Short-Term Finance and Planning

Question 1

Net Working Capital + Fixed Assets =

Answer 1

Long-Term Debt + Equity

Question 2

Net Working Capital =

Answer 2

(Cash + Other Assets) - Current Liabilities

Question 3

Cash =

Answer 3

Long-Term Debt + Equity + Current Liabilities - Current Assets other than cash - Fixed Assets

Question 4

The activities that increase cash and those that decrease cash are exact …

Answer 4

opposites

Question 5

Operating Cycle

Answer 5

The period between the acquisition of inventory and the collection of cash from receivables

Question 6

Inventory Period

Answer 6

The time it takes to acquire and sell inventory

Question 7

Accounts Receivable Period

Answer 7

The time between sales of inventory and collection of the receivable

Question 8

Accounts Payable Period

Answer 8

the time between receipt of inventory and payment for it

Question 9

Cash Cycle

Answer 9

the time between cash disbursement and cash collection

Question 10

Cash Cycle =

Answer 10

Operating Cycle - Accounts Payable Period

Question 11

Inventory Turnover =

Answer 11

Cost of Goods Sold/Average Inventory

Question 12

Inventory Period =

Answer 12

365 Days/Inventory Turnover

Question 13

Receivables Turnover =

Answer 13

Credit Sales/Average Accounts Receivable

Question 14

Operating Cycle =

Answer 14

Inventory Period +Accounts Receivable Period

Question 15

Payables Turnover =

Answer 15

Cost of Goods Sold/Average Payables

Question 16

Payables Period =

Answer 16

365 Days/Payables Turnover

Question 17

Most firms have a positive cash cycle and thus require …

Answer 17

financing for inventories and receivables.

Question 18

Carrying Costs

Answer 18

Costs that rise with increases in the level of investment in current assets.

Question 19

Shortage Costs

Answer 19

costs that fall with increases in the level of investment in current assets

Question 20

What are the two most common types of shortage costs?

Answer 20

1. ) Trading or order cots: Order costs are the costs of placing an order for more cash or more inventory
2. ) Costs related to lack of safety reserves: these are the costs of lost sales, lost customer goodwill, and disruption of production schedules.

Question 21

Four basic categories of cash payments

Answer 21

1. ) Payment of accounts payable
2. ) Wages, taxes, and other expenses
3. ) Capital expenditures
4. ) Long-term financing expenses

Question 22

The predicted net cash inflow is the…

Answer 22

difference between cash collections and cash disbursements

Question 23

Line of credit

Answer 23

Money kept by the firm with a bank in a low interest or non interest bearing account

Question 24

Accounts Receivable Loan

Answer 24

a secured short-term loan that involves either the assignment or the factoring of receivables

Question 25

Effective interest rate =

Answer 25

interest paid/amount available

Question 26

Inventory Loan

Answer 26

a short term loan in order to purchase inventory