Question 1

Which of the following best describes an aggressive financing policy?

Accepted Answer

A)  financing part or all of the permanent working capital with short-term debt 
B)  financing part or all of the permanent working capital with long-term debt 
C)  financing part or all of the temporary working capital with short-term debt 
D)  financing part or all of the temporary working capital with long-term debt 
A)  financing part or all of the permanent working capital with short-term debt 
B)  financing part or all of the permanent working capital with long-term debt 
C)  financing part or all of the temporary working capital with short-term debt 
D)  financing part or all of the temporary working capital with long-term debt A

Question 2

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

Accepted Answer

A)  a committed line of credit 
B)  a short-term mortgage loan 
C)  a bridge loan 
D)  a single, end-of-period-payment loan 
A)  a committed line of credit 
B)  a short-term mortgage loan 
C)  a bridge loan 
D)  a single, end-of-period-payment loan C

Question 3

Which of the following statements is FALSE?

Accepted Answer

A)  If a factoring arrangement is with recourse, the factor will pay the firm the amount due regardless of whether the factor receives payment from the firm's customers. 
B)  In a factoring of accounts receivable arrangement, the firm sells receivables to the lender (i.e., the factor), and the lender agrees to pay the firm the amount due from its customers at the end of the firm's payment period. 
C)  Businesses can also obtain short-term financing by using secured loans, which are loans collateralized with short-term assets-most typically the firm's accounts receivables or inventory. 
D)  Both the interest rate and the factor's fee vary depending on such issues as the size of the borrowing firm and the dollar volume of its receivables. 
A)  If a factoring arrangement is with recourse, the factor will pay the firm the amount due regardless of whether the factor receives payment from the firm's customers. 
B)  In a factoring of accounts receivable arrangement, the firm sells receivables to the lender (i.e., the factor), and the lender agrees to pay the firm the amount due from its customers at the end of the firm's payment period. 
C)  Businesses can also obtain short-term financing by using secured loans, which are loans collateralized with short-term assets-most typically the firm's accounts receivables or inventory. 
D)  Both the interest rate and the factor's fee vary depending on such issues as the size of the borrowing firm and the dollar volume of its receivables. A

Question 4

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 1 is closest to ________.

Accepted Answer

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

Question 5

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

Accepted Answer

A)  a pharmaceutical manufacturer 
B)  a grocery store 
C)  an electric utility 
D)  a toy store 
A)  a pharmaceutical manufacturer 
B)  a grocery store 
C)  an electric utility 
D)  a toy store

Question 6

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?

Accepted Answer

A)  commercial paper 
B)  direct paper 
C)  dealer paper 
D)  unsecured paper 
A)  commercial paper 
B)  direct paper 
C)  dealer paper 
D)  unsecured paper

Question 7

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 ________.

Accepted Answer

A)  a bridge loan 
B)  a single, end-of-period-payment loan 
C)  a short-term mortgage loan 
D)  a committed line of credit 
A)  a bridge loan 
B)  a single, end-of-period-payment loan 
C)  a short-term mortgage loan 
D)  a committed line of credit

Question 8

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

Question 9

ToysToys Corporation wants to borrow $500,000 for one month. It uses its inventory as collateral for a 16% (APR compounded monthly) 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?

Accepted Answer

A)  4.1% 
B)  15.4% 
C)  45.8% 
D)  62.6% 
A)  4.1% 
B)  15.4% 
C)  45.8% 
D)  62.6%

Question 10

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?

Accepted Answer

A)  $4,248 
B)  $6,874 
C)  $7,291 
D)  $12,480 
A)  $4,248 
B)  $6,874 
C)  $7,291 
D)  $12,480

Question 11

A firm issued three-month commercial paper with a $2,000,000 face value and received $1,964,000. The effective annual rate that this firm is paying is closest to ________.

Accepted Answer

A)  8.0% 
B)  7.5% 
C)  1.8% 
D)  7.3% 
A)  8.0% 
B)  7.5% 
C)  1.8% 
D)  7.3%

Question 12

Which of the following best describes a conservative financing policy?

Accepted Answer

A)  financing part or all of the permanent working capital with short-term debt 
B)  financing part or all of the permanent working capital with long-term debt 
C)  financing part or all of the temporary working capital with short-term debt 
D)  financing part or all of the temporary working capital with long-term debt 
A)  financing part or all of the permanent working capital with short-term debt 
B)  financing part or all of the permanent working capital with long-term debt 
C)  financing part or all of the temporary working capital with short-term debt 
D)  financing part or all of the temporary working capital with long-term debt

Question 13

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?

Accepted Answer

A)  aggressive policy 
B)  evergreen credit 
C)  matching principle 
D)  conservatism principle 
A)  aggressive policy 
B)  evergreen credit 
C)  matching principle 
D)  conservatism principle

Question 14

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?

Accepted Answer

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

Question 15

Commercial paper is rated by credit rating agencies.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

Which of the following statements is FALSE?

Accepted Answer

A)  If a company anticipates an ongoing surplus of cash, it may choose to increase its dividend payout. 
B)  Seasonal sales can create large short-term cash flow deficits and surpluses. 
C)  The first step in short-term financial planning is to forecast the company's future net working capital. 
D)  Deficits resulting from investments in long-term projects are often financed using long-term sources of capital, such as equity or long-term bonds. 
A)  If a company anticipates an ongoing surplus of cash, it may choose to increase its dividend payout. 
B)  Seasonal sales can create large short-term cash flow deficits and surpluses. 
C)  The first step in short-term financial planning is to forecast the company's future net working capital. 
D)  Deficits resulting from investments in long-term projects are often financed using long-term sources of capital, such as equity or long-term bonds.

Question 18

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 ________.

Accepted Answer

A)  $1,100 million 
B)  $2,435 million 
C)  $1,275 million 
D)  $770 million 
A)  $1,100 million 
B)  $2,435 million 
C)  $1,275 million 
D)  $770 million

Question 19

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?

Accepted Answer

A)  9.41% 
B)  24.40% 
C)  60.30% 
D)  80.40% 
A)  9.41% 
B)  24.40% 
C)  60.30% 
D)  80.40%

Question 20

Which of the following statements regarding commercial paper is FALSE?

Accepted Answer

A)  With dealer paper, dealers sell the commercial paper to investors in exchange for a spread (or fee) for their services. 
B)  With dealer paper, the spread increases the proceeds that the issuing firm receives, thereby decreasing the effective cost of the paper. 
C)  The minimum face value is $25,000, and most commercial paper has a face value of at least $100,000. 
D)  With direct paper, the firm sells the security directly to investors. 
A)  With dealer paper, dealers sell the commercial paper to investors in exchange for a spread (or fee) for their services. 
B)  With dealer paper, the spread increases the proceeds that the issuing firm receives, thereby decreasing the effective cost of the paper. 
C)  The minimum face value is $25,000, and most commercial paper has a face value of at least $100,000. 
D)  With direct paper, the firm sells the security directly to investors.

Exam 20: Short-Term Financial Planning

Which of the following best describes an aggressive financing policy?

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

Which of the following statements is FALSE?

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 1 is closest to ________.

Which of the following firms is likely to have the highest 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 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 ________.

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?

ToysToys Corporation wants to borrow $500,000 for one month. It uses its inventory as collateral for a 16% (APR compounded monthly) 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?

A firm issued three-month commercial paper with a $2,000,000 face value and received $1,964,000. The effective annual rate that this firm is paying is closest to ________.

Which of the following best describes a conservative financing policy?

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?

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?

Commercial paper is rated by credit rating agencies.

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

Which of the following statements is FALSE?

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 statements regarding commercial paper is FALSE?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Corporate Governance

Filters