Exam 20: Short-Term Financial Planning

Bhupinder's Bakery has a one-year $300,000 line of credit at an interest rate of 6% (EAR).The loan has a loan origination fee of 1%.What is the actual interest rate paid?

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

Gemini Real Estate is offered a $2 million line of credit for four months at an APR of 9%.This loan has a loan origination fee of 1.5%.What is the actual four-month interest rate paid,expressed as an EAR?

How can a conservative financing policy reduce firm value?

Bandolier Bicycles has a committed line of credit with a maximum of $450,000 and interest rate of 4% (EAR).The loan has a commitment fee of 0.3% (EAR).If the firm borrows $375,000 at the start of the year and repays it at the end of the year,what is the total cost of the loan?

Conway's 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?

An uncommitted line of credit is obtained through a nonbinding,informal agreement.

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

What are commitment fees and what effect does it have on the loan?

Use the table for the question(s)below. DressUp! is a clothing retailer specializing in costumery.The financial forecast for a year is shown in the table above.All figures are in thousands of dollars. -During which of the following months are the firm's working capital needs the greatest?

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(s)are Hasbeen's seasonal working capital needs the greatest?

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 greatest?

Which of the following best describes a bank loan arrangement where a bank agrees to lend a firm any amount up to a stated maximum in an informal agreement which does not legally bind the bank to provide the funds?

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?

How does seasonality lead to short-term financing needs?

What is the term used for a short-term,unsecured debt sold by a large company to an intermediary,who then resells the debt to investors in return for a fee for his or her services?

A firm issues six-month commercial paper with $100,000 face value and pays an EAR of 6.7%.What is the amount the firm receives?

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:

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(s)are Hasbeen's seasonal working capital needs the smallest?

Pipeline Pharmaceuticals has a one-year $2 million line of credit at an interest rate of 5% (EAR).The loan has a loan origination fee of 2%.What is the actual interest rate paid?