Any accounting geeks?

[mazeroth]

Doing some homework and can't, for the life of me, figure this easy one out:

What is the present value factor for a cash outflow that is made today?
0.00
some value greater than 1.00
1.00
It depends on the rate of return that is required.

Many thanks in advance.

 

[Crusty]

b

 

[slayer202]

1? whats the factor? the outflow's pv is the amount you are paying out.

 

[dbk]

(1/(1+r)^0) = 1.00?

 

[mazeroth]

I have no idea, everyone. That's all the question says. This be worth 2 points so which is it?!?

 

[dbk]

present value of any amount today (t=0) is 1 x amount
If i pay you $5 today the present value of it today is $5.
so it's 1

PVIF = [1/((1+r)^t)]

 

[mazeroth]

Last one, I swear!

Which of the following is likely to produce a need for temporary financing to bridge a cash shortfall?
Building up inventory in anticipation of increased sales in the months ahead
Allowing customers to purchase on credit
Paying insurance policies in advance of the period insured
All of the above

I can see the first two but not necessarily the third, which is making all the above harder to choose.

 

[dbk]

Originally posted by: mazeroth
Last one, I swear!

Which of the following is likely to produce a need for temporary financing to bridge a cash shortfall?
Building up inventory in anticipation of increased sales in the months ahead
Allowing customers to purchase on credit
Paying insurance policies in advance of the period insured
All of the above

I can see the first two but not necessarily the third, which is making all the above harder to choose.

I think it's b.

 

[FelixDeCat]

Originally posted by: mazeroth
Last one, I swear!

Which of the following is likely to produce a need for temporary financing to bridge a cash shortfall?
Building up inventory in anticipation of increased sales in the months ahead
Allowing customers to purchase on credit
Paying insurance policies in advance of the period insured
All of the above

I can see the first two but not necessarily the third, which is making all the above harder to choose.

B makes the most sense, but the obvious answer is D

If you dont have the cash to build additional inventories, extend credit or pay policies in advance you will need temporary fianancing until your cash flow covers these activities from operations. Talk about a dream scenario.

 

[MikeMike]

Originally posted by: FelixDeKat

Originally posted by: mazeroth
Last one, I swear!

Which of the following is likely to produce a need for temporary financing to bridge a cash shortfall?
Building up inventory in anticipation of increased sales in the months ahead
Allowing customers to purchase on credit
Paying insurance policies in advance of the period insured
All of the above

I can see the first two but not necessarily the third, which is making all the above harder to choose.

B makes the most sense, but the obvious answer is D

If you dont have the cash to build additional inventories, extend credit or pay policies in advance you will need temporary fianancing until your cash flow covers these activities from operations. Talk about a dream scenario.

it has to be D... all those scenarios, while C is a weird one, would most likely require cash outlay beyond what is available most likely...

 

[FelixDeCat]

Originally posted by: MIKEMIKE

Originally posted by: FelixDeKat

Originally posted by: mazeroth
Last one, I swear!

Which of the following is likely to produce a need for temporary financing to bridge a cash shortfall?
Building up inventory in anticipation of increased sales in the months ahead
Allowing customers to purchase on credit
Paying insurance policies in advance of the period insured
All of the above

I can see the first two but not necessarily the third, which is making all the above harder to choose.

B makes the most sense, but the obvious answer is D

If you dont have the cash to build additional inventories, extend credit or pay policies in advance you will need temporary fianancing until your cash flow covers these activities from operations. Talk about a dream scenario.

it has to be D... all those scenarios, while C is a weird one, would most likely require cash outlay beyond what is available most likely...

And C is what kind of threw me. Why would anyone pay insurance in advance unless there was some incentive to do so? I will admit I personally pay my 6 month auto policy at once to get the bill off my desk, but Im not going to borrow money to do it. There must be another reason for a business to do this that Im missing (any potential discount or tax advantage aside since I dont keep up with FASB rules or even really cared since the early 90s)

 

[MikeMike]

Originally posted by: FelixDeKat

Originally posted by: MIKEMIKE

Originally posted by: FelixDeKat

Originally posted by: mazeroth
Last one, I swear!

Which of the following is likely to produce a need for temporary financing to bridge a cash shortfall?
Building up inventory in anticipation of increased sales in the months ahead
Allowing customers to purchase on credit
Paying insurance policies in advance of the period insured
All of the above

I can see the first two but not necessarily the third, which is making all the above harder to choose.

B makes the most sense, but the obvious answer is D

If you dont have the cash to build additional inventories, extend credit or pay policies in advance you will need temporary fianancing until your cash flow covers these activities from operations. Talk about a dream scenario.

it has to be D... all those scenarios, while C is a weird one, would most likely require cash outlay beyond what is available most likely...

And C is what kind of threw me. Why would anyone pay insurance in advance unless there was some incentive to do so? I will admit I personally pay my 6 month auto policy at once to get the bill off my desk, but Im not going to borrow money to do it. There must be another reason for a business to do this that Im missing (any potential discount or tax advantage aside since I dont keep up with FASB rules or paid attention since the early 90s)

hehe, i love when i give decent explanations on things i have never been properly edumacated on (acct classes are next year)

 

[dbk]

Originally posted by: MIKEMIKE

Originally posted by: FelixDeKat

Originally posted by: mazeroth
Last one, I swear!

Which of the following is likely to produce a need for temporary financing to bridge a cash shortfall?
Building up inventory in anticipation of increased sales in the months ahead
Allowing customers to purchase on credit
Paying insurance policies in advance of the period insured
All of the above

I can see the first two but not necessarily the third, which is making all the above harder to choose.

B makes the most sense, but the obvious answer is D

If you dont have the cash to build additional inventories, extend credit or pay policies in advance you will need temporary fianancing until your cash flow covers these activities from operations. Talk about a dream scenario.

it has to be D... all those scenarios, while C is a weird one, would most likely require cash outlay beyond what is available most likely...

I said b because a and c are transactions/events that will eventually cancel out in the proceeding budgets. Even if sales do not increase - the inventory will be sold in the future (less future purchases). Prepaid insurance will eventually be expensed out.

Credit sales is not a sure bet. There is risk of uncollectibility which can create an unexpected situation requiring financing assistance - a bailout of sorts...

 

[mazeroth]

1.00 was the correct answer for the first question and apparently D was correct for the second, which I think is wrong. I'm going to dispute that in class tomorrow.

Thanks for all the help.

 

[FelixDeCat]

Originally posted by: MIKEMIKE

Originally posted by: FelixDeKat

Originally posted by: MIKEMIKE

Originally posted by: FelixDeKat

Originally posted by: mazeroth
Last one, I swear!

Which of the following is likely to produce a need for temporary financing to bridge a cash shortfall?
Building up inventory in anticipation of increased sales in the months ahead
Allowing customers to purchase on credit
Paying insurance policies in advance of the period insured
All of the above

I can see the first two but not necessarily the third, which is making all the above harder to choose.

B makes the most sense, but the obvious answer is D

If you dont have the cash to build additional inventories, extend credit or pay policies in advance you will need temporary fianancing until your cash flow covers these activities from operations. Talk about a dream scenario.

it has to be D... all those scenarios, while C is a weird one, would most likely require cash outlay beyond what is available most likely...

And C is what kind of threw me. Why would anyone pay insurance in advance unless there was some incentive to do so? I will admit I personally pay my 6 month auto policy at once to get the bill off my desk, but Im not going to borrow money to do it. There must be another reason for a business to do this that Im missing (any potential discount or tax advantage aside since I dont keep up with FASB rules or paid attention since the early 90s)

hehe, i love when i give decent explanations on things i have never been properly edumacated on (acct classes are next year)

I actually enjoyed taking them in high school and a couple semesters in college. Once you get the principals down, its basically common sense. Good luck.