Chapter 29 Quiz, Financial Analysis and Planning




1. 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


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


3. The cash budget is the primary short-run financial planning tool. The key reasons a cash budget is created are:
A.To estimate your investment in assets
B.To estimate the size and timing of your new cash flows
C.To prepare for potential financing needs
D.A and B
E.B and C


4. A company has forecast sales in the first 3 months of the year as follows (figures in millions): January, $60; February, $80; March, $100. 60% of sales are usually paid for in the month that they take place and 40% in the following month. Receivables at the end of December were $24 million. What are the forecasted collections on accounts receivable in March?
A.$88 million
B.$92 million
C.$100 million
D.$140 million


5. Cash inflow in cash budgeting comes mainly from:
A.Collection on accounts receivable
B.Short-term debt
C.Issue of securities
D.None of the above


6. Compensating balances:
A.Are used to finance inventories
B.Earn high rates of interest for the firm
C.Are ordered monthly (or quarterly) following forecasts based on cash budget analysis to compensate for shortfalls
D.Increase the effective interest earned by banks on credit lines
E.Require a commitment fee


7. If the interest rate on a line of credit is 12% per year, what is the quarterly interest payment on a loan of $10 million?
A.$1,200,000
B.$300,000
C.$400,000
D.None of the above


8. Generally, a line of credit is:
A.Less costly than stretching accounts payable
B.Provided by a bank
C.Unsecured bank borrowing
D.All of the above


9. Strategy A implies a permanent need for short-term borrowing.
A.True
B.False


10. Most firms make a permanent investment in net working capital.
A.True
B.False


11. A firm with excess cash can at best generate zero NPV by investing in marketable securities.
A.True
B.False


12. The main source of cash in a cash budget is collection on accounts receivable.
A.True
B.False


13. Depreciation is not included in sources of cash because it is an expense.
A.True
B.False


14. Two common sources of short-term financing are borrowing from a bank and stretching payables.
A.True
B.False


15. Common sources of short-term financing include:
A.Stretching payables
B.Issuing bonds
C.Reducing inventory
D.All of the above



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