Question 1

How can the application of the matching principle increase firm value?

Accepted Answer

The existence of market frictions can ma

Question 2

The interest on commercial paper is typically paid by selling it at an initial discount.

Accepted Answer

A) True 
 B)False

Question 3

Bhupinder's Bakery has a one-year $300,000 line of credit at an interest rate of 6% (EAR).The loan has a loan origination fee of 1%.What is the actual interest rate paid?

Accepted Answer

A)  7% 
B)  6.7% 
C)  7.07% 
D)  7.14% 
E)  6% 
A)  7% 
B)  6.7% 
C)  7.07% 
D)  7.14% 
E)  6%

Question 4

Why should permanent working capital be financed with long-term sources of funds?

Accepted Answer

Permanent working capital is the amount

Question 5

If the benefit of a lower rate from short-term debt is offset by the risk that the firm will have to refinance at a higher rate,why would a firm choose an aggressive financing policy?

Accepted Answer

An aggressive financing policy might be

Question 6

Since permanent working capital is invested in short-term assets,it should be financed with short-term sources of funds.

Accepted Answer

A) True 
 B)False

Question 7

Use the table for the question(s) below.
The quarterly working capital levels for Hasbeen Toys are presented in the following table (in $ millions):
  
-In which quarter(s)are Hasbeen's seasonal working capital needs the greatest?

Accepted Answer

A)  4 
B)  2 
C)  3 
D)  1 
E)  1 and 2 
A)  4 
B)  2 
C)  3 
D)  1 
E)  1 and 2

Question 8

Luther Industries is offered a $1 million dollar loan for four months at an APR of 9%.If this loan has an origination fee of 1%,then the effective annual rate (EAR)for this loan is closest to:

Accepted Answer

A)  12.0% 
B)  12.6% 
C)  4.1% 
D)  13.8% 
E)  7.5% 
A)  12.0% 
B)  12.6% 
C)  4.1% 
D)  13.8% 
E)  7.5%

Question 9

ABX Corp.is offered a $1.4 million line of credit for nine months at an APR of 7.5%.This loan has a loan origination fee of 1%.What is the actual nine-month interest rate paid,expressed as an EAR?

Accepted Answer

A)  7.50% 
B)  7.57% 
C)  6.69% 
D)  8.92% 
E)  9.02% 
A)  7.50% 
B)  7.57% 
C)  6.69% 
D)  8.92% 
E)  9.02%

Question 10

What is the difference between a pledging of accounts receivable and a factoring of accounts receivable?

Accepted Answer

In a pledging of accounts receivable agr

Question 11

Use the table for the question(s) below.
   
The data above shows the net working capital requirements for Blunderstone Shoes, a company that makes waterproof boots. All figures are in thousands of dollars.
-What can be considered the firm's permanent working capital?

Accepted Answer

A)  $2,700,000 
B)  $3,300,000 
C)  $4,100,000 
D)  $4,450,000 
E)  $4,850,000 
A)  $2,700,000 
B)  $3,300,000 
C)  $4,100,000 
D)  $4,450,000 
E)  $4,850,000

Question 12

A petroleum exploration company takes a short-term bank loan in order to finance the purchase of several truck-mounted,vibroseis shakers,which have unexpectedly come onto the market at a good price.Once the purchase is made,the company will obtain long-term financing.Which of the following best describes the short-term loan the company has taken?

Accepted Answer

A)  a single, end-of-period payment loan 
B)  a promissory note 
C)  a bridge loan 
D)  an uncommitted line of credit 
E)  evergreen credit 
A)  a single, end-of-period payment loan 
B)  a promissory note 
C)  a bridge loan 
D)  an uncommitted line of credit 
E)  evergreen credit

Question 13

Use the table for the question(s) below.
The quarterly working capital levels for Hasbeen Toys are presented in the following table (in $ millions):
  
-The temporary working capital needs for Hasbeen Toys in quarter 3 is closest to:

Accepted Answer

A)  $845 million 
B)  $0 million 
C)  $770 million 
D)  $340 million 
E)  $660 million 
A)  $845 million 
B)  $0 million 
C)  $770 million 
D)  $340 million 
E)  $660 million

Question 14

Which of the following best describes a bank loan arrangement where a bank agrees to lend a firm any amount up to a stated maximum in an informal agreement which does not legally bind the bank to provide the funds?

Accepted Answer

A)  single, end-of-period payment loan 
B)  bridge loan 
C)  committed line of credit 
D)  uncommitted line of credit 
E)  revolving line of credit 
A)  single, end-of-period payment loan 
B)  bridge loan 
C)  committed line of credit 
D)  uncommitted line of credit 
E)  revolving line of credit

Question 15

Montreal Metals issues commercial paper with a face value of $600,000 and a maturity of two months.The firm receives $594,000 when it sells the paper.If the prime rate is 7% APR compounded monthly,how much interest savings did Montreal Metals realize by using commercial paper?

Accepted Answer

A)  $736 
B)  $7,020 
C)  $6,000 
D)  $950 
E)  $1,020 
A)  $736 
B)  $7,020 
C)  $6,000 
D)  $950 
E)  $1,020

Question 16

Use the table for the question(s) below.
   
The data above shows the net working capital requirements for Flinder's Camping, a company that makes tents. All figures are in thousands of dollars.
-What are Flinder's temporary working capital needs in the quarter in which they are greatest?

Accepted Answer

A)  $390,000 
B)  $510,000 
C)  $720,000 
D)  $1,111,000 
E)  $650,000 
A)  $390,000 
B)  $510,000 
C)  $720,000 
D)  $1,111,000 
E)  $650,000

Question 17

Use the table for the question(s) below.
   
The data above shows the net working capital requirements for Blunderstone Shoes, a company that makes waterproof boots. All figures are in thousands of dollars.
-What are Blunderstone's temporary working capital requirements in the third quarter?

Accepted Answer

A)  $2,700,000 
B)  $3,400,000 
C)  $5,450,000 
D)  $6,100,000 
E)  $1,750,000 
A)  $2,700,000 
B)  $3,400,000 
C)  $5,450,000 
D)  $6,100,000 
E)  $1,750,000

Question 18

Which of the following best describes the type of loan in which distinguishable inventory items are held in a trust as security for the loan?

Accepted Answer

A)  floor planning 
B)  floating lien 
C)  field warehouse arrangement 
D)  public warehouse arrangement 
E)  blanket lien 
A)  floor planning 
B)  floating lien 
C)  field warehouse arrangement 
D)  public warehouse arrangement 
E)  blanket lien

Question 19

Jim's Electrical is offered a $400,000 line of credit for six months at an APR of 9%.The bank requires that the firm keep an amount equal to 5% of the loan principal in a non-interest-earning account with the bank as long as the loan remains outstanding.What is the actual six-month interest rate paid,expressed as an EAR?

Accepted Answer

A)  3.2% 
B)  5.0% 
C)  9.70% 
D)  24.3% 
E)  27.6% 
A)  3.2% 
B)  5.0% 
C)  9.70% 
D)  24.3% 
E)  27.6%

Question 20

Which of the following are the three reasons that firms need short-term financing?

Accepted Answer

A)  seasonalities, market frictions, and positive cash flow shocks 
B)  seasonalities, funding risk, and market frictions 
C)  negative cash flow shocks, positive cash flow shocks, and seasonalities 
D)  market frictions, negative cash flow shocks, and funding risk 
E)  positive cash flow shocks, negative cash flow shocks, and market frictions 
A)  seasonalities, market frictions, and positive cash flow shocks 
B)  seasonalities, funding risk, and market frictions 
C)  negative cash flow shocks, positive cash flow shocks, and seasonalities 
D)  market frictions, negative cash flow shocks, and funding risk 
E)  positive cash flow shocks, negative cash flow shocks, and market frictions

Exam 20: Short Term Financial Planning

How can the application of the matching principle increase firm value?

The interest on commercial paper is typically paid by selling it at an initial discount.

Bhupinder's Bakery has a one-year $300,000 line of credit at an interest rate of 6% (EAR).The loan has a loan origination fee of 1%.What is the actual interest rate paid?

Why should permanent working capital be financed with long-term sources of funds?

If the benefit of a lower rate from short-term debt is offset by the risk that the firm will have to refinance at a higher rate,why would a firm choose an aggressive financing policy?

Since permanent working capital is invested in short-term assets,it should be financed with short-term sources of funds.

Use the table for the question(s) below. The quarterly working capital levels for Hasbeen Toys are presented in the following table (in $ millions): -In which quarter(s)are Hasbeen's seasonal working capital needs the greatest?

Luther Industries is offered a $1 million dollar loan for four months at an APR of 9%.If this loan has an origination fee of 1%,then the effective annual rate (EAR)for this loan is closest to:

ABX Corp.is offered a $1.4 million line of credit for nine months at an APR of 7.5%.This loan has a loan origination fee of 1%.What is the actual nine-month interest rate paid,expressed as an EAR?

What is the difference between a pledging of accounts receivable and a factoring of accounts receivable?

Use the table for the question(s) below. The data above shows the net working capital requirements for Blunderstone Shoes, a company that makes waterproof boots. All figures are in thousands of dollars. -What can be considered the firm's permanent working capital?

Use the table for the question(s) below. The quarterly working capital levels for Hasbeen Toys are presented in the following table (in $ millions): -The temporary working capital needs for Hasbeen Toys in quarter 3 is closest to:

Which of the following best describes a bank loan arrangement where a bank agrees to lend a firm any amount up to a stated maximum in an informal agreement which does not legally bind the bank to provide the funds?

Montreal Metals issues commercial paper with a face value of $600,000 and a maturity of two months.The firm receives $594,000 when it sells the paper.If the prime rate is 7% APR compounded monthly,how much interest savings did Montreal Metals realize by using commercial paper?

Use the table for the question(s) below. The data above shows the net working capital requirements for Flinder's Camping, a company that makes tents. All figures are in thousands of dollars. -What are Flinder's temporary working capital needs in the quarter in which they are greatest?

Use the table for the question(s) below. The data above shows the net working capital requirements for Blunderstone Shoes, a company that makes waterproof boots. All figures are in thousands of dollars. -What are Blunderstone's temporary working capital requirements in the third quarter?

Which of the following best describes the type of loan in which distinguishable inventory items are held in a trust as security for the loan?

Which of the following are the three reasons that firms need short-term financing?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters