Question 1

What is a public warehouse arrangement?

Accepted Answer

A) a warehouse arrangement in which the inventory is stored and tracked by the lender on the lender's premises 
B) a warehouse arrangement in which the inventory is stored on the borrower's premises but is tracked by the lender 
C) a warehouse arrangement in which the inventory is stored by a business that exists for the sole purpose of storing and tracking the inflow and outflow of inventory 
D) a warehouse arrangement that 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 
E) a warehouse arrangement in which the inventory is stored and tracked by the borrower on the borrower's premises 
A) a warehouse arrangement in which the inventory is stored and tracked by the lender on the lender's premises 
B) a warehouse arrangement in which the inventory is stored on the borrower's premises but is tracked by the lender 
C) a warehouse arrangement in which the inventory is stored by a business that exists for the sole purpose of storing and tracking the inflow and outflow of inventory 
D) a warehouse arrangement that 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 
E) a warehouse arrangement in which the inventory is stored and tracked by the borrower on the borrower's premises

Question 2

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

Accepted Answer

A) 10.3% 
B) 12.6% 
C) 14.4% 
D) 71.5% 
E) 21.1% 
A) 10.3% 
B) 12.6% 
C) 14.4% 
D) 71.5% 
E) 21.1%

Question 3

A short-term financial plan tracks a firm's cash balance and new and existing short-term financing,enabling managers to forecast shortfalls and plan to fund them in the least costly manner.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) commercial paper 
B) retail paper 
C) wholesale paper 
D) unsecured paper 
E) junk bond 
A) commercial paper 
B) retail paper 
C) wholesale paper 
D) unsecured paper 
E) junk bond

Question 5

How can the application of the matching principle increase firm value?

Accepted Answer

The existence of market frictions can ma

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

What are compensating balance and what effect does it have on the loan?

Accepted Answer

Regardless of the loan structure,the ban

Question 8

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 
E) $660 million 
A) $845 million 
B) $0 million 
C) $770 million 
D) $340 million 
E) $660 million

Question 9

A firm issues six-month commercial paper with a $1 million face value and receives $970,000.What is the EAR the firm is paying for these funds?

Accepted Answer

A) 6% 
B) 3% 
C) 3.09% 
D) 6.18% 
E) 6.28% 
A) 6% 
B) 3% 
C) 3.09% 
D) 6.18% 
E) 6.28%

Question 10

Use the table for the question(s)below.
   The data above shows the net working capital requirements for Blunderstone Shoes,a company that makes waterproof boots.All figures are in thousands of dollars.
-What are Blunderstone's temporary working capital requirements in the fourth quarter?

Accepted Answer

A) $2,700,000 
B) $3,400,000 
C) $5,450,000 
D) $4,450,000 
E) $1,750,000 
A) $2,700,000 
B) $3,400,000 
C) $5,450,000 
D) $4,450,000 
E) $1,750,000

Question 11

Commercial paper is rated by credit rating agencies.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following bank loan arrangements is typically accompanied by a requirement that the firm maintain a minimum level of deposits with the lending bank and restricts the level of the borrowing firm's working capital?

Accepted Answer

A) single,end-of-period payment loan 
B) bridge loan 
C) committed line of credit 
D) uncommitted line of credit 
E) discount loan 
A) single,end-of-period payment loan 
B) bridge loan 
C) committed line of credit 
D) uncommitted line of credit 
E) discount loan

Question 13

Use the table for the question(s)below.
   The data above shows the net working capital requirements for Flinder's Camping,a company that makes tents.All figures are in thousands of dollars.
-What can be considered the firm's permanent working capital?

Accepted Answer

A) $390,000 
B) $510,000 
C) $720,000 
D) $1,030,000 
E) $640,000 
A) $390,000 
B) $510,000 
C) $720,000 
D) $1,030,000 
E) $640,000

Question 14

Which of the following is a committed line of credit with no fixed maturity?

Accepted Answer

A) a bridge loan 
B) evergreen credit 
C) a promissory note 
D) a blanket lien 
E) discount loan 
A) a bridge loan 
B) evergreen credit 
C) a promissory note 
D) a blanket lien 
E) discount loan

Question 15

A firm issues three-month commercial paper with a $250,000 face value and receives $244,000.What is the EAR the firm is paying for these funds?

Accepted Answer

A) 10.2% 
B) 9.8% 
C) 9.6% 
D) 10% 
E) 9.4% 
A) 10.2% 
B) 9.8% 
C) 9.6% 
D) 10% 
E) 9.4%

Question 16

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

Question 17

Which of the following companies is most likely to have the greatest need for short-term financial planning?

Accepted Answer

A) a company that mines sand for use in glass-making 
B) a company that manufactures condiments such as ketchup 
C) a company that produces advertisements for roadside billboards 
D) a company that provides catering services for weddings 
E) a utility company that provides electricity 
A) a company that mines sand for use in glass-making 
B) a company that manufactures condiments such as ketchup 
C) a company that produces advertisements for roadside billboards 
D) a company that provides catering services for weddings 
E) a utility company that provides electricity

Question 18

What is permanent working capital?

Accepted Answer

A) the amount that a firm must keep invested in its short-term assets to support its continuing operations 
B) the difference between the actual level of investment in short-term assets and the amount that a firm must keep invested in its short-term assets to support its continuing operations 
C) the amount that a firm keeps invested in its short-term assets to support its continuing operations which is financed by short-term debt 
D) the amount that a firm keeps invested in its short-term assets to support its continuing operations which is financed by long-term debt 
E) the amount that a firm keeps invested in its short-term assets which is financed by debt 
A) the amount that a firm must keep invested in its short-term assets to support its continuing operations 
B) the difference between the actual level of investment in short-term assets and the amount that a firm must keep invested in its short-term assets to support its continuing operations 
C) the amount that a firm keeps invested in its short-term assets to support its continuing operations which is financed by short-term debt 
D) the amount that a firm keeps invested in its short-term assets to support its continuing operations which is financed by long-term debt 
E) the amount that a firm keeps invested in its short-term assets which is financed by debt

Question 19

A petroleum exploration company takes a short-term bank loan in order to finance the purchase of several truck-mounted,vibroseis shakers,which have unexpectedly come onto the market at a good price.Once the purchase is made,the company will obtain long-term financing.Which of the following best describes the short-term loan the company has taken?

Accepted Answer

A) a single,end-of-period payment loan 
B) a promissory note 
C) a bridge loan 
D) an uncommitted line of credit 
E) evergreen credit 
A) a single,end-of-period payment loan 
B) a promissory note 
C) a bridge loan 
D) an uncommitted line of credit 
E) evergreen credit

Question 20

Firms need short-term financing to deal with seasonal working capital requirements,negative cash flow shocks,or positive cash flow shocks.

Accepted Answer

A) True 
 B)False

Exam 20: Short-Term Financial Planning

What is a public warehouse arrangement?

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

A short-term financial plan tracks a firm's cash balance and new and existing short-term financing,enabling managers to forecast shortfalls and plan to fund them in the least costly manner.

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

How can the application of the matching principle increase firm value?

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

What are compensating balance and what effect does it have on the loan?

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 firm issues six-month commercial paper with a $1 million face value and receives $970,000.What is the EAR the firm is paying for these funds?

Use the table for the question(s)below. The data above shows the net working capital requirements for Blunderstone Shoes,a company that makes waterproof boots.All figures are in thousands of dollars. -What are Blunderstone's temporary working capital requirements in the fourth quarter?

Commercial paper is rated by credit rating agencies.

Which of the following bank loan arrangements is typically accompanied by a requirement that the firm maintain a minimum level of deposits with the lending bank and restricts the level of the borrowing firm's working capital?

Use the table for the question(s)below. The data above shows the net working capital requirements for Flinder's Camping,a company that makes tents.All figures are in thousands of dollars. -What can be considered the firm's permanent working capital?

Which of the following is a committed line of credit with no fixed maturity?

A firm issues three-month commercial paper with a $250,000 face value and receives $244,000.What is the EAR the firm is paying for these funds?

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

Which of the following companies is most likely to have the greatest need for short-term financial planning?

What is permanent working capital?

Firms need short-term financing to deal with seasonal working capital requirements,negative cash flow shocks,or positive cash flow shocks.

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters