Question 1

As a company accounts payable manager,which of the following credit terms are most likely to entice you to take the cash discount?

Accepted Answer

A)  1/10 net 45 
B)  2/10 net 60 
C)  1/10 net 30 
D)  2/10 net 90 
A)  1/10 net 45 
B)  2/10 net 60 
C)  1/10 net 30 
D)  2/10 net 90

Question 2

Florida Grape Growers (FGG)has a line of credit with Trust Company Bank that allows FGG to borrow up to $400,000 at an annual interest rate of 11 percent.However,FGG must keep a compensating balance of 25 percent of any amount borrowed on deposit at the Trust Company.FGG does not normally have a cash balance account with the Trust Company.What is the effective annual cost of credit?

Accepted Answer

A)  11.45% 
B)  12.59% 
C)  14.67% 
D)  16.00% 
A)  11.45% 
B)  12.59% 
C)  14.67% 
D)  16.00%

Question 3

Commercial paper is an unsecured form of credit.

Accepted Answer

A) True 
 B)False

Question 4

Benkart Tool and Die Company plans to sell $50,000,000 of 120-day commercial paper,on which it expects to pay discounted interest at a rate of 5% per year.Dealer fees are expected to be $30,000.The effective cost of credit to Benkart Tool and Die Company is

Accepted Answer

A)  5.27%. 
B)  5.64%. 
C)  6.22%. 
D)  7.53%. 
A)  5.27%. 
B)  5.64%. 
C)  6.22%. 
D)  7.53%.

Question 5

Your company is able to arrange financing at either a rate of 12.75% annually,or at a rate of 12% compounded monthly.Assuming financing is needed for one year,which rate is the best?

Accepted Answer

A)  12% compounded monthly, because the annual percentage yield is 12.68% 
B)  Both rates are effectively the same, so your company should be indifferent between the two. 
C)  112.75% annually because the annual percentage yield for 12% compounded monthly is greater than 12.75%. 
D)  12.75% annually, because even though the annual percentage yield is higher, interest if paid only once per year at year end. 
A)  12% compounded monthly, because the annual percentage yield is 12.68% 
B)  Both rates are effectively the same, so your company should be indifferent between the two. 
C)  112.75% annually because the annual percentage yield for 12% compounded monthly is greater than 12.75%. 
D)  12.75% annually, because even though the annual percentage yield is higher, interest if paid only once per year at year end.

As a company accounts payable manager,which of the following credit terms are most likely to entice you to take the cash discount?

Commercial paper is an unsecured form of credit.

Benkart Tool and Die Company plans to sell $50,000,000 of 120-day commercial paper,on which it expects to pay discounted interest at a rate of 5% per year.Dealer fees are expected to be $30,000.The effective cost of credit to Benkart Tool and Die Company is

Your company is able to arrange financing at either a rate of 12.75% annually,or at a rate of 12% compounded monthly.Assuming financing is needed for one year,which rate is the best?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Current Asset Management

International Business Finance

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Exam 15: Working-Capital Management

As a company accounts payable manager,which of the following credit terms are most likely to entice you to take the cash discount?

Commercial paper is an unsecured form of credit.

Benkart Tool and Die Company plans to sell $50,000,000 of 120-day commercial paper,on which it expects to pay discounted interest at a rate of 5% per year.Dealer fees are expected to be $30,000.The effective cost of credit to Benkart Tool and Die Company is

Your company is able to arrange financing at either a rate of 12.75% annually,or at a rate of 12% compounded monthly.Assuming financing is needed for one year,which rate is the best?

An Introduction to the Foundations of Financial Management

The Financial Markets and Interest Rates

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Current Asset Management

International Business Finance

Filters