Chapter 6 - Exam 2

Question 1

The actions of screening business ideas, preparing a business model/plan, and obtaining seed financing occurs during a venture’s development stage.

Answer 1

True

Question 2

The actions of monitoring financial performance, determining project cash needs, and obtaining first-round financing occurs during a venture’s survival stage.

Answer 2

True

Question 3

“First-round financing” usually occurs during a venture’s rapid-growth life cycle stage.

Answer 3

False

Question 4

Short-term financial planning is critical during the survival stage because operations not yet turning a profit and the associated cash burn often lead to a venture’s inability to pay its maturing liabilities.

Answer 4

True

Question 5

Cash shortages during the rapid growth stage frequently derive from the lack of operating profits to fund working capital and fixed asset investments needed to support sales growth.

Answer 5

True

Question 6

Due to the difficulty of projecting financial statements for a young firm, short-term financial forecasts are never required of early-stage ventures.

Answer 6

False

Question 7

Early-stage ventures are defined as firms that are only operating in either their development or startup stages.

Answer 7

False

Question 8

Even in a young, successful venture, restricted access to bank credit and with little to no access to short-term lending markets can hinder operations until the next round of financing.

Answer 8

True

Question 9

“First-round financing” usually occurs during a venture’s rapid-growth life cycle stage.

Answer 9

False

Question 10

Short-term cash planning tools include preparation of a: sales schedule, a purchases schedule, a wages and commissions schedule, and a cash budget.

Answer 10

True

Question 11

Short-term financial planning typically involves preparing monthly financial statements and focuses on identifying and planning for net income demands on the business.

Answer 11

False

Question 12

A venture’s operating schedules typically include a: sales schedule, purchases schedule, and wages and commissions schedule.

Answer 12

True

Question 13

A cash budget shows a venture’s projected revenues and expenses over a forecast period.

Answer 13

False

Question 14

Preparing monthly cash budgets for a full year allows the entrepreneur to determine whether there will be a cash need, the maximum size of the cash need, and whether the need can be repaid during the year.

Answer 14

True

Question 15

Conversion period ratios show the average time in days it takes to convert certain current assets and current liabilities into cash.

Answer 15

True

Question 16

A venture’s operating cycle is the same as its cash conversion cycle.

Answer 16

False

Question 17

The sum of the inventory-to-sale conversion period and the purchase-to-payment conversion period minus the sale-to-cash conversion period is called the cash conversion cycle.

Answer 17

False

Question 18

The cash conversion cycle refers to the time it takes to convert a sale into net income.

Answer 18

False

Question 19

The “cash conversion cycle” measures the time it takes to pay off the principal on a loan.

Answer 19

False

Question 20

The sale-to-cash conversion period is calculated by dividing average revenues by net sales per day.

Answer 20

False

Question 21

A venture’s cash conversion cycle will decrease if the purchase-to-payment conversion period increases.

Answer 21

True

Question 22

A firm is said to be an early stage venture when it is in which of the following except?

	a. rapid growth stage
	b. startup stage
	c. development stage
	d. survival stage
	e. early-maturity stage

Answer 22

e. early maturity stage

Question 23

Seed financing is generally associated with which one of the following life cycle stages:

	a. development stage
	b. startup stage
	c. survival stage
	d. rapid-growth stage
	e. early-maturity stage

Answer 23

a. development stage

Question 24

First-round financing is generally associated with which one of the following life cycle stages:

a. development stage
b. startup stage
c. survival stage
d. rapid-growth stage
e. early-maturity stage

Answer 24

c. survival stage

Question 25

4. Which of the following is not part of the operating cycle?
   a. time it takes to purchase products
   b. time it takes to produce products
   c. time it takes to sell the products
   d. time it takes to pay suppliers
   e. time it takes to collect receivables

Answer 25

d. time it takes to pay suppliers

Question 26

Which one of the following “measures” the average days of sales committed to the extension of trade credit?

	a. sale-to-cash conversion period
	b. inventory-to-sale conversion period
	c. purchase-to-payment conversion period
	d. cash conversion cycle period

Answer 26

a. sale-to-cash conversion period

Question 27

Which of the following is measured by dividing the average daily cost of goods sold into the average inventory?

	a. sale-to-cash conversion period
	b. inventory-to-sale conversion period
	c. purchase-to-payment conversion period
	d. cash conversion cycle

Answer 27

b. inventory-to-sale conversion period

Question 28

Which of the following measures the average time from purchase of materials and labor to actual cash payment?

	a. sale-to-cash conversion period
	b. inventory-to-sale conversion period
	c. purchase-to-payment conversion period
	d. cash conversion cycle

Answer 28

c. purchase-to-payment conversion period

Question 29

Which of the following measures the average time it takes a firm to complete its operating cycle after deducting the days supported by trade credit and delayed payroll financing?

	a. sale-to-cash conversion period
	b. inventory-to-sale conversion period
	c. purchase-to-payment conversion period
	d. cash conversion cycle

Answer 29

d. cash conversion cycle

Question 30

Which one of the following conversion periods operates to reduce the length of the cash conversion cycle?

a. inventory-to-sale conversion period
b. sale-to-cash conversion period
c. purchase-to-payment conversion period
d. fixed assets-to-usage conversion period

Answer 30

c. purchase-to-payment conversion period

Question 31

Which one of the following conversion periods is not a component in the cash conversion cycle?

a. inventory-to-sale conversion period
b. sale-to-cash conversion period
c. purchase-to-payment conversion period
d. fixed assets-to-usage conversion period

Answer 31

d. fixed assets-to-usage conversion period

Question 32

Calculate the inventory-to-sale conversion period based on the following information: average inventories = $120,000; average receivables = $90,000; average payables = $40,000; cost of goods sold = $182,500; and net sales = $365,000.

	a. 240.0 days
	b. 180.0 days
	c. 90.0 days
	d. 60.0 days
	e. 45.0 days

Answer 32

a. 240 days

Question 33

Calculate the sale-to-cash conversion period based on the following information: average inventories = $120,000; average receivables = $90,000; average payables = $40,000; cost of goods sold = $182,500; and net sales = $365,000.

	a. 240.0 days
	b. 180.0 days
	c. 90.0 days
	d. 60.0 days
	e. 45.0 days

Answer 33

c. 90 days

Question 34

Based on the following information, determine the venture’s cash conversion cycle: Inventory-to-sale conversion period = 112.9 days; Sale-to-cash conversion period= 57.1 days; and Purchase-to-payment conversion period = 76.8 days.

a. 170.0 days
b. 189.7 days
c. 93.2 days
d. 246.8 days
e. 133.9 days

Answer 34

c. 93.2 days

Question 35

Determine the cash conversion cycle based on the following information: inventory-to-sale conversion period = 112.9 days; sale-to-cash conversion period = 57.1 days; and purchase-to-payment conversion period = 76.8 days.

	a. 93.2 days
	b. 132.6 days
	c. 170.0 days
	d. 246.8 days
	e. 365.0 days

Answer 35

a. 93.2 days

Question 36

. Based on the following information, determine the average receivables (rounded to thousands of dollars) that were outstanding: Net sales = $575,000; Sale-to-cash conversion period = 57.1 days; Purchase-to-payment conversion period = 76.8 days; and Cost of goods sold = $380,000.

a. $90,000
b. $180,000
c. $121,000
d. $31,000
e. $41,000

Answer 36

a. $90,000

Question 37

16. Based on the following information, determine the venture’s inventory-to-sale conversion period: cash conversion cycle = 250 days; sale-to-cash conversion period = 60 days; and purchase-to-payment conversion period = 70 days.
    a. 70 days
    b. 140 days
    c. 240 days
    d. 260 days
    e. 330 days

Answer 37

d. 260 days