Metal Designs, Inc., historically produced products for inventory. Now, the firm only produces a product when it receives an actual order from a customer. All else equal, this change will:
A. Decrease the inventory turnover rate.
B. Decrease the cash cycl
B. Decrease the cash cycle.
An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?
A. bad debts
B. accounts receivable turnover rate
C. accounts receivable period
D. credit sales
E. operating cycle
See Section 18.2
B. accounts receivable turnover rate
Which one of these actions will increase the operating cycle? Assume all else held constant.
A. Increasing the payables period.
B. Decreasing the average inventory level.
C. Increasing the inventory turnover rate.
D. Decreasing the receivables turnover ra
D. Decreasing the receivables turnover rate.
Which one of the following statements is correct concerning the cash cycle?
A. Increasing the accounts payable period increases the cash cycle.
B. Accepting a supplier's discount for early payment decreases the cash cycle.
C. Offering early payment discou
D. The longer the cash cycle, the more likely a firm will need external financing.
A firm with a flexible short-term financial policy will:
A. Only have minimal amounts, if any, invested in marketable securities.
B. Invest heavily in inventory.
C.Have low cash balances.
D. Have tight restrictions on granting credit to customers.
E. Main
B. Invest heavily in inventory.
The Lumber Mart recently replaced its management team. As a result, the firm is implementing a restrictive short-term financial policy in place of the flexible policy under which the firm had been operating. Which one of the following should the employees
B. Loss of credit customers.
Which one of these is indicative of a short-term restrictive financial policy?
A. Investing heavily in marketable securities.
B. Keeping inventory levels high.
C. Maintaining a large accounts receivable balance.
D. Granting credit to all customers.
E. Pur
E. Purchasing inventory on an as-needed basis.
The optimal investment in current assets for an operating firm occurs at the point where:
A. Carrying costs exceed shortage costs.
B. Shortage costs are equal to zero.
C. Carrying costs are equal to zero.
D. Both shortage costs and carrying costs equal ze
E. The total costs of holding current assets is minimized.
Which one of the following statements is correct?
A. Long-term interest rates tend to be less volatile than short-term rates.
B. Most firms tend to finance inventory with long-term debt.
C. A flexible financing policy tends to increase the risk of encount
A. Long-term interest rates tend to be less volatile than short-term rates.
The primary difference between a line of credit and a revolving credit arrangement is the:
A. Classification as either a committed or a non committed loan.
B. Length of the credit period.
C. Fact that the line of credit is an unsecured loan and the revolv
B. Length of the credit period.
High Point Hotel (HPH) has $165,000 in accounts receivable. To finance a major purchase, the company assigns these receivables to Cross Town Bank. Which one of the following statements correctly describes this transaction?
A. HPH will immediately receive
E. HPH will receive some amount of cash immediately while maintaining full responsibility for any uncollected receivables.
Which one of the following statements is correct concerning the cash balance of a firm?
A. The ending cash balance must equal the minimum desired cash balance.
B. On a cash balance report, the cumulative cash surplus at the end of May is used as June's be
E. A cumulative cash deficit indicates a borrowing need.
Taylor Supply has made an agreement with its bank that it can borrow up to $10,000 at any time over the next year. This arrangement is called a(n):
A. Floor loan.
B. Open loan.
C. Compensating balance.
D. Bank note.
E. Line of credit.
E. Line of credit.
A compensating balance:
A. Is required when a firm acquires any bank financing other than a line of credit.
B. May be required even if a firm never borrows funds.
C. Only applies to zero-interest rate loans.
D. Is often used by banks as a means of rewardi
B. May be required even if a firm never borrows funds.
Which one of the following increases cash?
A. granting credit to a customer
B. purchasing new machinery
C. making a payment on a bank loan
D. purchasing inventory
E. accepting credit from a supplier
E. accepting credit from a supplier
Which one of these is a source of cash?
A. Increasing fixed assets.
B. Increasing accounts receivable.
C. Decreasing accounts payable.
D. Decreasing inventory
E. Decreasing common stock.
D. Decreasing inventory
Which one of the following will increase net working capital? Assume the current ratio is greater than 1.0.
A. paying a supplier for a previous purchase
B. paying off a long-term debt
C. selling inventory at cost
D. purchasing inventory on credit
E. selli
E. selling inventory at a profit on credit
Which one of the following will decrease the net working capital of a firm? Assume the current ratio is greater than 1.0.
A. selling inventory at cost
B. collecting payment from a customer
C. paying a payment on a long-term debt
D. selling a fixed asset f
C. paying a payment on a long-term debt
Which one of these is a use of cash?
A. Making a cash sale.
B. Paying employee wages.
C. Obtaining a bank loan.
D. Collecting a receivable.
E. Purchasing inventory on credit.
B. Paying employee wages.
The length of time between the day a firm purchases an item from its supplier until the day that supplier is paid for that purchase is called the:
A. Accounts receivable period.
B. Inventory period.
C. Cash cycle.
D. Operating cycle.
E. Accounts payable p
E. Accounts payable period.
Which of these affects the length of the cash cycle but not the operating cycle?
Inventory period.
A. Both the accounts receivable and inventory periods.
B. Accounts receivable period.
C. Accounts payable period.
D. Both the accounts receivable and the ac
C. Accounts payable period.
Which one of these statements is correct? Assume all else held constant.
A. A decrease in the accounts receivable turnover rate decreases the cash cycle.
B. The cash cycle plus the accounts receivable period is equal to the operating cycle.
C.A negative c
C.A negative cash cycle is preferable to a positive cash cycle.
Which one of the following will decrease the operating cycle?
A. decreasing the inventory turnover rate
B. decreasing the accounts payable period
C. increasing the accounts receivable turnover rate
D. increasing the accounts payable period
E. increasing t
C. increasing the accounts receivable turnover rate
The operating cycle is equal to the:
Inventory period plus the accounts receivable period.
With a compromise financial policy firms will:
Borrow short-term funds and also invest in marketable securities.
A flexible short-term financial policy:
Incurs more carrying costs than a restrictive policy
Costs that decrease as a firm acquires additional current assets are called _____ costs.
A. carrying
B. shortage
C. debt
D. equity
E. payables
B. shortage
Which one of the following combinations is most apt to cause a cash-out for a firm that is generally financially sound?
Fixed asset purchases and approaching high seasonal sales.
Steve has estimated the cash inflows and outflows for his hardware store for next year. The report that he has prepared recapping these cash flows is called a:
Cash budget.
Which one of the following will increase net working capital? Assume the current ratio is greater than 1.0.
A. paying a supplier for a previous purchase
B. paying off a long-term debt
C. selling inventory at cost
D. purchasing inventory on credit
E. selli
E. selling inventory at a profit on credit