Exam 20: Short-Term Financial Planning

Which of the following best describes the agreement where a firm sells receivables to a lender and the lender agrees to pay the firm the amount due from its customers at the end of the firm's payment period,and where the lender's claim on the borrower's assets in the event of default is limited only to explicitly pledged collateral?

Strata Services has a three month $450,000 line of credit at an APR of 8%.The loan has a loan origination fee of 1.5%.What is the actual three-month interest rate paid expressed as an EAR?

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?

Katie's Karate Dojo has a committed line of credit with a maximum of $350,000 and interest rate of 6% (EAR).The loan has a commitment fee of 0.5% (EAR).If the firm borrows $300,000 at the start of the year and repays it at the end of the year,what is the total cost of the loan?

How can positive cash flow shocks affect short-term financing needs?

ToysToysToys 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 ToysToysToys?

Which of the following best describes an aggressive financing policy?

Bradford Maintenance,a firm that provides lawn care services,has some seasonal variations in its cash flow needs,since much of the demand for its services is in the summer months.It uses long-term sources of funds to finance its assets such as its fleet of vehicles and lawn-care equipment and for the permanent funds that it must have at all times.For its peak seasonal needs it uses some short-term debt.What best describes the financial policy being followed by Bradford?

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 permanent working capital needs for Hasbeen Toys is closest to:

Which of the following types of loans would be best for an investor who wishes to reduce risk by maintaining the tightest control over inventory?

What is a field warehouse arrangement?

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 are Flinder's temporary working capital needs in the fourth quarter?

Why should permanent working capital be financed with long-term sources of funds?

Which of the following best describes the agreement where a firm sells receivables to a lender and the lender agrees to pay the firm the amount due from its customers at the end of the firm's payment period,with the provision that the lender will receive payment from the borrower if the customers default on their payments?

If the benefit of a lower rate from short-term debt is offset by the risk that the firm will have to refinance at a higher rate,why would a firm choose an aggressive financing policy?

A short-term bank loan that is often used until a firm can arrange for long-term financing is called:

According to the matching principle,short-term needs for funds should be financed by short-term sources of funds; long-term need for funds should be financed by long-term sources of funds.

What is the term used for a short-term,unsecured debt sold by a large company to investors without using an intermediary?

Matt's Machine Company has borrowed $10 million for four months at 5.5% APR,using inventory stored in a field warehouse as collateral.The warehouse fee is 0.5%,payable at the beginning of the loan.What is Matt's EAR?

Which of the following best describes the agreement in which a lender reviews the credit sales of the borrowing firm and decides which credit accounts it will accept as collateral for the loan?