Question 1

Ford Motor Company needs to borrow $50 million.The First National Bank creates a packaged loan with several other banks to lend to Ford Motor Company.This loan package can be sold on the secondary market and carries a rate that is 400 basis points above LIBOR.The First National Bank expects this loan package to ultimately be held by a finance company looking for a good return on their money? What type of loan is this most likely to be?

Accepted Answer

A) Term business loan 
B) Revolving credit financing 
C) Long-term project loan 
D) Leveraged buyout 
E) Syndicated loan

Question 2

Under current federal laws,a lender is required to make an environmental site assessment of the borrower's property in order to avoid environmental liability.

Accepted Answer

A) True 
 B)False

Question 3

Which of following contingent liabilities may be required to be recorded on a balance sheet and not to be hidden as a footnote?

Accepted Answer

A) Environmental liabilities 
B) Limiting regulations 
C) Unfunded pension liabilities 
D) Litigation or pending lawsuits against firms 
E) Underfunded pension liabilities

Question 4

A bank wants to know whether a customer can raise cash in a timely fashion at a reasonable cost.They are most likely to look at which of the following ratios?

Accepted Answer

A) Wages and salaries/Net sales 
B) Accounts receivables/(Annual credit sales/360) 
C) Net income after taxes/Net sales 
D) Income before interest and taxes/Interest payments 
E) (Current assets - Inventory)/Current liabilities

Question 5

A bank wants to examine how well a customer markets their goods and services.They are most likely to look at which of the following ratios?

Accepted Answer

A) Wages and salaries/Net sales 
B) Accounts receivables/(Annual credit sales/360) 
C) Net income after taxes/Net sales 
D) Income before interest and taxes/Interest payments 
E) (Current assets - Inventory)/Current liabilities

Question 6

______________________ refers to the protection afforded to creditors of a firm based on the amount of the firm's earnings.

Accepted Answer

The answer of ______________________ refers to the protection afforded to...

Question 7

Hager Smith,a customer of Standard Bank,maintains an average balance of $420,000.The float from uncollected funds from his balance,accounts for $21,000.The applicable legal reserve requirement at this checking account is 10 percent.Determine Smith's net usable funds.

Accepted Answer

A) $359,100 
B) $396,900 
C) $378,000 
D) $399,000 
E) $438,900

Question 8

A bank has determined the information below for one of its customers.This customer wants to borrow $1,000,000 but will maintain an average deposit balance in its account of $200,000.What is the expected net rate of return on this loan? $$\begin{array} { l r l r } 
{ \text { Expected Revenues } } & &\quad\quad\quad\quad{ \text { Expected Costs } } \
\text { Interest Revenues } & \$ 1,000,000 & \text { Deposit Interest } & \$ 30,000 \
\text { Commitment Fee } & \$ 15,000 & \text { Cost of Other Funds Raised } & \$ 890,000 \
\text { Deposit Service Fees } & \$ 5,000 & \text { Loan Processing Costs } & \$ 8,000 \
\text { Agency Fees } & \$ 6,000 & \text { Activity and Record Keeping } & \$ 16,000 \
& & \text { Costs } &
\end{array}$$

Accepted Answer

A) 10.00 percent 
B) 8.20 percent 
C) 10.25 percent 
D) 13.75 percent 
E) None of the options is correct.

Question 9

Working capital loans are normally secured by a business firm's plant and equipment.

Accepted Answer

A) True 
 B)False

Question 10

Wages and salaries to net sales,overhead expenses to net sales,and cost of goods sold to net sales are all measures of ___________________________________________.

Accepted Answer

The answer of Wages and salaries to net sales,overhead expenses...

Question 11

Leveraged buyouts (LBOs)involve the purchase of businesses with at least 75 percent of the cost of the purchase funded by current earnings and sales of stock.

Accepted Answer

A) True 
 B)False

Question 12

Banks frequently bid on the opportunity to finance the entire inventory of dealers selling automobiles,business and electronic equipment,and other durable goods through a ___________ arrangement.

Accepted Answer

A) factoring 
B) floor planning 
C) project loan 
D) revolving line of credit 
E) None of the options is correct.

Question 13

The apparent size bias in the financial marketplace led to the creation of the __________ in the 1950s,to guarantee loans made to small businesses by private lending institutions.

Accepted Answer

The answer of The apparent size bias in the financial...

Question 14

The basic strength of the cost-plus loan pricing method is that it considers the competition from other lenders.

Accepted Answer

A) True 
 B)False

Question 15

The price leadership model for long-term loan pricing includes a markup for default risk,but not for term risk.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is true of the price leadership loan pricing method?

Accepted Answer

A) It does not consider the marginal cost of raising funds. 
B) It does not give much regard for the competition from other lenders. 
C) The bank must know what their costs are in order to make correctly priced loans. 
D) The bank must consider the revenues and expenses from all of the bank's dealings with the customer. 
E) None of the options is correct.

Question 17

Term loans normally are secured by accounts receivable and inventory.

Accepted Answer

A) True 
 B)False

Question 18

The ______________________ is the interest rate charged to the bank's most creditworthy customers on short-term working capital loans.

Accepted Answer

The answer of The ______________________ is the interest rate charged...

Question 19

Working-capital loans,unlike most other types of business loans,usually require the customer to keep a compensating deposit balance with the lending bank.

Accepted Answer

A) True 
 B)False

Question 20

The increasingly popular type of financing,in which merchants receive cash advances and pay them off from their credit card sales,is called:

Accepted Answer

A) asset-based financing. 
B) retailer credit financing. 
C) operating capital credit financing. 
D) credit card receivables financing. 
E) revolving credit financing.

Exam 17: Lending to Business Firms and Pricing Business Loans

Under current federal laws,a lender is required to make an environmental site assessment of the borrower's property in order to avoid environmental liability.

Which of following contingent liabilities may be required to be recorded on a balance sheet and not to be hidden as a footnote?

A bank wants to know whether a customer can raise cash in a timely fashion at a reasonable cost.They are most likely to look at which of the following ratios?

A bank wants to examine how well a customer markets their goods and services.They are most likely to look at which of the following ratios?

______________________ refers to the protection afforded to creditors of a firm based on the amount of the firm's earnings.

Hager Smith,a customer of Standard Bank,maintains an average balance of $420,000.The float from uncollected funds from his balance,accounts for $21,000.The applicable legal reserve requirement at this checking account is 10 percent.Determine Smith's net usable funds.

Working capital loans are normally secured by a business firm's plant and equipment.

Wages and salaries to net sales,overhead expenses to net sales,and cost of goods sold to net sales are all measures of ___________________________________________.

Leveraged buyouts (LBOs)involve the purchase of businesses with at least 75 percent of the cost of the purchase funded by current earnings and sales of stock.

Banks frequently bid on the opportunity to finance the entire inventory of dealers selling automobiles,business and electronic equipment,and other durable goods through a ___________ arrangement.

The apparent size bias in the financial marketplace led to the creation of the __________ in the 1950s,to guarantee loans made to small businesses by private lending institutions.

The basic strength of the cost-plus loan pricing method is that it considers the competition from other lenders.

The price leadership model for long-term loan pricing includes a markup for default risk,but not for term risk.

Which of the following is true of the price leadership loan pricing method?

Term loans normally are secured by accounts receivable and inventory.

The ______________________ is the interest rate charged to the bank's most creditworthy customers on short-term working capital loans.

Working-capital loans,unlike most other types of business loans,usually require the customer to keep a compensating deposit balance with the lending bank.

The increasingly popular type of financing,in which merchants receive cash advances and pay them off from their credit card sales,is called: