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Chapter 18
Short-Term Finance and Planning
Multiple Choice Questions
1.
The length of time between the purchase of inventory and the receipt of cash from the
sale of that inventory is called the:
2.
The length of time that elapses between the day a firm purchases an inventory item and
the day that item sells is called the:
3.
The length of time between the sale of inventory and the collection of the payment for that
sale is called the:
4.
The length of time between the day a firm purchases an item from its supplier until the
day that supplier is paid for that purchase is called the:
5.
Central Supply purchased a toboggan for inventory this morning and paid cash for it. The
time period between today and the day Central Supply will receive cash from the sale of
this toboggan is called the:
6.
A graphical representation of the operating and cash cycles is called a(n):
7.
Costs that increase as a firm acquires additional current assets are called _____ costs.
8.
Costs that decrease as a firm acquires additional current assets are called _____ costs.
9.
Steve has estimated the cash inflows and outflows for his hardware store for next year.
The report that he has prepared recapping these cash flows is called a:
10.
Taylor Supply has made an agreement with its bank that it can borrow up to $10,000 at
any time over the next year. This arrangement is called a(n):
11.
Money deposited by a borrower with the bank in a low or non-interest-bearing account as
a condition of a loan agreement is called a:
12.
Brustle's Pottery either factors or assigns all of its receivables to other firms. This is
known as:
13.
Rose's Gift Shop borrows money on a short-term basis by pledging its inventory as
collateral. This is an example of a(n):
14.
Which one of the following increases cash?
15.
Which of the following are uses of cash?
I. collecting a receivable
II. increasing inventory
III. obtaining a bank loan
IV. paying a supplier for previous purchases
16.
Which one of the following will increase net working capital? Assume the current ratio is
greater than 1.0.
17.
Which one of the following will decrease the net working capital of a firm? Assume the
current ratio is greater than 1.0.
18.
Which of the following are sources of cash?
I. decrease in inventory
II. increase in accounts receivable
III. repayment of a bond
IV. sale of preferred stock
19.
Which of the following will increase the operating cycle?
I. increasing the inventory turnover rate
II. increasing the payables period
III. decreasing the receivable turnover rate
IV. decreasing the inventory level
20.
Which one of the following equals the operating cycle?
21.
Which one of the following will decrease the operating cycle?
22.
The operating cycle describes how a product:
23.
Which of the following determines the length of the operating cycle?
I. cash cycle
II. inventory period
III. accounts payable period
IV. accounts receivable period
24.
Which of the following will increase the cash cycle, all else constant?
I. increasing the inventory period
II. decreasing the accounts receivable turnover rate
III. increasing the accounts payable period
IV. decreasing the accounts receivable period
25.
An increase in which one of the following will decrease the cash cycle, all else equal?
26.
Metal Designs, Inc., historically produced products for inventory. Now, the firm only
produces a product when it receives an actual order from a customer. All else equal, this
change will:
27.
Which of the following statements is (are) correct?
I. An increase in the accounts payable period shortens the cash cycle.
II. The cash cycle is equal to the operating cycle minus the inventory period.
III. A negative cash cycle is preferable to a positive cash cycle.
IV. The cash cycle plus the accounts receivable period is equal to the operating cycle.
28.
Which one of the following statements is correct concerning the cash cycle?
