Exam 20: Short-Term Financial Planning

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?

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 statements regarding how a firm should finance its cash needs is true?

What is the term used for a short-term, unsecured debt sold by a large company to investors?

Tropic Fruit Preserves wants to borrow $4 million for two months. It uses its inventory as collateral for a 15% (APR compounded monthly) loan under a warehouse arrangement where the warehouse fee is $18,000 paid at the end of the two months. What is the EAR of this loan for Tropic Fruit Preserves?

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?

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

A firm has a committed line of credit with a maximum of $10 million and an interest rate of 8.5% (EAR) with a certain bank. The commitment fee is 0.5% (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?

Which of the following best describes a conservative financing policy?

Which of the following best describes the agreement where all of a firm's inventory is used to secure a loan?

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

Which of the following statements regarding lines of credit is FALSE?

Bradford Maintenance, a firm which 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 long-term sources and some short-term debt. What best describes the financial policy being followed by Bradford?

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

Commercial paper is usually a more expensive source of funds than a short-term bank loan.

What is permanent working capital?

A firm issues six-month commercial paper with $500,000 face value and receives $488,000. What is the EAR the firm is paying for these funds?

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?

The data above shows the net working capital requirements for Blunderstone Shoes, a company that makes waterproof boots. All figures are in thousands of dollars. What can be considered the firm's permanent working capital?