Quick Quiz 2

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1		Which of the following would move a firm toward a flexible short-term financial policy? I. Credit restrictions for accounts receivable are increased. II. The level of investment in inventory is decreased. III. Investment in marketable securities is increased.
			A)	I only
			B)	III only
			C)	II and III only
			D)	I and II only
			E)	I, II, and III
2		Which of the following is a correct statement?
			A)	The objective of short-term financial management is to maximize carrying costs.
			B)	Managing short-term cash flows involves minimizing liquidity.
			C)	In managing short-term finances, a financial manager should seek the optimal level of investment in fixed assets.
			D)	In an ideal economy, the optimal level of net working capital is positive.
			E)	A financial manager should use a cash budget to identify short-term financial needs.
3		The ______________ is generally responsible for monitoring short-term investment and borrowing activities.
			A)	production manager
			B)	controller
			C)	cash manager
			D)	credit manager
			E)	payables manager
4		A firm has average inventory of $1,250,000, an inventory period of 58 days, a receivables period of 32 days, and average payables of $810,000. What is its cash cycle?
			A)	48 days
			B)	67 days
			C)	58 days
			D)	52 days
			E)	74 days
5		Cash budgets are useful because they: I. allow financial managers to explore the need for short-term borrowing. II. provide an estimate for cash surpluses or cash deficits. III. are based on exact numbers – they do not require forecasts.
			A)	I. only.
			B)	II. only.
			C)	III. only.
			D)	I., II., and III. only.
			E)	I. and II. only.
6		A __________ is a formal arrangement that requires a bank to advance funds when requested by the borrower.
			A)	secured loan
			B)	uncommitted line of credit
			C)	committed line of credit
			D)	compensating balance
			E)	letter of credit

Use the following financial statement data to answer the next four questions.

Item	Beginning	Ending
Inventory	800	950
Accounts receivable	1,100	1,200
Accounts payable	750	650
Credit sales	$8,420
Cost of goods sold	$6,250

7		What is the inventory turnover?
			A)	10.5 times
			B)	8.9 times
			C)	7.8 times
			D)	7.1 times
			E)	6.6 times
8		What is the inventory period?
			A)	55 days
			B)	51 days
			C)	47 days
			D)	41 days
			E)	35 days
9		What is the accounts receivable turnover?
			A)	5.2 times
			B)	5.7 times
			C)	7.0 times
			D)	7.3 times
			E)	7.7 times
10		What is the length of the operating cycle?
			A)	101days
			B)	99 days
			C)	94 days
			D)	107 days
			E)	111 days