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Exam 18: International Corporate Finance

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Question 51

Multiple Choice

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Merryl Enterprises currently has an operating cycle of 59 days.The firm is analyzing some operational changes, which are expected to increase the accounts receivable period by 2 days and decrease the inventory period by 5 days.The accounts payable turnover rate is expected to increase from 42 to 46 times per year.If all of these changes are adopted, what will the firm's new operating cycle be?

A) 51 days
B) 54 days
C) 56 days
D) 59 days
E) 65 days

F) B) and E)
G) D) and E)

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Question 52

Multiple Choice

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A compensating balance: I.is required when a firm acquires any bank financing other than a line of credit. II.increases the cost of short-term bank financing. III.may be required even if a firm never borrows funds. IV.is often used as a means of paying for banking services received.

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

F) A) and C)
G) B) and C)

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Question 53

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Compensating balances are frequently a part of revolving lending arrangements with banks, yet they add to the cost of financing for the borrower.Why, then, would borrowers agree to such terms? What other types of alternative financing are available?

A cumulative cash deficit indicates a firm:

Rachel's has a $50,000 line of credit with Uptown Bank.The line of credit calls for an interest rate of 8 percent and a compensating balance of 4 percent.The compensating balance is based on the total amount borrowed and will be held in an interest-free account.What is the effective annual interest rate if the firm borrows $35,000 for one year?

The following is the sales budget for Duck-n-Run, Inc., for the first quarter of 2012: The accounts receivable balance at the end of the previous quarter was $45,000 ($32,000 of which was uncollected December sales.) What is the amount of the January collections?

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:

The Bear Rug has sales of $811,000.The cost of goods sold is equal to 63 percent of sales.The beginning accounts receivable balance is $41,000 and the ending accounts receivable balance is $38,000.How long on average does it take the firm to collect its receivables?

A manufacturing firm has a 90-day collection period.The firm produces seasonal merchandise and thus has the least sales during the first quarter of a year and the highest level of sales during the fourth quarter of a year.The firm maintains a relatively steady level of production which means that its cash disbursements are fairly equal in all quarters.The firm is most apt to face a cash-out situation in:

The Athletic Sports Store has a beginning receivables balance on January 1 of $410.Sales for January through April are $440, $480, $690, and $720, respectively.The accounts receivable period is 60 days.How much did the firm collect in the month of April? Assume a year has 360 days.

List and describe the three basic types of secured inventory loans.Compare the advantages and disadvantages of these loans.

A firm with a flexible short-term financial policy will:

Which one of the following actions will tend to increase the accounts receivable period? Assume the accounts receivable period is currently 34 days.

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:

The Mish Mash Store has a beginning cash balance of $440 on March 1.The firm has projected sales of $610 in February, $680 in March, and $740 in April.The cost of goods sold is equal to 70 percent of sales.Goods are purchased one month prior to the month of sale.The accounts payable period is 30 days and the accounts receivable period is 10 days.The firm has monthly cash expenses of $125.What is the projected ending cash balance at the end of March? Assume every month has 30 days.

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) :

Fancy Footwear has a line of credit with a local bank in the amount of $80,000.The loan agreement calls for interest of 7 percent with a compensating balance of 5 percent, which is based on the total amount borrowed.The compensating balance will be deposited into an interest-free account.What is the effective interest rate on the loan if the firm needs to borrow $75,000 for one year to cover operating expenses?

Jill is the CFO of Summertime Adventures which is a seasonal firm specializing in products related to water sports.The firm purchases inventory one month before it is sold and pays for its purchases 60 days after the invoice date.Sales are highest during July and August.Currently, Jill is preparing the cash disbursements section of the firm's cash budget.Which one of the following statements is supported by this information?

The Cement Works has a beginning cash balance for the quarter of $784.Susie, the firm's president, requires that a minimum cash balance of $900 be maintained and requires that borrowing be used to maintain that balance.If funds have been borrowed, then she requires that those loans be repaid as soon as excess funds are available.Currently, the firm has a loan outstanding of $1,260.How much will the firm borrow or repay this quarter if the quarterly receipts are $3,918 and the quarterly disbursements are $3,774?

An increase in which one of the following is an indicator that an accounts receivable policy is becoming more restrictive?