Question 1

Which of the following statements is FALSE?

Accepted Answer

A) A public warehouse is a business that exists for the sole purpose of storing and tracking the inflow and outflow of the inventory. 
B) A warehouse arrangement is the riskiest collateral arrangement from the standpoint of the lender. 
C) Because the warehouser is a professional at inventory control,there is likely to be little loss due to damaged goods or theft,which in turn lowers insurance costs. 
D) A field warehouse 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. 
A) A public warehouse is a business that exists for the sole purpose of storing and tracking the inflow and outflow of the inventory. 
B) A warehouse arrangement is the riskiest collateral arrangement from the standpoint of the lender. 
C) Because the warehouser is a professional at inventory control,there is likely to be little loss due to damaged goods or theft,which in turn lowers insurance costs. 
D) A field warehouse 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.

Question 2

Hammond Motors is considering using a public warehouse loan as part of its short-term financing.The firm will require a loan of $2 million for three months.Interest on the loan will be 12% (APR,compounded quarterly)to be paid at the end of the quarter.The warehouse charges 1% of the face value of the loan,payable at the beginning of the quarter.The effect annual rate on this loan is closest to:

Accepted Answer

A) 9.3% 
B) 11.3% 
C) 15.2% 
D) 17.1% 
A) 9.3% 
B) 11.3% 
C) 15.2% 
D) 17.1%

Question 3

Inventory can be used as collateral for a loan in all of the following ways EXCEPT:

Accepted Answer

A) a floating lien. 
B) a warehouse arrangement. 
C) a factoring arrangement. 
D) a trust receipt. 
A) a floating lien. 
B) a warehouse arrangement. 
C) a factoring arrangement. 
D) a trust receipt.

Question 4

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

Question 5

Calculate the temporary working capital needs for each of the four quarters for Hasbeen Toys.

Accepted Answer

@#IMG-DLM& 
Working capital = Cash + AR + inventor

Question 6

Which of the following statements is FALSE?

Accepted Answer

A) The prime rate is the rate banks charge other banks. 
B) With a variable interest rate,the terms of the loan may indicate that the rate will vary with some spread relative to a benchmark rate,such as the yield on one-year Treasury securities or the prime rate. 
C) With a discount loan,the borrower is required to pay the interest at the beginning of the loan period. 
D) A common benchmark rate is the London Inter-Bank Offered Rate,or LIBOR,which is the rate of interest at which banks borrow funds from each other in the London inter bank market. 
A) The prime rate is the rate banks charge other banks. 
B) With a variable interest rate,the terms of the loan may indicate that the rate will vary with some spread relative to a benchmark rate,such as the yield on one-year Treasury securities or the prime rate. 
C) With a discount loan,the borrower is required to pay the interest at the beginning of the loan period. 
D) A common benchmark rate is the London Inter-Bank Offered Rate,or LIBOR,which is the rate of interest at which banks borrow funds from each other in the London inter bank market.

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):  
-The permanent working capital needs for Hasbeen Toys is closest to:

Accepted Answer

A) $1100 million 
B) $2435 million 
C) $1275 million 
D) $770 million 
A) $1100 million 
B) $2435 million 
C) $1275 million 
D) $770 million

Question 8

Which of the following statements regarding lines of credit is FALSE?

Accepted Answer

A) The line of credit agreement may also stipulate that at some point in time the outstanding balance must be zero.This policy ensures that the firm does not use the short-term financing to finance its long-term obligations. 
B) A revolving line of credit is an uncommitted line of credit that involves an informal agreement from the bank for a longer period of time,typically two to three years. 
C) The line of credit may be uncommitted,meaning it is an informal agreement that does not legally bind the bank to provide the funds. 
D) A revolving line of credit with no fixed maturity is called evergreen credit. 
A) The line of credit agreement may also stipulate that at some point in time the outstanding balance must be zero.This policy ensures that the firm does not use the short-term financing to finance its long-term obligations. 
B) A revolving line of credit is an uncommitted line of credit that involves an informal agreement from the bank for a longer period of time,typically two to three years. 
C) The line of credit may be uncommitted,meaning it is an informal agreement that does not legally bind the bank to provide the funds. 
D) A revolving line of credit with no fixed maturity is called evergreen credit.

Question 9

Galt Industries has issued four-month commercial paper with a $8 million face value.The firm netted $7,831,000 on the sale.The effect annual rate for this financing is closest to:

Accepted Answer

A) 5.6% 
B) 6.6% 
C) 7.2% 
D) 8.4% 
A) 5.6% 
B) 6.6% 
C) 7.2% 
D) 8.4%

Question 10

Luther Industries is offered a $1 million dollar loan for four months at an APR of 9%.Luther's bank requires that the firm maintain a compensating balance equal to 5% of the loan amount in a non-interest bearing account and the bank charges a 1% origination fee.Calculate the the effective annual rate EAR for this loan.

Accepted Answer

The origination fee is charged on the pr

Question 11

Kinston Industries issued $4,000,000 in commercial paper which matures in six months and received $3,876,000.Calculate the effective annual rate that Kinston is paying.

Accepted Answer

@#IMG-DLM& 
- 1 = .031992 or 3

Question 12

Which of the following statements is FALSE?

Accepted Answer

A) If a company anticipates an ongoing surplus of cash,it may choose to increase its dividend payout. 
B) Seasonal sales can create large short-term cash flow deficits and surpluses. 
C) The first step in short-term financial planning is to forecast the company's future net working capital. 
D) Deficits resulting from investments in long-term projects are often financed using long-term sources of capital,such as equity or long-term bonds. 
A) If a company anticipates an ongoing surplus of cash,it may choose to increase its dividend payout. 
B) Seasonal sales can create large short-term cash flow deficits and surpluses. 
C) The first step in short-term financial planning is to forecast the company's future net working capital. 
D) Deficits resulting from investments in long-term projects are often financed using long-term sources of capital,such as equity or long-term bonds.

Question 13

Which of the following statements is FALSE?

Accepted Answer

A) Commercial banks,finance companies,and factors,which are firms that purchase the receivables of other companies,are the most common sources for secured short-term loans. 
B) The factoring arrangement may be without recourse,in which case the lender bears the risk of bad-debt losses. 
C) In a floating lien,general lien,or blanket lien arrangement,specific inventory is used to secure the loan. 
D) If a firm sells its goods on terms of net 30,then the factor will pay the firm the face value of its receivables,less a factor's fee,at the end of 30 days. 
A) Commercial banks,finance companies,and factors,which are firms that purchase the receivables of other companies,are the most common sources for secured short-term loans. 
B) The factoring arrangement may be without recourse,in which case the lender bears the risk of bad-debt losses. 
C) In a floating lien,general lien,or blanket lien arrangement,specific inventory is used to secure the loan. 
D) If a firm sells its goods on terms of net 30,then the factor will pay the firm the face value of its receivables,less a factor's fee,at the end of 30 days.

Question 14

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

Question 15

The effective annual rate for Taggart if they choose alternative #3 is closest to:

Accepted Answer

A) 13.9% 
B) 18.8% 
C) 27.0% 
D) 27.9% 
A) 13.9% 
B) 18.8% 
C) 27.0% 
D) 27.9%

Question 16

d'Anconia Copper has borrowed $5 million for six months at a stated annual rate of 10%,using inventory stored in a field warehouse as collateral.The warehouse charges a $25,000 fee,payable at the end of the six months.The effect annual rate on this loan is closest to:

Accepted Answer

A) 9.3% 
B) 11.3% 
C) 15.2% 
D) 17.1% 
A) 9.3% 
B) 11.3% 
C) 15.2% 
D) 17.1%

Question 17

Which alternative should Taggart choose?

Accepted Answer

A) Alternative #1 since it has the lowest EAR 
B) Alternative #2 since it has the lowest EAR 
C) Alternative #3 since it has the lowest EAR 
D) Alternative #2 since it has the highest actual rate 
A) Alternative #1 since it has the lowest EAR 
B) Alternative #2 since it has the lowest EAR 
C) Alternative #3 since it has the lowest EAR 
D) Alternative #2 since it has the highest actual rate

Question 18

A written,legally binding agreement that obligates the bank to lend a firm any amount up to a stated maximum,regardless of the financial condition of the firm (unless the firm is bankrupt)as long as the firm satisfies any restrictions in the agreement is called:

Accepted Answer

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

Question 19

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

Question 20

A loan agreement that requires the firm to pay interest on the loan and pay back the principal in one lump sum at the end of the loan is called:

Accepted Answer

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

Exam 27: Short-Term Financial Planning

Which of the following statements is FALSE?

Inventory can be used as collateral for a loan in all of the following ways EXCEPT:

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:

Calculate the temporary working capital needs for each of the four quarters for Hasbeen Toys.

Which of the following statements is FALSE?

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:

Which of the following statements regarding lines of credit is FALSE?

Galt Industries has issued four-month commercial paper with a $8 million face value.The firm netted $7,831,000 on the sale.The effect annual rate for this financing is closest to:

Kinston Industries issued $4,000,000 in commercial paper which matures in six months and received $3,876,000.Calculate the effective annual rate that Kinston is paying.

Which of the following statements is FALSE?

Which of the following statements is FALSE?

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

The effective annual rate for Taggart if they choose alternative #3 is closest to:

d'Anconia Copper has borrowed $5 million for six months at a stated annual rate of 10%,using inventory stored in a field warehouse as collateral.The warehouse charges a $25,000 fee,payable at the end of the six months.The effect annual rate on this loan is closest to:

Which alternative should Taggart choose?

A written,legally binding agreement that obligates the bank to lend a firm any amount up to a stated maximum,regardless of the financial condition of the firm (unless the firm is bankrupt)as long as the firm satisfies any restrictions in the agreement is called:

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

A loan agreement that requires the firm to pay interest on the loan and pay back the principal in one lump sum at the end of the loan is called:

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Financial Options

Option Valuation

Real Options

Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

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