Assume a firm’s production process requires an average of 80 days to go

Question 1 

Assume a firm’s production process requires an average of 80 days to go from raw materials to finished products and another 40 days before the finished goods are sold. If the accounts receivable cycle is 70 days and the accounts payable cycle is 80 days, what would the operating cycle be?

 

110 days

 

130 days

 

190 days

 

270 days

Question 2 

The time between ordering materials and collecting cash from receivables is known as the:

 

operating cycle

 

cash conversion cycle

 

accounts receivable period

 

term payable cycle

Question 3 

The time between when the firm pays its suppliers and when it collects money from its customers is known as the:

 

operating cycle

 

cash conversion cycle

 

accounts receivable period

 

clearing cycle

Question 4 

Which of the following is not an advantage of short-term borrowing?

 

flexibility

 

establishing continuous relationships   with a bank or financial institution

 

frequent renewals

 

lower cost

Question 5 

In June, Erie Plastics had an ending cash balance of $35,000. In July, the firm had total cash receipts of $40,000 and total cash disbursements of $50,000. The minimum cash balance required by the firm is $25,000. At the end of July, Erie Plastics had

 

an excess cash balance of $25,000

 

An excess cash balance of $0

 

required financing of $10,000

 

required financing of $25,000

Question 6 

A compensating balance on a bank loan effectively ____________ the cost of the loan.

 

raises

 

lowers

 

has no effect on

 

has an indeterminate effect on

Question 7 

In order to borrow $100,000 for a 10% loan on discount basis, the firm will actually have to borrow:

 

$110,000

 

$111,111

 

$100,000

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