Question 1

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 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):
  
-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 3

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 4

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 5

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

Accepted Answer

The most straightforward type of bank lo

Question 6

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 7

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 8

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?

Accepted Answer

A)  a single, end-of-period payment loan 
B)  a promissory note 
C)  a bridge loan 
D)  an uncommitted line of credit 
A)  a single, end-of-period payment loan 
B)  a promissory note 
C)  a bridge loan 
D)  an uncommitted line of credit

Question 9

Which of the following companies has the smallest need for short-term financial planning?

Accepted Answer

A)  a company that produces Christmas decorations. 
B)  a toy manufacturer. 
C)  a company that makes condiments such as ketchup. 
D)  a company that provides catering services for weddings. 
A)  a company that produces Christmas decorations. 
B)  a toy manufacturer. 
C)  a company that makes condiments such as ketchup. 
D)  a company that provides catering services for weddings.

Question 10

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?

Accepted Answer

A)  4.57% 
B)  9.68% 
C)  12.44% 
D)  14.34% 
A)  4.57% 
B)  9.68% 
C)  12.44% 
D)  14.34%

Question 11

Luther Industries is offered a $1 million dollar loan for four months at an APR of 9%. If this loan has an origination fee of 1%, then the effective annual rate (EAR) for this loan is closest to ________.

Accepted Answer

A)  12.0% 
B)  12.6% 
C)  4.1% 
D)  13.8% 
A)  12.0% 
B)  12.6% 
C)  4.1% 
D)  13.8%

Question 12

Which of the following statements is FALSE?

Accepted Answer

A)  Firms with seasonal cash flows may find themselves with a surplus of cash during some months that is sufficient to compensate for a shortfall during other months. However, because of timing differences, such firms often have short-term financing needs. 
B)  A company forecasts its cash flows to determine whether it will have surplus cash or a cash deficit for each period. 
C)  Positive cash flow shocks cannot create short-term financing needs. 
D)  When sales are concentrated during a few months, sources and uses of cash are also likely to be seasonal. 
A)  Firms with seasonal cash flows may find themselves with a surplus of cash during some months that is sufficient to compensate for a shortfall during other months. However, because of timing differences, such firms often have short-term financing needs. 
B)  A company forecasts its cash flows to determine whether it will have surplus cash or a cash deficit for each period. 
C)  Positive cash flow shocks cannot create short-term financing needs. 
D)  When sales are concentrated during a few months, sources and uses of cash are also likely to be seasonal.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 15

What is temporary working capital?

Accepted Answer

Temporary working capital is the differe

Question 16

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 17

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

Accepted Answer

A)  monthly intervals 
B)  yearly intervals 
C)  quarterly intervals 
D)  weekly intervals 
A)  monthly intervals 
B)  yearly intervals 
C)  quarterly intervals 
D)  weekly intervals

Question 18

Which of the following statements is FALSE?

Accepted Answer

A)  Financing part or all of the permanent working capital with short-term debt is known as an aggressive financing policy. 
B)  When the yield curve is downward sloping, the interest rate on short-term debt is lower than the rate on long-term debt. In that case, short-term debt may appear cheaper than long-term debt. 
C)  The value of short-term debt is less sensitive to the firm's credit quality than long-term debt; therefore, its value will be less affected by management's actions or information. 
D)  Permanent working capital is the amount that a firm must keep invested in its short-term assets to support its continuing operations. 
A)  Financing part or all of the permanent working capital with short-term debt is known as an aggressive financing policy. 
B)  When the yield curve is downward sloping, the interest rate on short-term debt is lower than the rate on long-term debt. In that case, short-term debt may appear cheaper than long-term debt. 
C)  The value of short-term debt is less sensitive to the firm's credit quality than long-term debt; therefore, its value will be less affected by management's actions or information. 
D)  Permanent working capital is the amount that a firm must keep invested in its short-term assets to support its continuing operations.

Question 19

DressUp! is a clothing retailer specializing in costumery. The financial forecast for a year is shown in the table above. All figures are in thousands of dollars. During which of the following months does the firm have surplus cash?

Accepted Answer

A)  April 
B)  June 
C)  September 
D)  October 
A)  April 
B)  June 
C)  September 
D)  October

Question 20

The interest on commercial paper is typically paid by selling it at an initial discount.

Accepted Answer

A) True 
 B)False

Exam 20: 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 temporary working capital needs for Hasbeen Toys in quarter 1 is closest to ________.

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?

What is temporary working capital?

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

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 statements is FALSE?

Which of the following companies has the smallest need for short-term financial planning?

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?

Luther Industries is offered a $1 million dollar loan for four months at an APR of 9%. If this loan has an origination fee of 1%, then the effective annual rate (EAR) for this loan is closest to ________.

Which of the following statements is FALSE?

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

What is temporary working capital?

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

Which of the following statements is FALSE?

DressUp! is a clothing retailer specializing in costumery. The financial forecast for a year is shown in the table above. All figures are in thousands of dollars. During which of the following months does the firm have surplus cash?

The interest on commercial paper is typically paid by selling it at an initial discount.

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

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