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Exam 16: Short-Term Financial Planning

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Question 1

Multiple Choice

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Which characteristic applies to commercial paper?

A) Maturities of 270 days or more
B) Offerings registered with the SEC
C) Interest rates higher than comparable bank loans
D) Issued directly by large-sized firms
E) Issued primarily by low-rated firms

F) C) and E)
G) A) and B)

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D

Question 2

Multiple Choice

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The Corner Market has annual sales of $761,000 and cost of goods sold of $568,000.The profit margin is 4.2 percent and the accounts payable period is 37 days.What is the average accounts payable balance?

A) $77,142
B) $65,488
C) $57,578
D) $73,211
E) $59,449

F) A) and B)
G) B) and C)

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Question 3

Multiple Choice

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To ensure an unsecured line of credit is used solely for short-term purposes,the loan arrangement frequently includes which one of the following?

A committed line of credit:

The Cookie Shops' purchases are equal to 73 percent of the following month's sales.The accounts payable period for purchases is 30 days while all other expenditures are paid in the month in which they are incurred.Assume each month has 30 days.The company has compiled the following information $\begin{array} { | l | r | r | r | } \hline & \underline { \text { May } } & \underline { \text { June } } & \underline { \text { July } } \\\hline \text { Sales } & \$ 8,400 & \$ 8,800 & \$ 9,600 \\\hline \text { Other expenses } & 1,300 & 1,400 & 1,400 \\\hline \text { Interest and taxes } & 500 & 600 & 700 \\\hline\end{array}$ What is the total amount of the firm's disbursements for the month of June?

Which activity is most apt to reduce the inventory period for a grocery store?

Which one of the following is a use of cash?

Kurt's Entertainment has a receivables turnover rate of 14.8,a payables turnover rate of 10.4 and an inventory turnover rate of 22.6.What is the length of the firm's operating cycle?

The Fried Green Tomatoes Restaurant increased its operating cycle from 67 days to 71 days while the cash cycle decreased by 2 days.How have these changes affected the accounts payable period?

Red Barn has estimated quarterly sales,starting with Quarter 1,of $42,600,$45,300,$44,800,and $42,700.Purchases are equal to 71 percent of the following quarter's sales.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 3?

LL Cross has annual sales of $2.12 million.The cost of goods sold is equal to 76 percent of sales.The average accounts receivable balance is$172,700 and the average accounts payable balance is $178,900.How many days on average does it take the firm to pay its suppliers?

Which industry is most apt to have the shortest operating cycle?

Which one of the following can occur if the operating cycle decreases while both the accounts receivable and the accounts payable periods remain constant?

Fun Stores has to restock a popular electronic game every three days as it completely sells out in that period of time.What is the inventory turnover rate for this game?

Kar's currently has a 208-day operating cycle.The company is concentrating on increasing its inventory turnover rate from 7.9 to 8.2 times.What will the firm's new operating cycle be if it can effectively make this change?

Tri-City Grocers is a chain of grocery stores that just hired a new CFO.Which of the following actions would you expect this CFO to adopt given her statement that she wants to implement a more flexible financing policy for the firm? I.Easing the credit terms given to customers II.Increasing the amount of inventory carried by each grocery store III.Borrowing funds to keep more cash available for store operations IV.Decreasing the firms' investments in marketable securities

Theo's has estimated quarterly sales,starting with Quarter 1,of $9,800,$10,700,$12,400,and $14,600.Purchases are equal to 66 percent of the following quarter's sales and are payable in 90 days.Assume there are 30 days in each month.How much will Theo's pay its suppliers in the third quarter?

Steep Mountain Oil has a cash balance of $15and a short-term loan balance of $53 at the beginning of Q1.The net cash outflow for Q1of $39and for Q2 there is a net cash inflow of $23.All cash shortfalls are funded with short-term debt.The firm pays 1.1 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 Q2?

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

NuParts,Inc.,has estimated quarterly sales for next year,starting with Quarter 1,of $15,900,$16,800,$17,500,and $16,400.Purchases are equal to 67 percent of the following quarter's sales and the accounts payable period is 60 days.Assume 30 days in each month.How much will the firm owe its suppliers at the end of Quarter 3?