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CHAPTER 6
MANAGING CASH FLOW
True-False Questions
T. 1. The actions of screening business ideas, preparing a business model/plan,
and obtaining seed financing occurs during a venture’s development stage.
needs, and obtaining first-round financing occurs during a venture’s survival
stage.
cycle stage.
T. 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.
lack of operating profits to fund working capital and fixed asset investments
needed to support sales growth.
short-term financial forecasts are never required of early-stage ventures.
F. 7. Early–stage ventures are defined as firms that are only operating in either
their development or startup stages.
with little to no access to short–term lending markets can hinder operations
until the next round of financing.
F. 9. “First–round financing” usually occurs during a venture’s rapid–growth life
cycle stage.
purchases schedule, a wages and commissions schedule, and a cash budget.
financial statements and focuses on identifying and planning for net income
demands on the business.
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39
purchases schedule, and wages and commissions schedule.
forecast period.
T. 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.
certain current assets and current liabilities into cash.
F. 16. A venture’s operating cycle is the same as its cash conversion cycle.
payment conversion period minus the sale-to–cash conversion period is called
the cash conversion cycle.
F. 18. The cash conversion cycle refers to the time it takes to convert a sale into
net income.
principal on a loan.
revenues by net sales per day.
T. 21. A venture’s cash conversion cycle will decrease if the purchase–to–
payment conversion period increases.
statements for at least one year, and sometimes for two or more years.
expected to generate the required cash to meet its coming obligations.
Multiple-Choice Questions
following except?
a. rapid growth stage
b. startup stage
c. development stage
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40
d. survival stage
e. early-maturity stage
cycle stages:
a. development stage
b. startup stage
c. survival stage
d. rapid-growth stage
e. early-maturity stage
following life cycle stages:
a. development stage
b. startup stage
c. survival stage
d. rapid-growth stage
e. early-maturity stage
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
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
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
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
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41
d. cash conversion cycle
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
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
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
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
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
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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
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
(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
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
a. to purchase raw materials
b. assemble a product
c. book the sale
d. collect on the sale
e. all of the above
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43
conversion cycle is the conversion cycle includes the time to:
a. buy materials
b. produce a finished good
c. collect sales made on credit
d. pay suppliers for purchases on credit