Question 1

As LIBOR is a rate paid by banks with ________,most firms will borrow at a rate that ________ LIBOR.

Accepted Answer

A)  the highest credit quality; is below 
B)  the lowest credit quality; exceeds 
C)  the lowest credit quality; is below 
D)  the highest credit quality; exceeds 
A)  the highest credit quality; is below 
B)  the lowest credit quality; exceeds 
C)  the lowest credit quality; is below 
D)  the highest credit quality; exceeds D

Question 2

The matching principle states that ________ needs should be financed with ________ debt and ________ needs should be financed with ________ sources of funds.

Accepted Answer

A)  short-term; long-term; long-term; short-term 
B)  long-term; short-term; long-term; short-term 
C)  short-term; long-term; short-term; long-term 
D)  short-term; short-term; long-term; long-term 
A)  short-term; long-term; long-term; short-term 
B)  long-term; short-term; long-term; short-term 
C)  short-term; long-term; short-term; long-term 
D)  short-term; short-term; long-term; long-term D

Question 3

Which of the following statements is false?

Accepted Answer

A)  The matching principle indicates that the firm should finance permanent working capital with short-term sources of funds. 
B)  Following the matching principle should, in the long run, help minimize a firm's transaction costs. 
C)  In a perfect capital market, the choice of financing is irrelevant; thus how the firm chooses to finance its short-term cash needs cannot affect value. 
D)  A portion of a firm's investment in its accounts receivable and inventory is temporary and results from seasonal fluctuations in the firm's business or unanticipated shocks. 
A)  The matching principle indicates that the firm should finance permanent working capital with short-term sources of funds. 
B)  Following the matching principle should, in the long run, help minimize a firm's transaction costs. 
C)  In a perfect capital market, the choice of financing is irrelevant; thus how the firm chooses to finance its short-term cash needs cannot affect value. 
D)  A portion of a firm's investment in its accounts receivable and inventory is temporary and results from seasonal fluctuations in the firm's business or unanticipated shocks. A

Question 4

Luther Industries wants to borrow $1 million for two months.Using its inventory as collateral,it can obtain a 10% (APR)loan (compounded monthly).The lender requires that a warehouse arrangement be used.The warehouse fee is $10,000,payable at the end of the two months.Calculate the effective annual rate of this loan for Luther Industries.

Accepted Answer

The monthly interest rate is @#IMG-DLM& = .83333%,

Question 5

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 6

Financing part or all of the ________ working capital with ________ debt is known as an aggressive financing policy.

Accepted Answer

A)  permanent; long-term 
B)  permanent; short-term 
C)  temporary; short-term 
D)  temporary; long-term 
A)  permanent; long-term 
B)  permanent; short-term 
C)  temporary; short-term 
D)  temporary; long-term

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

Question 8

Luther Industries is offered a $1 million dollar 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-bearing account,then the effective annual rate (EAR)for this loan is closest to:

Accepted Answer

A)  50.0% 
B)  12.6% 
C)  14.4% 
D)  71.5% 
A)  50.0% 
B)  12.6% 
C)  14.4% 
D)  71.5%

Question 9

Positive cash flow shocks ________ demand for short-term financing while negative cash flow shocks ________ short-term financing needs.

Accepted Answer

A)  do not create; can create 
B)  create; create 
C)  do not create; cannot create 
D)  create; cannot create 
A)  do not create; can create 
B)  create; create 
C)  do not create; cannot create 
D)  create; cannot create

Question 10

Which of the following statements is false?

Accepted Answer

A)  If a factoring arrangement is with recourse, the factor will pay the firm the amount due regardless of whether the factor receives payment from the firm's customers or not. 
B)  In a factoring of accounts receivable arrangement, the firm sells receivables to the lender (i.e., the factor), and the lender agrees to pay the firm the amount due from its customers at the end of the firm's payment period. 
C)  Businesses can also obtain short-term financing by using secured loans, which are loans collateralized with short-term assets-most typically the firm's accounts receivable or inventory. 
D)  Both the interest rate and the factor's fee vary depending on such issues as the size of the borrowing firm and the dollar volume of its receivables. 
A)  If a factoring arrangement is with recourse, the factor will pay the firm the amount due regardless of whether the factor receives payment from the firm's customers or not. 
B)  In a factoring of accounts receivable arrangement, the firm sells receivables to the lender (i.e., the factor), and the lender agrees to pay the firm the amount due from its customers at the end of the firm's payment period. 
C)  Businesses can also obtain short-term financing by using secured loans, which are loans collateralized with short-term assets-most typically the firm's accounts receivable or inventory. 
D)  Both the interest rate and the factor's fee vary depending on such issues as the size of the borrowing firm and the dollar volume of its receivables.

Question 11

Which of the following statements regarding commercial paper is false?

Accepted Answer

A)  With dealer paper, dealers sell the commercial paper to investors in exchange for a spread (or fee) for their services. 
B)  With dealer paper, the spread increases the proceeds that the issuing firm receives, thereby decreasing the effective cost of the paper. 
C)  The minimum face value is $25,000, and most commercial paper has a face value of at least $100,000. 
D)  With direct paper, the firm sells the security directly to investors. 
A)  With dealer paper, dealers sell the commercial paper to investors in exchange for a spread (or fee) for their services. 
B)  With dealer paper, the spread increases the proceeds that the issuing firm receives, thereby decreasing the effective cost of the paper. 
C)  The minimum face value is $25,000, and most commercial paper has a face value of at least $100,000. 
D)  With direct paper, the firm sells the security directly to investors.

Question 12

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 13

Which of the following statements is false?

Accepted Answer

A)  Regardless of the loan structure, the bank may include a compensating balance requirement in the loan agreement that reduces the usable loan proceeds. 
B)  Another common type of fee is a loan origination fee, which a bank charges to cover credit checks and legal fees. 
C)  Firms frequently use lines of credit to finance seasonal needs. 
D)  The commitment fee associated with a committed line of credit is designed to decrease the effective cost of the loan to the firm. 
A)  Regardless of the loan structure, the bank may include a compensating balance requirement in the loan agreement that reduces the usable loan proceeds. 
B)  Another common type of fee is a loan origination fee, which a bank charges to cover credit checks and legal fees. 
C)  Firms frequently use lines of credit to finance seasonal needs. 
D)  The commitment fee associated with a committed line of credit is designed to decrease the effective cost of the loan to the firm.

Question 14

Use the table for the question(s) below.
The quarterly working capital levels for Hasbeen Toys are presented in the following table (in $ millions):
  
-In which quarter are Hasbeen's seasonal working capital needs the greatest?

Accepted Answer

A)  4 
B)  2 
C)  3 
D)  1 
A)  4 
B)  2 
C)  3 
D)  1

Question 15

Temporary working capital is the difference between the actual level of investment in ________ assets and the ________ working capital investment.

Accepted Answer

A)  short-term; permanent 
B)  short-term; temporary 
C)  long-term; permanent 
D)  long-term; temporary 
A)  short-term; permanent 
B)  short-term; temporary 
C)  long-term; permanent 
D)  long-term; temporary

Question 16

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 3 is closest to:

Accepted Answer

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

Question 17

A loan agreement that requires that the firm 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.

Question 18

Commercial paper is short-term,________ debt used by ________ that is usually a cheaper source of funds than a short-term bank loan.

Accepted Answer

A)  secured; large corporations 
B)  unsecured; small corporations 
C)  secured; small corporations 
D)  unsecured; large corporations 
A)  secured; large corporations 
B)  unsecured; small corporations 
C)  secured; small corporations 
D)  unsecured; large corporations

Question 19

Which of the following statements is false?

Accepted Answer

A)  With a discount loan, the borrower is required to pay the interest at the end of the loan period. 
B)  Bridge loans are often quoted as discount loans with fixed interest rates. 
C)  A bridge loan is another type of short-term bank loan that is often used to "bridge the gap" until a firm can arrange for long-term financing. 
D)  After a natural disaster, lenders may provide businesses with short-term loans to serve as bridges until they receive insurance payments or long-term disaster relief. 
A)  With a discount loan, the borrower is required to pay the interest at the end of the loan period. 
B)  Bridge loans are often quoted as discount loans with fixed interest rates. 
C)  A bridge loan is another type of short-term bank loan that is often used to "bridge the gap" until a firm can arrange for long-term financing. 
D)  After a natural disaster, lenders may provide businesses with short-term loans to serve as bridges until they receive insurance payments or long-term disaster relief.

Question 20

Which of the following is NOT a specific financing option for temporary working capital?

Accepted Answer

A)  Secured financing 
B)  Commercial paper 
C)  Bank loans 
D)  Repurchase agreements 
A)  Secured financing 
B)  Commercial paper 
C)  Bank loans 
D)  Repurchase agreements

Exam 27: Short-Term Financial Planning

As LIBOR is a rate paid by banks with ________,most firms will borrow at a rate that ________ LIBOR.

The matching principle states that ________ needs should be financed with ________ debt and ________ needs should be financed with ________ sources of funds.

Which of the following statements is false?

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.

Financing part or all of the ________ working capital with ________ debt is known as an aggressive financing policy.

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

Luther Industries is offered a $1 million dollar 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-bearing account,then the effective annual rate (EAR)for this loan is closest to:

Positive cash flow shocks ________ demand for short-term financing while negative cash flow shocks ________ short-term financing needs.

Which of the following statements is false?

Which of the following statements regarding commercial paper is false?

Which of the following statements is false?

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): -In which quarter are Hasbeen's seasonal working capital needs the greatest?

Temporary working capital is the difference between the actual level of investment in ________ assets and the ________ working capital investment.

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 3 is closest to:

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

Commercial paper is short-term,________ debt used by ________ that is usually a cheaper source of funds than a short-term bank loan.

Which of the following statements is false?

Which of the following is NOT a specific financing option for temporary working capital?

The Corporation

Introduction to Financial Statement Analysis

Arbitrage and Financial Decision Making

The Time Value of Money

Interest Rates

Valuing Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behaviour and Capital Market Efficiency

Financial Options

Option Valuation

Real Options

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 Modelling: a Case Study

The Mechanics of Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

Filters

As LIBOR is a rate paid by banks with ,most firms will borrow at a rate that LIBOR.

The matching principle states that needs should be financed with debt and needs should be financed with sources of funds.

Financing part or all of the working capital with debt is known as an aggressive financing policy.

Positive cash flow shocks demand for short-term financing while negative cash flow shocks short-term financing needs.

Temporary working capital is the difference between the actual level of investment in assets and the working capital investment.

Commercial paper is short-term, debt used by that is usually a cheaper source of funds than a short-term bank loan.