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Exam 18: Short-Term Finance and Planning

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Question 61

Multiple Choice

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Which one of the following will increase the accounts payable period,all else constant?

A) an increase in the cost of goods sold account value
B) an increase in the ending accounts payable balance
C) an increase in the cash cycle
D) a decrease in the operating cycle
E) an increase in the accounts payable turnover rate

F) A) and D)
G) A) and C)

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Question 62

Multiple Choice

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The Sports Store has a $100,000 line of credit with City Bank.The loan agreement requires that 2 percent of the unused portion of the credit line be deposited in a non-interest bearing account as a compensating balance.The interest rate on the borrowed funds is 1.75 percent per quarter.The Sport Store's short-term investments are paying 1.5 percent per quarter.What is the effective annual interest rate on the line of credit if The Sports Store borrows the entire $100,000 for one year? Assume any funds borrowed or invested use compound interest.

A) 7.19 percent
B) 7.76 percent
C) 8.00 percent
D) 8.08 percent
E) 8.14 percent

F) B) and D)
G) B) and C)

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Question 63

Multiple Choice

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An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?

A manufacturing firm has a 90-day collection period.The firm produces seasonal merchandise and thus has the least sales during the first quarter of a year and the highest level of sales during the fourth quarter of a year.The firm maintains a relatively steady level of production which means that its cash disbursements are fairly equal in all quarters.The firm is most apt to face a cash-out situation in:

A national firm has sales of $729,000 and cost of goods sold of $478,000.At the beginning of the year,the inventory was $37,000.At the end of the year,the inventory balance was $41,000.What is the inventory turnover rate?

Which one of the following statements is correct?

Shortage costs include which of the following? I.disruption of production schedules II.inventory ordering costs III.lost customer goodwill IV.brokerage costs

Fancy Footwear has a line of credit with a local bank in the amount of $80,000.The loan agreement calls for interest of 7 percent with a compensating balance of 5 percent,which is based on the total amount borrowed.The compensating balance will be deposited into an interest-free account.What is the effective interest rate on the loan if the firm needs to borrow $75,000 for one year to cover operating expenses?

The Mish Mash Store has a beginning cash balance of $440 on March 1.The firm has projected sales of $610 in February,$680 in March,and $740 in April.The cost of goods sold is equal to 70 percent of sales.Goods are purchased one month prior to the month of sale.The accounts payable period is 30 days and the accounts receivable period is 10 days.The firm has monthly cash expenses of $125.What is the projected ending cash balance at the end of March? Assume every month has 30 days.