Chapter 26
Short-Term Finance and Planning Multiple Choice Questions
1. Net working capital is defined as
A) the current assets in a business.
B) the difference between current assets and current liabilities.
C) the present value of short-term cash flows.
D) the difference between all assets and liabilities.
E) None of the above.
Answer: B Difficulty: Easy Page: 730
2. The main difference between short term and long term finance is
A) the risk of long term cash flows being more important than short term risks.
B) the present value of long term cash flows being greater than short-term cash flows.
C) the timing of short-term cash flow being within a year or less.
D) All of the above.
E) None of the above.
Answer: C Difficulty: Medium Page: 730
3. Which of the following statements is not true?
A) Net working capital is the difference between short-term assets and short term liabilities.
B) Short-term financing deals with the management of short-term liabilities and short-term assets.
C) Short-term financing is concerned with determining reasonable amounts of cash to hold, which
customers should get credit and others related issues.
D) Net working capital does not utilize the concept of present value since all flows are short-term.
E) None of the above.
Answer: D Difficulty: Easy Page: 730
4. Which of the following is not included in current assets?
A) Accounts receivable
B) Accrued wages
C) Cash
D) Inventories
E) All of the above are included in current assets.
Answer: B Difficulty: Easy Page: 730-731
5. Which of the following is not included in current liabilities?
A) Accounts payable
B) Prepaid insurance
C) Accrued expenses payable
D) Taxes payable
E) Notes payable
Answer: B Difficulty: Easy Page: 731-732
6. Assets are classified as current or long term based on
A) age of the asset.
B) whether the asset is a physical good or not.
C) the liquidity of the asset.
D) whether the asset is based on fair market value or not.
E) None of the above.
Answer: C Difficulty: Medium Page: 730
7. Current liabilities are so classified because
A) they are a form of short-term borrowing by the company.
B) they are expected to require cash payment within one year or within the operating cycle.
C) they are matched against current assets or needs of the firm.
D) Both A and B.
E) Both A and C.
Answer: D Difficulty: Medium Page: 732
8. Assets presented on the balance sheet are in order of accounting liquidity. Accounting liquidity
refers to
A) how much inventory a brewer keeps.
B) the ability to sell their product.
C) the risk of receiving payment on their accounts.
D) ability and time it takes to convert assets to cash.
E) None of the above.
Answer: D Difficulty: Easy Page: 730
9. The definition of cash in terms of other balance sheet items is
A) long term debt minus equity minus net working capital (excluding cash) minus fixed assets.
B) long term debt minus equity plus net working capital (excluding cash) minus fixed assets.
C) long term debt minus equity plus net working capital(excluding cash) plus fixed assets.
D) long term debt plus equity minus net working capital(excluding cash) minus fixed assets.
E) long term debt plus equity minus net working capital(excluding cash) plus fixed assets.
Answer: D Difficulty: Medium Page: 733
10. Cash flow from operations equals
A) net income minus change in net working capital.
B) net income minus depreciation.
C) net income minus taxes.
D) net income plus change in net working capital.
E) net income plus depreciation.
Answer: E Difficulty: Easy Page: 733
11. Sources of cash do not include
A) increases in borrowing from banks.
B) increases in cash flow.
C) decreases in accounts payable.
D) increases in notes payable.
E) increases in taxes payable.
Answer: C Difficulty: Medium Page: 733
12. A use of cash can be determined by
A) a decrease in a liability.
B) an increase in an asset.
C) an increase in retained earnings.
D) Both B and C.
E) Both A and B.
Answer: E Difficulty: Medium Page: 733
13. Which of the following would not be a short-run operating activity or decision?
A) Buying raw materials with cash or bank loan.
B) Selling product on credit.
C) Increasing inventory safety stock.
D) Investing a new process machine.
E) None of the above.
Answer: D Difficulty: Easy Page: 734
14. The cash cycle is defined as the time between
A) the arrival of inventory in stock and when the cash is collected from receivables.
B) selling the product and posting the accounts receivable.
C) selling the product and collecting the accounts receivable.
D) cash disbursements and cash collection.
E) the arrival of inventory and cash collection.
Answer: D Difficulty: Medium Page: 734
15. Cash cycle equals
A) inventory period plus accounts receivable period.
B) change in net working capital period.
C) operating cycle plus accounts payable period.
D) operating cycle plus inventory period.
E) None of the above.
Answer: E Difficulty: Medium Page: 734
16. The inventory turnover for the Lambkin Company was 8 times and its days in receivables was 55.
What is the operating cycle for Lambkin given a 365-day year?
A) 45.625 days
B) 55.00 days
C) 63.25 days
D) 100.625 days
E) None of the above.
Answer: D Difficulty: Medium Page: 736
Rationale:
Days in accounts receivable + days in inventory = [365/8] + 55 = 45.625 + 55 = 100.625 days 17. The inventory turnover for the Lambkin Company was 8 times and its days in receivables was 55.
The average payables deferral period (or turnover) was 7.5. What is the cash cycle for Lambkin given a 365-day year?
A) 51.96 days
B) 58.04 days
C) 115.00 days
D) 149.29 days
E) None of the above.
Answer: A Difficulty: Medium Page: 736
Rationale:
Days in inventory + days in A/R Days in A/P = [365/8] + 55 [365/7.5] = 45.625 + 55 48.667 =
51.958 = 51.96 days
18. If the average accounts receivable that a firm holds decreases without any decrease in credit sales,
the operating cycle will
A) stay the same because of no sales change.
B) stay the same because cash collections are sooner and it will affect the cash cycle only.
C) decreases because days sales outstanding decreases.
D) stay the same because accounts receivable are not in the operating cycle.
E) have an unknown effect.
注册公司的流程Answer: C Difficulty: Medium Page: 736
19. If the use of supplier financing decreases and is replaced by cash financing for the same level of
business activity, the cash cycle will
A) increase because days in payables decrease.
B) stay the same because the change is only on the operating cycle.
C) decrease because days in payables decrease.
D) stay the same because business activity does not change.
E) stay the same because cash is used for payment.
Answer: A Difficulty: Hard Page: 736
20. A flexible or accommodative short-term financial policy would
A) maintain a high ratio of current assets to sales.
B) use less short-term debt and more long-term debt.
C) use more short-term debt and less long-term debt.
D) Both A and B.
E) Both A and C.
Answer: D Difficulty: Medium Page: 737
21. With a restrictive short-term financial policy,
A) current cash holdings are maximized.
B) current cash holdings are equal to the industry average.
C) current cash holdings are low.
D) Either A or B.
E) Both A and B.
Answer: C Difficulty: Easy Page: 737
22. Flexible short term financial policies are not characterized by
A) liberal credit policies.
B) large amounts of inventory held.
C) quick delivery services for customers.
D) high levels of production stoppages.
E) All of the above characterize flexible short term financial policies.
Answer: D Difficulty: Easy Page: 737
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