Question 1

What is temporary working capital?

Accepted Answer

Temporary working capital is the differe

Question 2

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 are Hasbeen's seasonal working capital needs the greatest?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 3

Which of the following types of loan would be best for a lender who wishes to reduce risk by maintaining the tightest control over inventory?

Accepted Answer

A)  trust receipt 
B)  floating lien 
C)  field warehouse arrangement 
D)  public warehouse arrangement 
A)  trust receipt 
B)  floating lien 
C)  field warehouse arrangement 
D)  public warehouse arrangement

Question 4

The prime rate is the rate banks charge all but their largest customers, who can negotiate a sub-prime rate.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)  Cost of goods sold will rise and fall along with sales, while administrative and other costs will remain relatively steady. 
B)  Cost of goods sold will rise when sales fall, and vice versa, while administrative and other costs will remain relatively steady. 
C)  Cost of goods sold, along with administrative and other costs, will rise when sales fall, and vice versa. 
D)  Cost of goods sold, along with administrative and other costs, will rise and fall along with sales. 
A)  Cost of goods sold will rise and fall along with sales, while administrative and other costs will remain relatively steady. 
B)  Cost of goods sold will rise when sales fall, and vice versa, while administrative and other costs will remain relatively steady. 
C)  Cost of goods sold, along with administrative and other costs, will rise when sales fall, and vice versa. 
D)  Cost of goods sold, along with administrative and other costs, will rise and fall along with sales.

Question 6

Which of the following is a financing arrangement in which the lender's claim on the borrower's assets in the event of a default is limited to only explicitly pledged collateral?

Accepted Answer

A)  without recourse 
B)  with recourse 
C)  without factoring 
D)  with factoring 
A)  without recourse 
B)  with recourse 
C)  without factoring 
D)  with factoring

Question 7

Which of the following types of loan bears the highest interest rate?

Accepted Answer

A)  trust receipt 
B)  floating lien 
C)  field warehouse arrangement 
D)  All these loans will bear approximately the same interest. 
A)  trust receipt 
B)  floating lien 
C)  field warehouse arrangement 
D)  All these loans will bear approximately the same interest.

Question 8

What is temporary 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 working capital needs and its permanent working capital investment 
C)  the amount that a firm keeps invested in its short-term assets to support its continuing operations which are financed by short-term debt 
D)  the amount that a firm keeps invested in its short-term assets to support its continuing operations which are financed by long-term 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 working capital needs and its permanent working capital investment 
C)  the amount that a firm keeps invested in its short-term assets to support its continuing operations which are financed by short-term debt 
D)  the amount that a firm keeps invested in its short-term assets to support its continuing operations which are financed by long-term debt

Question 9

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

Question 10

Occasionally, a company will encounter circumstances in which cash flows are temporarily negative for an unexpected reason. We refer to such a situation as a ________.

Accepted Answer

A)  liquidity shock 
B)  negative cash flow shock 
C)  negative liquidity shock 
D)  cash crunch 
A)  liquidity shock 
B)  negative cash flow shock 
C)  negative liquidity shock 
D)  cash crunch

Question 11

Which of the following statements is FALSE?

Accepted Answer

A)  By relying on short-term debt, the firm exposes itself to funding risk, which is the risk of incurring financial distress costs if it cannot refinance its debt in a timely manner or at a reasonable rate. 
B)  An ultra-conservative policy would involve financing even some of the plant, property, and equipment with short-term sources of funds. 
C)  With a conservative financing policy, the firm would use short-term debt very sparingly to meet its peak seasonal needs. 
D)  Short-term debt can have lower agency and lemons costs than long-term debt, and an aggressive financing policy can benefit shareholders. 
A)  By relying on short-term debt, the firm exposes itself to funding risk, which is the risk of incurring financial distress costs if it cannot refinance its debt in a timely manner or at a reasonable rate. 
B)  An ultra-conservative policy would involve financing even some of the plant, property, and equipment with short-term sources of funds. 
C)  With a conservative financing policy, the firm would use short-term debt very sparingly to meet its peak seasonal needs. 
D)  Short-term debt can have lower agency and lemons costs than long-term debt, and an aggressive financing policy can benefit shareholders.

Question 12

Which of the following statements is FALSE?

Accepted Answer

A)  Bank loans are typically initiated with a promissory note, which is a written statement that indicates the amount of the loan, the date payment is due, and the interest rate. 
B)  The most straightforward type of bank loan is a single, end-of-period-payment loan. 
C)  With a fixed interest rate, the specific rate that the bank will charge is stipulated at the time the loan is made. 
D)  One of the primary sources of short-term financing, especially for small businesses, is the investment bank. 
A)  Bank loans are typically initiated with a promissory note, which is a written statement that indicates the amount of the loan, the date payment is due, and the interest rate. 
B)  The most straightforward type of bank loan is a single, end-of-period-payment loan. 
C)  With a fixed interest rate, the specific rate that the bank will charge is stipulated at the time the loan is made. 
D)  One of the primary sources of short-term financing, especially for small businesses, is the investment bank.

Question 13

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?

Accepted Answer

A)  3.2% 
B)  5.0% 
C)  9.70% 
D)  24.3% 
A)  3.2% 
B)  5.0% 
C)  9.70% 
D)  24.3%

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)  Permanent working capital should be financed by long-term sources of funds, while temporary working capital should be financed by short-term sources of funds. 
B)  Permanent working capital should be financed by short-term sources of funds, while temporary working capital should be financed by long-term sources of funds. 
C)  Both permanent working capital and temporary working capital should be financed by short-term sources of funds. 
D)  Both permanent working capital and temporary working capital should be financed by long-term sources of funds. 
A)  Permanent working capital should be financed by long-term sources of funds, while temporary working capital should be financed by short-term sources of funds. 
B)  Permanent working capital should be financed by short-term sources of funds, while temporary working capital should be financed by long-term sources of funds. 
C)  Both permanent working capital and temporary working capital should be financed by short-term sources of funds. 
D)  Both permanent working capital and temporary working capital should be financed by long-term sources of funds.

Question 16

Which of the following statements is FALSE?

Accepted Answer

A)  The prime rate is the rate banks charge other banks. 
B)  With a variable interest rate, the terms of the loan may indicate that the rate will vary with some spread relative to a benchmark rate, such as the yield on one-year Treasury securities or the prime rate. 
C)  With a discount loan, the borrower is required to pay the interest at the beginning of the loan period. 
D)  A common benchmark rate is the London Inter-Bank Offered Rate, or LIBOR, which is the rate of interest at which banks borrow funds from each other in the London interbank market. 
A)  The prime rate is the rate banks charge other banks. 
B)  With a variable interest rate, the terms of the loan may indicate that the rate will vary with some spread relative to a benchmark rate, such as the yield on one-year Treasury securities or the prime rate. 
C)  With a discount loan, the borrower is required to pay the interest at the beginning of the loan period. 
D)  A common benchmark rate is the London Inter-Bank Offered Rate, or LIBOR, which is the rate of interest at which banks borrow funds from each other in the London interbank market.

Question 17

Use the table for the question(s) below.
The quarterly working capital levels for Fancy Weddings Inc. are presented in the following table (in $ millions):
  
-In which quarter are Fancy's seasonal working capital needs the smallest?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 18

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?

Accepted Answer

A)  trust receipt 
B)  pledging of accounts receivable 
C)  factoring of accounts receivable with recourse 
D)  factoring of accounts receivable without recourse 
A)  trust receipt 
B)  pledging of accounts receivable 
C)  factoring of accounts receivable with recourse 
D)  factoring of accounts receivable without recourse

Question 19

A loan agreement that requires the firm to pay interest on the loan and pay back the principal in one lump sum at the end of the loan is called ________.

Accepted Answer

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

Question 20

Use the table for the question(s) below.
The quarterly working capital levels for Fancy Weddings Inc. are presented in the following table (in $ millions):
  
-In which quarter are Fancy's seasonal working capital needs the greatest?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Exam 20: Short-Term Financial Planning

What is temporary working capital?

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 are Hasbeen's seasonal working capital needs the greatest?

Which of the following types of loan would be best for a lender who wishes to reduce risk by maintaining the tightest control over inventory?

The prime rate is the rate banks charge all but their largest customers, who can negotiate a sub-prime rate.

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

Which of the following is a financing arrangement in which the lender's claim on the borrower's assets in the event of a default is limited to only explicitly pledged collateral?

Which of the following types of loan bears the highest interest rate?

What is temporary working capital?

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

Occasionally, a company will encounter circumstances in which cash flows are temporarily negative for an unexpected reason. We refer to such a situation as a ________.

Which of the following statements is FALSE?

Which of the following statements is FALSE?

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

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

Which of the following statements is FALSE?

Use the table for the question(s) below. The quarterly working capital levels for Fancy Weddings Inc. are presented in the following table (in $ millions): -In which quarter are Fancy's seasonal working capital needs the smallest?

A loan agreement that requires the firm to pay interest on the loan and pay back the principal in one lump sum at the end of the loan is called ________.

Use the table for the question(s) below. The quarterly working capital levels for Fancy Weddings Inc. are presented in the following table (in $ millions): -In which quarter are Fancy's seasonal working capital needs the greatest?

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