Exam 20: Short-Term Financial Planning

Use the information for the question(s) below. -The above graph shows the levels of fixed assets, permanent working capital and temporary working capital for a certain company. If the graphs below show the excess cash reserves on hand each quarter, which best illustrates a conservative financing policy?

What is single, end-of-period payment loan?

Cash flow forecasts are conducted in order to determine whether a firm has a cash flow surplus or deficit and whether such a surplus or deficit is temporary or permanent.

A firm has a committed line of credit with a maximum of $2.5 million and an interest rate of 9% (EAR) with a certain bank. The commitment fee is 0.65% (EAR). The firm borrows $2 million at the start of the year, and then repays it at the end of the year. What is the total cost of the loan?

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

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

A firm has a committed line of credit with a maximum of $1.2 million and an interest rate of 12% (EAR) with a certain bank. The commitment fee is 0.6% (EAR). The firm borrows $500,000 at the start of the year and then repays it at the end of the year. What is the total cost of the loan?

What is permanent working capital?

Which of the following is not a specific financing option for temporary working capital?

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

Which of the following statements is FALSE?

Picketfence Realty issues commercial paper with a face value of $200,000 and a maturity of six months. Picketfence receives net proceeds of $198,000 when it sells the paper. If the prime rate is 7.7% APR compounded quarterly, how much savings in interest did Picketfence realize by accessing the commercial paper market?

What do we understand by positive cash flow shocks?

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?

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?

In which of the following secured loans can inventory NOT be used as collateral?

What do we understand by seasonality?

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 smallest?

What do we understand by negative cash flow shocks?

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