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Fundamentals of Corporate Finance, 4/c/e

Fundamentals of Corporate Finance, 4/e

Stephen A. Ross, Massachusetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Bradford D. Jordan, University of Kentucky
Gordon S. Roberts, York University

Short-Term Finance and Planning

Quick Quiz 1

After taking this quiz, click 'Submit Answers' for graded results. You'll also have the option of emailing the results to your instructor and/or yourself.


1	All else the same, which of the following would increase the length of a firm's cash cycle? Consider each in isolation of one another. I. Inventory turnover increases II. Accounts receivable period increases III. Accounts payable period decreases
		A)	III only
		B)	II only
		C)	I only
		D)	II and III only
		E)	I and III only


2	Your firm decides to increase the time allowed customers to pay their bills from 30 to 40 days. All else the same, this action will __________ and __________.
		A)	increase the firm's operating cycle; increase the firm's cash cycle
		B)	increase the firm's cash cycle; increase the firm's inventory cycle
		C)	increase the firm's accounts payable period; increase the firm's operating cycle
		D)	increase the firm's inventory cycle; increase the firm's operating cycle
		E)	increase the firm's accounts receivable period; increase the firm's inventory cycle


3	Which of the following managers do(es) NOT have a direct influence on the firm's accounts receivable balance? I. Credit manager II. Production manager III. Payables manager IV. Controller
		A)	I only
		B)	II only
		C)	III only
		D)	I and IV only
		E)	II and III only


4	Suppose that the inventory period is 50 days, the accounts receivable period is 40 days, and the accounts payable period is 35 days. What is the cash cycle?
		A)	90 days
		B)	55 days
		C)	45 days
		D)	25 days
		E)	135 days


5	LazyCredit Mfg. needs some quick cash. If the firm's CFO arranges to sell $1,000,000 in receivables to another party for 92% of face, and the other party takes full responsibility for collecting the receivables, the CFO has arranged
		A)	an assignment of receivables
		B)	a line-of-credit security arrangement
		C)	a factoring arrangement
		D)	a secured loan
		E)	a compensating balance


6	The following are all questions to be addressed under the general heading of short-term finance, EXCEPT:
		A)	What is a reasonable level of cash to keep on hand to pay bills?
		B)	How much should the firm borrow short-term?
		C)	Should the firm issue a dividend this quarter?
		D)	How much credit should be extended to customers?
		E)	How much inventory should the firm carry?


7	Net working capital is: I. not relevant for short-term finance decisions. II. current assets - current liabilities. III. increased by holding more cash. IV. decreased by holding more cash.
		A)	I. only
		B)	II. and III. only
		C)	III. only.
		D)	II. and IV. only
		E)	I. and II. only.


8	Melons 'R' Us, a national chain of fruit stands, has an inventory period of 65 days, an accounts payable period of 30 days, and an accounts receivable period of 24 days. The CFO wants to implement a discount plan in order to reduce the receivables period to 18 days. What will happen to the firm's operating cycle?
		A)	It will fall from 59 days to 53 days.
		B)	It will fall from 89 days to 83 days.
		C)	It will be unaffected by the change in policy.
		D)	It will rise from 85 days to 91 days.
		E)	It will rise from 81 days to 87 days.


9	The following are all associated with a restrictive short-term financial policy, EXCEPT:
		A)	Keeping a low cash balance.
		B)	Maintaining a small inventory of raw materials.
		C)	Allowing little or no credit sales.
		D)	Maintaining a large inventory of finished goods.
		E)	Keeping a low investment in marketable securities.


10	Costs that rise with increases in the level of investment in current assets are called __________. Costs that fall with increases in the level of investment in current assets are called __________.
		A)	carrying costs; shortage costs.
		B)	trading costs; order costs.
		C)	fixed costs; variable costs.
		D)	cash costs; credit costs.
		E)	factoring costs; output costs.

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