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Exam 26: Short-Term Finance and Planning

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Question 61

Multiple Choice

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True Blue Stores had a beginning trade payables balance of £56,900 and an ending trade payables balance of £62,800.Sales for the period were £670,000 and costs of goods sold were £418,000.What is the payables turnover rate?

A) 6.98 times.
B) 7.35 times.
C) 8.13 times.
D) 11.19 times.
E) 11.78 times.

F) C) and D)
G) None of the above

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Question 62

Multiple Choice

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Which of the following actions will tend to decrease the inventory period? I.discontinuing all slow-selling merchandise II.selling obsolete inventory below cost just to get rid of it III.buying raw materials only as they are needed in the manufacturing process IV.producing goods on demand versus for inventory

A) I and III only.
B) II and IV only.
C) II,III and IV only.
D) I,II and III only.
E) I,II,III and IV.

F) A) and E)
G) D) and E)

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Question 63

Multiple Choice

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Your firm has a net cash inflow for the quarter of £60.The beginning cash balance is £35.Company policy is to maintain a minimum cash balance of £15 and borrow only the amount that is necessary to maintain that balance.How much does your firm need to borrow or how much can it repay on its loans to have a zero cumulative surplus?

Bilt Rite has sales of £610,000.The cost of goods sold is equal to 70% of sales.The beginning trade receivables balance is £21,000 and the ending trade receivables balance is £25,000.How long on average does it take the firm to collect its receivables?

Your firm currently has an operating cycle of 64 days.You are analyzing some operational changes which are expected to decrease the trade receivables period by 3 days and decrease the inventory period by 2 days.The trade payables turnover rate is expected to increase from 7 to 9 times per year.If all of these changes are adopted,what will your firm's new operating cycle be?

The most common means of financing a temporary cash deficit is a:

Wislon has an inventory turnover rate of 15,a trade payables period of 54 days and a trade receivables period of 37 days.What is the length of the cash cycle?

Your firm has a line of credit with your local bank for £50,000.The loan agreement calls for interest of 9% with a 5% compensating balance requirement which is based on the total amount borrowed.What is the effective interest rate if you need £42,750 for one year to cover your operating expenses?

ABC has a beginning receivables balance on January 1^st of £430.Sales for January through April are £240,£250,£330 and £350,respectively.The trade receivables period is 60 days.How much did the firm collect in the month of March? Assume that a year has 360 days.

Which one of the following statements is correct concerning the cash cycle?

Which two of the following four conditions are most apt to cause a quarterly cash shortfall for a firm which is financially sound? I.a relatively constant level of sales II.periodic expenditures for major equipment purchases III.a steady dependence on a constant level of external financing IV.highly seasonal sales

StarrKnight Corporation's Statement of financial position and Income Statement as shown below: Statement Of Financial Position(in thousands of pounds) $\begin{array}{|l|l|l|}\hline \text { Assets } & 2009 & 2008 \\\hline \text { Curent Assets } & & \\\hline \text { Cash } & £ 21,113 & £ 19,930 \\\hline \text { Receivables } & 7,336 & 3,275 \\\hline \text { Inventories } & 25,135 & 24,270 \\\hline \text { Total } & £ 53,584 & £ 47,475 \\\hline & & \\\hline \text { Fixed Assets } & 25,767 & 19,720 \\\hline \text { Total Assets } & £79,351 & £ 67,195 \\\hline & & \\\hline \text { Liabilities } & 2009 & 2008 \\\hline \text { Current Liabilities } & & \\\hline \text { Trade Payables } & £ 9,493 & £ 7,273 \\\hline \text { Notes Payable } & 429 & 416 \\\hline \text { Other } & 3,990 & 3,180 \\\hline \text { Total } & £ 13,912 & £ 10,869 \\\hline & & \\\hline \text { Longterm Liabilities } & 7,796 & 6,088 \\\hline \text { Stockholder'sEquity } & 57,643 & 50,238 \\\hline \text { Total Liability and Equity } & £ 79,351 & £ 67,195 \\\hline\end{array}$ Net Income(in thousands of pounds) $\begin{array}{|l|l|l|}\hline & 2009 & 2008 \\\hline \text { Net Sales } & £ 113,260 & £ 96,695 \\\hline \text { Cost of GoodsSold } & 75,586 & 65,039 \\\hline \text { Other Operating Expenses } & 25,832 & 26,208 \\\hline \text { Operating Profit } & £ 6,676 & £ 5,448 \\\hline & & \\\hline \text { Other Income } & 7,061 & 6,280 \\\hline \text { Interest } & 658 & 520 \\\hline \text { Tax } & 3,924 & 3,362 \\\hline & & \\\hline \text { Net Profit } & £ 9,155 & £ 7,846 \\\hline \text { Dividends } & £ 460 & £ 441 \\\hline \text { Retained Earnings } & £ 8,695 & £ 7,405 \\\hline & & \\\hline\end{array}$ (all sales and purchases are credit) StarrKnight Corporation's trade payables deferred period for 2009 is (use average payables) ______ .

A restrictive short-term financial policy tends to:

Which one of the following will decrease the operating cycle?

The appropriate amount of short-term borrowing is determined by: