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Exam 26: Short-Term Finance and Planning

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Question 21

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Your firm has a line of credit with your local bank for £50,000.The loan agreement calls for interest of 9% with a 5% compensating balance requirement which is based on the total amount borrowed. What is the effective interest rate if you need £42,750 for one year to cover your operating Expenses?

A) 8.55%
B) 9.00%
C) 9.13%
D) 9.38%
E) 9.47%

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Question 22

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The length of time between the payment for inventory and the collection of cash from receivables is called the:

A) operating cycle.
B) inventory period.
C) trade receivables period.
D) trade payables period.
E) cash cycle.

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Question 23

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StarrKnight Corporation's Statement of financial position and Income Statement as shown below: The average inventory for the StarrKnight Corporation in 2015 is __________

A short-term loan secured by the borrower's inventory, either directly or via an intermediary, is called a(n) :

Which of the following are uses of cash? I.Marketable securities are sold. II) The amount of inventory on hand is increased. III) The firm takes out a long-term bank loan. IV) Payments are paid on trade payables.

StarrKnight Corporation's Statement of financial position and Income Statement as shown below: The inventory turnover ratio for 2015 for StarrKnight Corporation is (use average inventory) _______ .

A firm has sales of £720,000.The cost of goods sold is equal to 70% of sales.The firm has an average inventory of £6,500.How many days on average does it take the firm to sell its inventory?

Which of the following are benefits of compiling a short-term financial plan? I.Knowing ahead of time when your firm will probably require external financing. II) Being able to estimate how long of a time period your firm might need a loan. III) Being able to determine when your firm can best afford to spend funds on a capital expenditure. IV) Knowing when your firm should have excess funds that can be invested.

Which of the following actions will tend to decrease the inventory period? I.Discontinuing all slow-selling merchandise. II) Selling obsolete inventory below cost just to get rid of it. III) Buying raw materials only as they are needed in the manufacturing process. IV) Producing goods on demand versus for inventory.

The cash cycle is defined as the time between:

Which one of the following statements concerning the cash cycle is correct?

An increase in which one of the following is most apt to be an indicator of a trade receivables policy that is too restrictive?

LoDo has sales of £642,000 and average trade payables of £36,400.The cost of goods sold is equivalent to 65% of sales.How long does it take LoDo to pay its suppliers?

Cash cycle equals:

StarrKnight Corporation's Statement of financial position and Income Statement as shown below: StarrKnight Corporation's days in receivables for 2015 is (use average trade receivables) ______ .

Assets presented on the statement of financial position are in order of accounting liquidity. Accounting liquidity refers to:

A restrictive short-term financial policy tends to:

A firm currently has a 43 day cash cycle.Assume that the firm changes its operations such that it increases its receivables period by 2 days, decreases its inventory period by 1 day and increases its Payables period by 3 days.What will the length of the cash cycle be after these changes?

Trade receivables and inventory are some of the most liquid assets a firm owns and their market values are typically fairly close to book value.Even so, in the eyes of many lenders, these assets make for inadequate collateral on loans, particularly if the business looking to borrow the money is in a liquidity crisis.Why do you think this is the case?

D & F expects sales of £620, £650, £730 and £780 for the months of April through to July, respectively.The firm collects 20% of sales in the month of sale, 50% in the month following the Month of sale and 28% in the second month following the month of sale.The remaining 2% of sales Is never collected.How much money does the firm expect to collect in the month of July?