Exam 20: Short-Term Financial Planning

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

ToysToys Corporation wants to borrow $500,000 for one month. It uses its inventory as collateral for a 16% (APR)loan, under a warehouse arrangement where the warehouse fee is $14,000, paid at the end of the month. What is the EAR of this loan for ToysToys?

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

Which of the following statements is FALSE?

Which of the following statements is FALSE?

How does seasonality create fluctuations in a firm's net income over a year?

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

What is the maximum maturity of commercial paper?

Conways 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?

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 ________.

The interest on commercial paper is typically paid by selling it at an initial discount.

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?

A firm has a committed line of credit with a maximum of $1.2 million and an interest rate of 12% (EAR)with a certain bank. The commitment fee is 0.6% (EAR). The firm borrows $500,000 at the start of the year and then repays it at the end of the year. What is the total cost of the loan?

Jim's Electrical is offered a $400,000 line of credit for six months at an APR of 9%. The bank requires that the firm keep an amount equal to 5% of the loan principal in a non-interest-earning account with the bank as long as the loan remains outstanding. What is the actual six-month interest rate paid, expressed as an EAR?

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

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

Carborundum Metals issues commercial paper with a face value of $1,000,000 and a maturity of three months. Carborundum receives net proceeds of $992,000 when it sells the paper. If the prime rate is 8% APR compounded quarterly, how much savings in interest did Carborundum realize by accessing the commercial paper market?

Ultimate Industries issues commercial paper with a face value of $500,000 and a maturity of six months. Ultimate receives net proceeds of $486,000 when it sells the paper. If the prime rate is 8.5% APR compounded quarterly, how much savings in interest did Ultimate realize by accessing the commercial paper market?

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?

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