Question 1

The accounts receivable and inventory of a firm typically are used as collateral when issuing short-term secured financing.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following types of loans would be best for an investor who wishes to reduce risk by maintaining the tightest control over inventory?

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 3

What is the maximum maturity of commercial paper?

Accepted Answer

A)  60 days 
B)  90 days 
C)  180 days 
D)  one year 
E)  270 days 
A)  60 days 
B)  90 days 
C)  180 days 
D)  one year 
E)  270 days

Question 4

A firm issues six-month commercial paper with a $1 million face value and receives $970,000.What is the EAR the firm is paying for these funds?

Accepted Answer

A)  6% 
B)  3% 
C)  3.09% 
D)  6.18% 
E)  6.28% 
A)  6% 
B)  3% 
C)  3.09% 
D)  6.18% 
E)  6.28%

Question 5

What is permanent working capital?

Accepted Answer

A)  the amount that a firm must keep invested in its short-term assets to support its continuing operations 
B)  the difference between the actual level of investment in short-term assets and the amount that a firm must keep invested in its short-term assets to support its continuing operations 
C)  the amount that a firm keeps invested in its short-term assets to support its continuing operations which is financed by short-term debt 
D)  the amount that a firm keeps invested in its short-term assets to support its continuing operations which is financed by long-term debt 
E)  the amount that a firm keeps invested in its short-term assets which is financed by debt 
A)  the amount that a firm must keep invested in its short-term assets to support its continuing operations 
B)  the difference between the actual level of investment in short-term assets and the amount that a firm must keep invested in its short-term assets to support its continuing operations 
C)  the amount that a firm keeps invested in its short-term assets to support its continuing operations which is financed by short-term debt 
D)  the amount that a firm keeps invested in its short-term assets to support its continuing operations which is financed by long-term debt 
E)  the amount that a firm keeps invested in its short-term assets which is financed by debt

Question 6

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 does the firm have surplus cash?

Accepted Answer

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

Question 7

What are commitment fees and what effect does it have on the loan?

Accepted Answer

Commitment fees are associated

Question 8

Which of the following best describes the agreement where all of a firm's inventory is used to secure a loan?

Accepted Answer

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

Question 9

Use the information for the question(s) below.
   
Azamel Cosmetics specializes in cosmetics which have high levels of UV protection. The above figures show the anticipated sales over the next four quarters. Azamel carries inventory equal to 30% of next quarter's sales, has accounts payable of 20% of next quarter's sales, and accounts receivable of 25% of this quarter's sales.
-If its net income is 12% of sales,in which quarter(s)is it expected that Azamel's seasonal working capital needs will be the greatest?

Accepted Answer

A)  Q1 
B)  Q2 
C)  Q3 
D)  Q4 
E)  Q5 
A)  Q1 
B)  Q2 
C)  Q3 
D)  Q4 
E)  Q5

Question 10

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 can be considered the firm's permanent working capital?

Accepted Answer

A)  $390,000 
B)  $510,000 
C)  $720,000 
D)  $1,030,000 
E)  $640,000 
A)  $390,000 
B)  $510,000 
C)  $720,000 
D)  $1,030,000 
E)  $640,000

Question 11

Which short-term financing policy states that short-term cash needs should be financed with short-term debt and long-term cash needs should be financed with long-term sources of funds?

Accepted Answer

A)  aggressive policy 
B)  evergreen credit 
C)  matching principle 
D)  conservatism principle 
E)  duration policy 
A)  aggressive policy 
B)  evergreen credit 
C)  matching principle 
D)  conservatism principle 
E)  duration policy

Question 12

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 permanent working capital needs for Hasbeen Toys is closest to:

Accepted Answer

A)  $1,100 million 
B)  $2,435 million 
C)  $1,275 million 
D)  $770 million 
E)  $640 million 
A)  $1,100 million 
B)  $2,435 million 
C)  $1,275 million 
D)  $770 million 
E)  $640 million

Question 13

Strata Services has a three month $450,000 line of credit at an APR of 8%.The loan has a loan origination fee of 1.5%.What is the actual three-month interest rate paid expressed as an EAR?

Accepted Answer

A)  9.8% 
B)  9.5% 
C)  14.75% 
D)  8.24% 
E)  15% 
A)  9.8% 
B)  9.5% 
C)  14.75% 
D)  8.24% 
E)  15%

Question 14

A short-term financial plan tracks a firm's cash balance and new and existing short-term financing,enabling managers to forecast shortfalls and plan to fund them in the least costly manner.

Accepted Answer

A) True 
 B)False

Question 15

A firm issues three-month commercial paper with a $250,000 face value and receives $244,000.What is the EAR the firm is paying for these funds?

Accepted Answer

A)  10.2% 
B)  9.8% 
C)  9.6% 
D)  10% 
E)  9.4% 
A)  10.2% 
B)  9.8% 
C)  9.6% 
D)  10% 
E)  9.4%

Question 16

Gemini Real Estate is offered a $2 million line of credit for four months at an APR of 9%.This loan has a loan origination fee of 1.5%.What is the actual four-month interest rate paid,expressed as an EAR?

Accepted Answer

A)  4.57% 
B)  9.68% 
C)  12.44% 
D)  14.34% 
E)  11.14% 
A)  4.57% 
B)  9.68% 
C)  12.44% 
D)  14.34% 
E)  11.14%

Question 17

Commercial paper is usually a more expensive source of funds than a short-term bank loan.

Accepted Answer

A) True 
 B)False

Question 18

Bandolier Bicycles has a commited line of credit with a maximum of $450,000 and interest rate of 4% (EAR).The loan has a commitment fee of 0.3% (EAR).If the firm borrows $375,000 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)  $15,225 
B)  $15,000 
C)  $18,225 
D)  $18,000 
E)  $16,125 
A)  $15,225 
B)  $15,000 
C)  $18,225 
D)  $18,000 
E)  $16,125

Question 19

A firm issues six-month commercial paper with $100,000 face value and pays an EAR of 6.7%.What is the amount the firm receives?

Accepted Answer

A)  $93,197 
B)  $93,720 
C)  $94,994 
D)  $96,759 
E)  $96,809 
A)  $93,197 
B)  $93,720 
C)  $94,994 
D)  $96,759 
E)  $96,809

Question 20

Which of the following is a financing arrangement in which the lender's claim on the borrower's assets in the event of a default is limited to only explicitly pledged collateral?

Accepted Answer

A)  without recourse 
B)  with recourse 
C)  without factoring 
D)  with factoring 
E)  without subordination 
A)  without recourse 
B)  with recourse 
C)  without factoring 
D)  with factoring 
E)  without subordination

Exam 20: Short Term Financial Planning

The accounts receivable and inventory of a firm typically are used as collateral when issuing short-term secured financing.

Which of the following types of loans would be best for an investor who wishes to reduce risk by maintaining the tightest control over inventory?

What is the maximum maturity of commercial paper?

A firm issues six-month commercial paper with a $1 million face value and receives $970,000.What is the EAR the firm is paying for these funds?

What is permanent working capital?

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 does the firm have surplus cash?

What are commitment fees and what effect does it have on the loan?

Which of the following best describes the agreement where all of a firm's inventory is used to secure a loan?

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 can be considered the firm's permanent working capital?

Which short-term financing policy states that short-term cash needs should be financed with short-term debt and long-term cash needs should be financed with long-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): -The permanent working capital needs for Hasbeen Toys is closest to:

Strata Services has a three month $450,000 line of credit at an APR of 8%.The loan has a loan origination fee of 1.5%.What is the actual three-month interest rate paid expressed as an EAR?

A short-term financial plan tracks a firm's cash balance and new and existing short-term financing,enabling managers to forecast shortfalls and plan to fund them in the least costly manner.

A firm issues three-month commercial paper with a $250,000 face value and receives $244,000.What is the EAR the firm is paying for these funds?

Gemini Real Estate is offered a $2 million line of credit for four months at an APR of 9%.This loan has a loan origination fee of 1.5%.What is the actual four-month interest rate paid,expressed as an EAR?

Commercial paper is usually a more expensive source of funds than a short-term bank loan.

Bandolier Bicycles has a commited line of credit with a maximum of $450,000 and interest rate of 4% (EAR).The loan has a commitment fee of 0.3% (EAR).If the firm borrows $375,000 at the start of the year and repays it at the end of the year,what is the total cost of the loan?

A firm issues six-month commercial paper with $100,000 face value and pays an EAR of 6.7%.What is the amount the firm receives?

Which of the following is a financing arrangement in which the lender's claim on the borrower's assets in the event of a default is limited to only explicitly pledged collateral?

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