Exam 20: Short-Term Financial Planning

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?

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:

Why does a floating lien agreement have a higher interest rate than other types of short-term financing with collateral?

What is the difference between a pledging of accounts receivable and a factoring of accounts receivable?

Which of the following statements regarding how a firm should finance its cash needs is TRUE?

What is the maximum maturity of commercial paper?

Which of the following best describes a loan where the firm must pay interest on the loan and pay back the principal in one lump sum at the end of the loan?

Use the information for the question(s)below. Glenside Industries is a domestic machinery manufacturer which specializes in the production of snowblowers.The above figures show the anticipated sales over the next four quarters.Glenside carries inventory equal to 25% of next quarter's sales,has accounts payable of 15% of next quarter's sales,and accounts receivable of 23% of this quarter's sales. -If its net income is 10% of sales,in which quarter(s)is it expected that Glenside's seasonal working capital needs will be the smallest?

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?

Montreal Metals issues commercial paper with a face value of $600,000 and a maturity of two months.The firm receives $594,000 when it sells the paper.If the prime rate is 7% APR compounded monthly,how much interest savings did Montreal Metals realize by using commercial paper?

A firm issues four-month commercial paper with a $450,000 face value and receives $442,000.What is the EAR the firm is paying for these funds?

Ahab's Army Surplus has a committed line of credit with a maximum of $1.2 million and interest rate of 3.5% (EAR).The loan has a commitment fee of 0.45% (EAR).If the firm borrows $900,000 at the start of the year and repays it at the end of the year,what is the total cost of the loan?

Since permanent working capital is invested in short-term assets,it should be financed with short-term sources of funds.

A firm issues two-month commercial paper with a $200,000 face value and receives $196,000.What is the EAR the firm is paying for these funds?

Which of the following best describes a conservative financing policy?

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 smallest?

Sask Seed wishes to borrow $3 million for two months.Using its inventory as collateral,it can obtain a 9% (APR)loan.The lender requires that a warehouse arrangement be used,with a warehouse fee of $9,000,payable at the end of the month.What is the firm's EAR for this loan?

Winnipeg Washing Machines wishes to borrow $1.5 million for one month.Using its inventory as collateral,it can obtain a 10% (APR)loan.The lender requires that a warehouse arrangement be used,with a warehouse fee of $8,500,payable at the end of the month.What is the firm's EAR for this loan?

Which of the following best describes the type of loan in which distinguishable inventory items are held in a trust as security for the loan?

Which of the following firms is likely to have the highest short-term financing needs?