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49 Cards in this Set

  • Front
  • Back
_________ __________ ____________ is defined as current
assets minus current liabilities.
Net working capital
The ______________ cycle can be broken down into the inventory
conversion period and receivables collection period.
operating
_____________ balances are minimum cash balances in a non-
interest bearing bank account as a condition of a loan.
compensating
_______________ ______________ can readily be converted into
cash and are substitutes for holding cash balances.
marketable securities
__________________ balances/motives are necessary because no
firm knows its future transactions with certainty.
precautionary
Replacement decisions focus on _____________ cash flows
related to the new equipment less cash flows related to the old.
incremental
_______________ _________________ is the fastest method for
firms to transfer money between accounts at two different banks.
wire transfer
___________________ balances/motives are necessary for a firm to
pay its bills as they become due.
transaction
________________ float is the length of time between a firm’s
receipt of a payment and the deposit of the check for collection.
processing
A ___________________ system is when a firm pays a bank to take
on the responsibilities of cash collection
lockbox
____________ ________ ________ consider the changes in cash
inflows, cash outflows, and depreciation.
operating cash flows
The _______________ _____________ period is the average
length of time required to convert materials into finished goods, and
then to sell these goods.
inventory conversion
In deciding among __________ _________ projects, you must
ensure that the lifetimes are equal.
mutually exclusive
The capital budgeting decision is separate from the ________
decision.
financing
The ___________________ _________________ period is the
average length of time required to convert the firm’s receivables
into cash, that is, to collect cash following a sale.
receivables collection
________________ paper is unsecured, short-term promissory notes
sold by large, financially sound companies. It is generally sold to
other business firms, to insurance companies, to banks, and to money
market mutual funds.
commercial
When the firm sets a limit on the size of the capital budget, it is faced
with _________ _____________.
capital rationing
A _____________ concentration system is designed to move funds
from many small accounts into larger master accounts as efficiently
as possible.
cash
The _________________ _______________ period is the average
length of time between the purchase of raw materials and labor
and the payment of cash for them.
payables deferall
Working capital policy involves two basic decisions: 1) What is the
appropriate ____________ for current assets and 2) how should
current assets be ___________________?
level, financed
In capital budgeting analysis, ____________ ____________
___________, not accounting profits, are used.
annual cash flows
_____________ is the effect of a project on other parts of the firm,
and their effects must be considered in the incremental cash flows.
erosion
Current assets can be broken down into ___________________
current assets (minimum level of cash that must be maintained)
and ______________________ current assets (additional funds
required to meet seasonal/cyclical variations in sales).
permanent, temporary
In the maturity matching approach to working capital financing,
permanent assets should be financed with ______ -________
capital, while _____________________ assets should be
financed with short-term credit.
long-term, temporary
An ______________ project is one that calls for the firm to invest in
new facilities to increases sales.
expansion
Two disadvantages to using short-term financing are: 1) short-
term _______________ rates fluctuate more than long-term, and 2)
short-term debt comes __________ over shorter periods of time.
interest, due
________________ are continually recurring short-term liabilities,
especially accrued wages and accrued taxes. _________________
increase and decrease spontaneously as a firm’s operations expand
and contract. This type of debt is “free” in the sense that no interest
is paid on funds raised through __________________________.
accruals, accruals, accruals
A ______ _______ is a cash outlay which has already occurred
or the firm is committed too.
sunk cost
_________________ balances tend to raise the effective interest
rate on a bank loan.
compensating
______________ payable is the largest category of short-term debt.
accounts
In replacement analysis, the depreciation tax savings or loss is based
on the _________ in depreciation expense between the old and new
asset.
difference
A _______________ budget projects cash inflows and outflows over
some specified period of time.
cash
______________ float is the time between when a payer places a
payment in the mail and the time when it is received by the payee.
mail
Riskier projects should be evaluated with higher ________
______ than average-risk projects.
required return (discount rate)
An increase in net working capital would show up as a cash
_______ at time zero (t=0) and then again as a cash _________
at the ______ of the project’s life.
outflow, inflow, end
The ______________ _______________ cycle represents the
amount of time the firm’s cash is tied up between payment for
production inputs and receipt of payment from the sale of the
resulting finished product. The goal of the firm is to _________
this cycle.
cash conversion, shorten
A line of _______________ is a formal (committed) or informal
(non-committed) prearranged, short-term bank loan.
credit
The cost of holding excess cash is called an _________________
cost.
opportunity
In replacement analysis, two cash flows that occur at t=0 that are
not present in expansion projects are the price received from the
sale of the old equipment and the _____ effects of the sale.
tax
A ____ __ _____ is generally an unsecured loan.
line of credit
The ________ _____ is the lowest rate of interest charged by the
nation’s leading banks on business loans to their most reliable
business borrowers.
prime rate
______-_____ loans generally have maturities ranging from 90 days
to one year.
short-term
A ________ _____ _______ is a line of credit guaranteed by a bank
for a stated period regardless of the scarcity of money.
revolving credit agreement
A _______ ______ pledges items such as inventory as collateral for
a loan.
blanket line
Paying bills as late as possible without damaging the firm’s credit
rating is called __________ ________ __________.
stretching account payable
In _________ the firm offers its receivables as collateral for a short-
term loan.
pledging
_______ _______ _______ is the outright sale of accounts receivable
at a discount to a ______ or other financial institution to obtain funds.
factoring accounts receivable, factor
An unsecured short-term loan in which the way the borrowed money
is used provides the mechanism through which the loan is repaid is
called a ________-___________ ___________.
self-liquidating loan
A _______ is a financial institution that specializes in purchasing
accounts receivable from businesses.
factor