Chapter 29: Financial Planning

1. Short-term financial decisions:

I) involve short lived assets
II) involve short lived liabilities
III) are easily reversed
A. I only
B. II only
C. I, II, and III
D. III only

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. Cumulative capital requirement can be met by:

I) long-term financing
II) short-term financing
A. I only
B. II only
C. I and II
D. None of the above

7. Given the following assets;

I) Long-term assets
II) Inventories
III) Receivables
IV) Marketable securities
Which is the least liquid of these assets?
A. I
B. II
C. III
D. IV
8. Given the following assets;
I) Long-term assets
II) Inventories
III) Receivables
IV) Marketable securities
Arrange the above assets in the order of liquidity. (The most liquid being first)
A. I, II, III and IV
B. II, III, IV and I
C. III, IV, II, and I
D. IV, III, II and I

9. Given the following data: Total current assets = $852; Total current liabilities = $406;
Long-term debt = $442, calculate the net working capital.
A. $446
B. $852
C. $410
D. None of the above

10. 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 all short-term cash flows
D. The difference between all assets and liabilities

11. The cash cycle is represented by the following sequence:

A. Cash, raw materials, finished goods, and receivables, cash
B. Cash, receivables, finished goods, and raw materials, cash
C. Cash, raw material, receivables, finished goods, cash
D. None of the above

16. The following is the general formula for calculating the "Ending accounts receivable
(AR):"
A. Ending (AR) = beginning (AR) - sales + collections
B. Ending (AR) = beginning (AR) + sales - collections
C. Ending (AR) = beginning (AR) + sales + collections
D. none of the above
17. A company has forecast sales in the first 3 months of the year as follows (figures in
millions): January, $80; February, $60; March, $40. 70% of sales are usually paid for in the
month that they take place, 20% in the following month, and the final 10% in the next month.
Receivables at the end of December were $23 million. What are the forecasted collections on
accounts receivable in March?
A. $180 million
B. $13 million
C. $40 million
D. $48 million

18. A company has forecast sales in the first 3 months of the year as follows (figures in
millions): January, $200; February, $140; March, $100. 50% of sales are usually paid for in
the month that they take place, 30% in the following month, and the final 20% in the next
month. Receivables at the end of December were $100 million. What are the forecasted
collections on accounts receivable in March?
A. $132 million
B. $100 million
C. $240 million
D. $92 million

32. The sustainable growth rate is equal to:

A. plowback ratio  return on equity
B. return on equity/plowback ratio
C. return on assets  plowback ratio
D. plowback ratio  return on equity  (equity/net assets)