Question 1

Which of the following types of loans bears the highest interest rate?

Accepted Answer

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

Question 2

Vancouver Ventilation issues commercial paper with a face value of $2 million and a maturity of six months.The firm receives $1,950,000 when it sells the paper.If the prime rate is 7.5% APR compounded quarterly,how much interest savings did Vancouver Ventilation realize by using commercial paper?

Accepted Answer

A)  $25,703 
B)  $75,703 
C)  $23,811 
D)  $21,803 
E)  $25,000 
A)  $25,703 
B)  $75,703 
C)  $23,811 
D)  $21,803 
E)  $25,000

Question 3

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 fourth quarter?

Accepted Answer

A)  $390,000 
B)  $510,000 
C)  $720,000 
D)  $120,000 
E)  $650,000 
A)  $390,000 
B)  $510,000 
C)  $720,000 
D)  $120,000 
E)  $650,000

Question 4

Which of the following best describes a conservative financing policy?

Accepted Answer

A)  financing part or all of the permanent working capital with short-term debt 
B)  financing part or all of the permanent working capital with long-term debt 
C)  financing part or all of the temporary working capital with short-term debt 
D)  financing part or all of the temporary working capital with long-term debt 
E)  financing part or all of the temporary working capital with equity 
A)  financing part or all of the permanent working capital with short-term debt 
B)  financing part or all of the permanent working capital with long-term debt 
C)  financing part or all of the temporary working capital with short-term debt 
D)  financing part or all of the temporary working capital with long-term debt 
E)  financing part or all of the temporary working capital with equity

Question 5

Which of the following best describes the agreement where a firm sells receivables to a lender and the lender agrees to pay the firm the amount due from its customers at the end of the firm's payment period,with the provision that the lender will receive payment from the borrower if the customers default on their payments?

Accepted Answer

A)  trust receipt 
B)  pledging of accounts receivable 
C)  factoring of accounts receivable with recourse 
D)  factoring of accounts receivable without recourse 
E)  floating lien 
A)  trust receipt 
B)  pledging of accounts receivable 
C)  factoring of accounts receivable with recourse 
D)  factoring of accounts receivable without recourse 
E)  floating lien

Question 6

An uncommitted line of credit is obtained through a nonbinding,informal agreement.

Accepted Answer

A) True 
 B)False

Question 7

Ahab's Army Surplus has a commited line of credit with a maximum of $1.2 million and interest rate of 3.5% (EAR).The loan has a commitment fee of 0.45% (EAR).If the firm borrows $900,000 at the start of the year and repays it at the end of the year,what is the total cost of the loan?

Accepted Answer

A)  $42,000 
B)  $35,550 
C)  $43,350 
D)  $32,850 
E)  $31,500 
A)  $42,000 
B)  $35,550 
C)  $43,350 
D)  $32,850 
E)  $31,500

Question 8

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 1 is closest to:

Accepted Answer

A)  $0 million 
B)  $340 million 
C)  $770 million 
D)  $845 million 
E)  $640 million 
A)  $0 million 
B)  $340 million 
C)  $770 million 
D)  $845 million 
E)  $640 million

Question 9

Which of the following bank loan arrangements is typically accompanied by a requirement that the firm maintain a minimum level of deposits with the lending bank and restricts the level of the borrowing firm's working capital?

Accepted Answer

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

Question 10

A firm issues three-month commercial paper with a $1,000,000 face value and pays an EAR of 7.4%.What is the amount the firm receives?

Accepted Answer

A)  $976,484 
B)  $981,836 
C)  $931,099 
D)  $982,318 
E)  $991,026 
A)  $976,484 
B)  $981,836 
C)  $931,099 
D)  $982,318 
E)  $991,026

Question 11

What is a field warehouse arrangement?

Accepted Answer

A)  a warehouse arrangement in which the inventory is stored and tracked by the lender on the lender's premises 
B)  a warehouse arrangement in which the inventory is stored on the borrower's premises but is tracked by the lender 
C)  a warehouse arrangement in which the inventory is stored by a business that exists for the sole purpose of storing and tracking the inflow and outflow of inventory 
D)  a warehouse arrangement that is operated by a third party but is set up on the borrower's premises in a separate area so that the inventory collateralizing the loan is kept apart from the borrower's main plant 
E)  a warehouse arrangement in which the inventory is stored and tracked by the borrower on the borrower's premises 
A)  a warehouse arrangement in which the inventory is stored and tracked by the lender on the lender's premises 
B)  a warehouse arrangement in which the inventory is stored on the borrower's premises but is tracked by the lender 
C)  a warehouse arrangement in which the inventory is stored by a business that exists for the sole purpose of storing and tracking the inflow and outflow of inventory 
D)  a warehouse arrangement that is operated by a third party but is set up on the borrower's premises in a separate area so that the inventory collateralizing the loan is kept apart from the borrower's main plant 
E)  a warehouse arrangement in which the inventory is stored and tracked by the borrower on the borrower's premises

Question 12

Which of the following companies is most likely to have the greatest need for short-term financial planning?

Accepted Answer

A)  a company that mines sand for use in glass-making 
B)  a company that manufactures condiments such as ketchup 
C)  a company that produces advertisements for roadside billboards 
D)  a company that provides catering services for weddings 
E)  a utility company that provides electricity 
A)  a company that mines sand for use in glass-making 
B)  a company that manufactures condiments such as ketchup 
C)  a company that produces advertisements for roadside billboards 
D)  a company that provides catering services for weddings 
E)  a utility company that provides electricity

Question 13

Katie's Karate Dojo has a commited line of credit with a maximum of $350,000 and interest rate of 6% (EAR).The loan has a commitment fee of 0.5% (EAR).If the firm borrows $300,000 at the start of the year and repays it at the end of the year,what is the total cost of the loan?

Accepted Answer

A)  $18,000 
B)  $18,250 
C)  $19,500 
D)  $21,250 
E)  $21,000 
A)  $18,000 
B)  $18,250 
C)  $19,500 
D)  $21,250 
E)  $21,000

Question 14

Luther Industries is offered a $1 million loan for four months at an APR of 9%.If Luther's bank requires that the firm maintain a compensating balance equal to 10% of the loan amount in a non-interest-earning account,then the effective annual rate EAR for this loan is closest to:

Accepted Answer

A)  10.3% 
B)  12.6% 
C)  14.4% 
D)  71.5% 
E)  21.1% 
A)  10.3% 
B)  12.6% 
C)  14.4% 
D)  71.5% 
E)  21.1%

Question 15

A firm issues one-month commercial paper with a $500,000 face value and receives $495,000.What is the EAR the firm is paying for these funds?

Accepted Answer

A)  12.8% 
B)  1.01% 
C)  12.12% 
D)  12% 
E)  13.12% 
A)  12.8% 
B)  1.01% 
C)  12.12% 
D)  12% 
E)  13.12%

Question 16

How can positive cash flow shocks affect short-term financing needs?

Accepted Answer

If the positive cash flow shoc

Question 17

Which of the following best describes the agreement where a firm sells receivables to a lender and the lender agrees to pay the firm the amount due from its customers at the end of the firm's payment period,and where the lender's claim on the borrower's assets in the event of default is limited only to explicitly pledged collateral?

Accepted Answer

A)  trust receipt 
B)  pledging of accounts receivable 
C)  factoring of accounts receivable with recourse 
D)  factoring of accounts receivable without recourse 
E)  floating lien 
A)  trust receipt 
B)  pledging of accounts receivable 
C)  factoring of accounts receivable with recourse 
D)  factoring of accounts receivable without recourse 
E)  floating lien

Question 18

According to the matching principle,short-term needs for funds should be financed by short-term sources of funds; long-term need for funds should be financed by long-term sources of funds.

Accepted Answer

A) True 
 B)False

Question 19

A short-term bank loan that is often used until a firm can arrange for long-term financing is called

Accepted Answer

A)  a committed line of credit. 
B)  a short-term mortgage loan. 
C)  a bridge loan. 
D)  a single, end-of-period-payment loan. 
E)  evergreen credit 
A)  a committed line of credit. 
B)  a short-term mortgage loan. 
C)  a bridge loan. 
D)  a single, end-of-period-payment loan. 
E)  evergreen credit

Question 20

What is the term used for a short-term,unsecured debt sold by a large company to an intermediary,who then resells the debt to investors in return for a fee for his or her services?

Accepted Answer

A)  commercial paper 
B)  direct paper 
C)  dealer paper 
D)  unsecured paper 
E)  junk bond 
A)  commercial paper 
B)  direct paper 
C)  dealer paper 
D)  unsecured paper 
E)  junk bond

Exam 20: Short Term Financial Planning

Which of the following types of loans bears the highest interest rate?

Vancouver Ventilation issues commercial paper with a face value of $2 million and a maturity of six months.The firm receives $1,950,000 when it sells the paper.If the prime rate is 7.5% APR compounded quarterly,how much interest savings did Vancouver Ventilation 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 fourth quarter?

Which of the following best describes a conservative financing policy?

An uncommitted line of credit is obtained through a nonbinding,informal agreement.

Ahab's Army Surplus has a commited line of credit with a maximum of $1.2 million and interest rate of 3.5% (EAR).The loan has a commitment fee of 0.45% (EAR).If the firm borrows $900,000 at the start of the year and repays it at the end of the year,what is the total cost of the loan?

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 1 is closest to:

Which of the following bank loan arrangements is typically accompanied by a requirement that the firm maintain a minimum level of deposits with the lending bank and restricts the level of the borrowing firm's working capital?

A firm issues three-month commercial paper with a $1,000,000 face value and pays an EAR of 7.4%.What is the amount the firm receives?

What is a field warehouse arrangement?

Which of the following companies is most likely to have the greatest need for short-term financial planning?

Katie's Karate Dojo has a commited line of credit with a maximum of $350,000 and interest rate of 6% (EAR).The loan has a commitment fee of 0.5% (EAR).If the firm borrows $300,000 at the start of the year and repays it at the end of the year,what is the total cost of the loan?

Luther Industries is offered a $1 million loan for four months at an APR of 9%.If Luther's bank requires that the firm maintain a compensating balance equal to 10% of the loan amount in a non-interest-earning account,then the effective annual rate EAR for this loan is closest to:

A firm issues one-month commercial paper with a $500,000 face value and receives $495,000.What is the EAR the firm is paying for these funds?

How can positive cash flow shocks affect short-term financing needs?

According to the matching principle,short-term needs for funds should be financed by short-term sources of funds; long-term need for funds should be financed by long-term sources of funds.

A short-term bank loan that is often used until a firm can arrange for long-term financing is called

What is the term used for a short-term,unsecured debt sold by a large company to an intermediary,who then resells the debt to investors in return for a fee for his or her services?

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