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FIN 401 Final Exam Practice Questions and Answers Factors that affect the best level of long-term financing relative to the cumulative capital requirement? - ANSWER-1. Matching Maturities 2. Permanent working capital requirement 3. Maintaining liquidity Steps to Preparing a Cash Budget - ANSWER...

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  • November 4, 2024
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  • 2024/2025
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Copyright © KAYLIN 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH NOVEMBER, 2024




FIN 401 Final Exam Practice Questions

and Answers


Factors that affect the best level of long-term financing relative to the cumulative capital requirement? -

ANSWER✔✔-1. Matching Maturities 2. Permanent working capital requirement 3. Maintaining liquidity


Steps to Preparing a Cash Budget - ANSWER✔✔-1. Forecast the sources of cash 2. Forecast the uses of

cash 3. Calculate whether the firm is facing a cash shortage or surplus


Accounts Receivable Ending Balance = - ANSWER✔✔-Accounts Receivable beginning balance + sales -

collections


Dynamic Forecasted Uses of Cash - ANSWER✔✔-1. Payments of Accounts Receivable 2. Labor,

Administrative, and other expenses 3. Capital Expenditures 4. Taxes, Interest, and Dividend payments 5.

Increase in Inventory (with expected increase in sales) - Increase in Accounts Receivable


Net Cash Inflow = - ANSWER✔✔-Total Sources - Total Uses


Net Working Capital (NWC) - ANSWER✔✔-= current assets - current liabilities; Often called working

capital; Needs of NWC depend on its business process


Cash Conversion Cycle - ANSWER✔✔-Period between firm's payment for materials and collection on its

sales


Operating Cycle = - ANSWER✔✔-Inventory period + accounts receivable period




Copyright ©Stuvia International BV 2010-2024 Page 1/9

, Copyright © KAYLIN 2024/2025 ACADEMIC YEAR. ALL RIGHTS RESERVED FIRST PUBLISH NOVEMBER, 2024


Cash Conversion Cycle = - ANSWER✔✔-(inventory period + accounts receivable period) - accounts

payable period


Inventory Period = - ANSWER✔✔-inventory / (annual COGS/365)


Accounts Receivable Period = - ANSWER✔✔-accounts receivable / (annual sales/365)


Accounts Payable Period = - ANSWER✔✔-accounts payable / (annual COGS/365)


Credit Management Steps - ANSWER✔✔-1. Establish terms of sale 2. What form of IOU will you require

3. Perform a credit analysis 4. Create a credit policy 5. Develop a collection policy


Terms of Sale - ANSWER✔✔-Credit, discount, and payment terms offered on a sale; ex. 5/10 net 30: 5 %

discount for early payment, 10 days that the discount is available for, net 30 number of days before the

payment is due


Effective Annual Rate (EAR) = - ANSWER✔✔-(1 + (discount / discount price))^(365/extra days credit) -1


Credit Analysis - ANSWER✔✔-procedure to determine the likelihood a customer will pay its bills


Credit Policy - ANSWER✔✔-standards set to determine the amount and nature of credit to extend to

customers


Based on the Probability of Payoffs, expected profit = - ANSWER✔✔-p x PV (rev - cost) - (1 - p) x PV (cost)


Breakeven Probability of Collection = - ANSWER✔✔-p x PV (rev - cost) - (1 - p) x PV (cost) = 0;




p = PV(cost)/PV(rev)


Breakeven Probability of Default = - ANSWER✔✔-1-p = PV(profit)/PV(rev)


Copyright ©Stuvia International BV 2010-2024 Page 2/9

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