird Cage has the following estimated sales: The Bird Cage has the following estimated sales: Purchases are equal to 67 percent of the following quarter's sales. The sales for the first quarter of the following year are estimated at $42,100. The accounts receivable period is 30 days and the accounts payable period is 45 days. Assume there are 30 days in each month. By how much will the firm's collections exceed its payments for quarter two? A) $9,648.50 B) $11,884.20 C) $13,383.50 D) $17,925.00 E) $24,211.70 Purchases are equal to 67 percent of the following quarter's sales. The sales for the first quarter of the following year are estimated at $42,100. The accounts receivable period is 30 days and the accounts payable period is 45 days. Assume there are 30 days in each month. By how much will the firm's collections exceed its payments for quarter two?


A) $9,648.50
B) $11,884.20
C) $13,383.50
D) $17,925.00
E) $24,211.70

Correct Answer

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Moore & Moore has just finished projecting its expected cash receipts and expenditures for next year. What is this projection called?


A) Operating projection
B) Receivables schedule
C) Balance sheet
D) Cash budget
E) Compromise policy

Correct Answer

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Which one of the following defines the cash cycle?


A) Inventory period plus the accounts receivable period
B) Inventory period plus the accounts payable period
C) Operating cycle minus the inventory period
D) Operating cycle minus the accounts payable period
E) Operating cycle minus the accounts receivable period

Correct Answer

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Dexter Companies has a conventional factoring arrangement with its local bank. Which one of the following would be a common characteristic of that type of financing arrangement?


A) Dexter Companies will receive the full amount of the accounts receivables included in this arrangement on an agreed upon date sometime in the future.
B) The responsibility for collecting the covered receivables lies with Dexter Companies.
C) Any bad debt that results from an account receivable included in this arrangement will be a cost to the bank.
D) Dexter Companies will pay a monthly fee to the bank and in turn will receive payment for the full amount of its accounts receivables.
E) The arrangement keeps the receivables as an asset of Dexter Companies but places a lien on those accounts in favor of the lending bank.

Correct Answer

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Consider the following financial statement information for Kirkwood United. Consider the following financial statement information for Kirkwood United. Assume all sales are on credit. How long is the cash cycle? A) 28.21 days B) 33.25 days C) 51.03 days D) 51.58 days E) 53.57 days Assume all sales are on credit. How long is the cash cycle?


A) 28.21 days
B) 33.25 days
C) 51.03 days
D) 51.58 days
E) 53.57 days

Correct Answer

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