Chapter 16

Question 1

Short Term Finance

Answer 1

Generally refers to decisions about inflows and outflows that will occur within one year.
Ordering raw materials.
Making a cash payment.
Collecting receivables.

Question 2

Long Term Finance

Answer 2

Generally refers to decisions about inflows and outflows that will occur after one year.
Purchasing an asset that will last ten years.
Issuing a bond that will repay over five years.

Question 3

Cash

Answer 3

Current Liabilities+Long Term Debt+Equity-Non-Cash Current Assets- Fixed Assets

Question 4

Sources of Cash (Increase Cash

Answer 4

Increasing Current Liabilities, Increasing Long Term Debt, Increasing Equity, Decrease Non-Cash Current Assets, Decreasing Fixed Assets

Question 5

Uses of Cash (Decrease Cash)

Answer 5

Decreasing Current Liabilities, Pay down long term debt, Decreasing Equity, Increasing non-cash current assets, Increasing Fixed Assets

Question 6

Operating Cycle

Answer 6

: The time between acquisition of inventory until collection on the sale of that inventory.

Question 7

Inventory Period

Answer 7

From acquisition of inventory to sale of inventory.

Question 8

Accounts Receivable Period

Answer 8

From the sale of inventory to receipt of cash.

Question 9

Cash Cycle

Answer 9

The time between the moment cash is disbursed for Inventory and cash from the sale is received.

Question 10

Account Payable Period

Answer 10

The time between Inventory purchase and payment.

Question 11

Lever 1 to Manage Cash Cycle

Answer 11

Delay purchasing inventory as long as possible before the sale. (But don’t have so little that we have to pass up sales.)

Question 12

Lever 2 to Manage Cash Cycle

Answer 12

Collect faster, sliding the end of the Operating Cycle to the left, reducing the Cash Cycle.

Question 13

Lever 3 to Manage Cash Cycle

Answer 13

Extend the Accounts Payable Period - pay more slowly – sliding the end of that period to the right, reducing the Cash Cycle.