Question 1

Occasionally,a company will encounter circumstances in which cash flows are temporarily negative for an unexpected reason.We refer to such a situation as

Accepted Answer

A)  a liquidity shock. 
B)  a negative cash flow shock. 
C)  a negative liquidity shock. 
D)  a cash crunch. 
E)  a margin squeeze. 
A)  a liquidity shock. 
B)  a negative cash flow shock. 
C)  a negative liquidity shock. 
D)  a cash crunch. 
E)  a margin squeeze.

Question 2

Which of the following companies has the smallest need for short-term financial planning?

Accepted Answer

A)  a company that produces Christmas decorations 
B)  a toy manufacturer 
C)  a company that makes condiments such as ketchup 
D)  a company that provides catering services for weddings 
E)  a retailer that sells bathing suits 
A)  a company that produces Christmas decorations 
B)  a toy manufacturer 
C)  a company that makes condiments such as ketchup 
D)  a company that provides catering services for weddings 
E)  a retailer that sells bathing suits

Question 3

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 fourth quarter?

Accepted Answer

A)  $2,700,000 
B)  $3,400,000 
C)  $5,450,000 
D)  $4,450,000 
E)  $1,750,000 
A)  $2,700,000 
B)  $3,400,000 
C)  $5,450,000 
D)  $4,450,000 
E)  $1,750,000

Question 4

The prime rate is the rate banks charge all but their largest customers,who can negotiate a sub-prime rate.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following best describes the agreement in which a lender reviews the credit sales of the borrowing firm and decides which credit accounts it will accept as collateral for the loan?

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

What is the term used for a short-term,unsecured debt sold by a large company to investors without using an intermediary?

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

Question 7

When a company analyzes its short-term financing needs,it typically examines cash flows at

Accepted Answer

A)  monthly intervals. 
B)  yearly intervals. 
C)  quarterly intervals. 
D)  weekly intervals. 
E)  daily intervals. 
A)  monthly intervals. 
B)  yearly intervals. 
C)  quarterly intervals. 
D)  weekly intervals. 
E)  daily intervals.

Question 8

A firm issues four-month commercial paper with a $500,000 face value and pays an EAR of 8.26%.What is the amount the firm receives?

Accepted Answer

A)  $455,092 
B)  $487,306 
C)  $486,946 
D)  $490,177 
E)  $461,851 
A)  $455,092 
B)  $487,306 
C)  $486,946 
D)  $490,177 
E)  $461,851

Question 9

Use the table for the question(s) below.
   
DressUp! is a clothing retailer specializing in costumery. The financial forecast for a year is shown in the table above. All figures are in thousands of dollars.
-During which of the following months are the firm's working capital needs the greatest?

Accepted Answer

A)  April 
B)  June 
C)  September 
D)  October 
E)  November 
A)  April 
B)  June 
C)  September 
D)  October 
E)  November

Question 10

Firms need short-term financing to deal with seasonal working capital requirements,negative cash flow shocks,or positive cash flow shocks.

Accepted Answer

A) True 
 B)False

Question 11

Pipeline Pharmaceuticals has a one-year $2 million line of credit at an interest rate of 5% (EAR).The loan has a loan origination fee of 2%.What is the actual interest rate paid?

Accepted Answer

A)  7% 
B)  7.14% 
C)  5% 
D)  7.1% 
E)  5.9% 
A)  7% 
B)  7.14% 
C)  5% 
D)  7.1% 
E)  5.9%

Question 12

What are compensating balance and what effect does it have on the loan?

Accepted Answer

Regardless of the loan structure,the ban

Question 13

How does seasonality lead to short-term financing needs?

Accepted Answer

When sales are seasonal,firms

Question 14

Why does a floating lien agreement have a higher interest rate than other types of short-term financing with collateral?

Accepted Answer

The floating lien,or blanket lien,agreem

Question 15

Which of the following firms is likely to have the highest short-term financing needs?

Accepted Answer

A)  a pharmaceutical manufacturer 
B)  a grocery store 
C)  an electric utility 
D)  a toy store 
E)  an internet service provider 
A)  a pharmaceutical manufacturer 
B)  a grocery store 
C)  an electric utility 
D)  a toy store 
E)  an internet service provider

Question 16

Conway's Roofing Services is offered a $1 million line of credit for three months at an APR of 8%.The bank requires that the firm keep an amount equal to 12% of the loan principal in a non-interest-earning account with the bank as long as the loan remains outstanding.What is the actual three-month interest rate paid,expressed as an EAR?

Accepted Answer

A)  9.41% 
B)  24.40% 
C)  60.30% 
D)  80.40% 
E)  31.45% 
A)  9.41% 
B)  24.40% 
C)  60.30% 
D)  80.40% 
E)  31.45%

Question 17

Stuart Mining is offered a $4,000,000 line of credit for three months at an APR of 6%.The bank requires that the firm keep an amount equal to 10% of the loan principal in an account with the bank as long as the loan remains outstanding.This account pays 2% APR with quarterly compounding.What is the actual three-month interest paid on this loan?

Accepted Answer

A)  1.6% 
B)  6.6% 
C)  12.6% 
D)  14.6% 
E)  60.9% 
A)  1.6% 
B)  6.6% 
C)  12.6% 
D)  14.6% 
E)  60.9%

Question 18

What is the term used for a short-term,unsecured debt sold by a large company to investors?

Accepted Answer

A)  commercial paper 
B)  retail paper 
C)  wholesale paper 
D)  unsecured paper 
E)  junk bond 
A)  commercial paper 
B)  retail paper 
C)  wholesale paper 
D)  unsecured paper 
E)  junk bond

Question 19

Which of the following best describes an aggressive 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 20

A blanket lien exposes a lender to less risk and thus carries less interest than a trust receipt.

Accepted Answer

A) True 
 B)False

Exam 20: Short Term Financial Planning

Occasionally,a company will encounter circumstances in which cash flows are temporarily negative for an unexpected reason.We refer to such a situation as

Which of the following companies has the smallest need for short-term financial planning?

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 fourth quarter?

The prime rate is the rate banks charge all but their largest customers,who can negotiate a sub-prime rate.

Which of the following best describes the agreement in which a lender reviews the credit sales of the borrowing firm and decides which credit accounts it will accept as collateral for the loan?

What is the term used for a short-term,unsecured debt sold by a large company to investors without using an intermediary?

When a company analyzes its short-term financing needs,it typically examines cash flows at

A firm issues four-month commercial paper with a $500,000 face value and pays an EAR of 8.26%.What is the amount the firm receives?

Use the table for the question(s) below. DressUp! is a clothing retailer specializing in costumery. The financial forecast for a year is shown in the table above. All figures are in thousands of dollars. -During which of the following months are the firm's working capital needs the greatest?

Firms need short-term financing to deal with seasonal working capital requirements,negative cash flow shocks,or positive cash flow shocks.

Pipeline Pharmaceuticals has a one-year $2 million line of credit at an interest rate of 5% (EAR).The loan has a loan origination fee of 2%.What is the actual interest rate paid?

What are compensating balance and what effect does it have on the loan?

How does seasonality lead to short-term financing needs?

Why does a floating lien agreement have a higher interest rate than other types of short-term financing with collateral?

Which of the following firms is likely to have the highest short-term financing needs?

What is the term used for a short-term,unsecured debt sold by a large company to investors?

Which of the following best describes an aggressive financing policy?

A blanket lien exposes a lender to less risk and thus carries less interest than a trust receipt.

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