Question 1

Which of the following best describes a loan where the firm must pay interest on the loan and pay back the principal in one lump sum at the end of the loan?

Accepted Answer

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

Question 2

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

Accepted Answer

Banks charge a fee called loan origination fee to cover the costs of credit checks and legal fees.This fee is paid when the loan is initiated,thereby adding to the cost of borrowing.

Question 3

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 assets and the amount that a firm must keep invested in its short-term assets to support its continuing operations 
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 
E)  the amount that a firm keeps invested in its short-term assets which is financed by 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 assets and the amount that a firm must keep invested in its short-term assets to support its continuing operations 
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 
E)  the amount that a firm keeps invested in its short-term assets which is financed by debt B

Question 4

A written,legally binding agreement that obligates the bank to lend a firm any amount up to a stated maximum,regardless of the financial condition of the firm (unless the firm is bankrupt)as long as the firm satisfies any restrictions in the agreement is called

Accepted Answer

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

Question 5

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. 
E)  Permanent working capital should be financed by long-term sources of funds, while temporary working capital should only be paid for with cash. 
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. 
E)  Permanent working capital should be financed by long-term sources of funds, while temporary working capital should only be paid for with cash.

Question 6

Winnipeg Washing Machines wishes to borrow $1.5 million for one month.Using its inventory as collateral,it can obtain a 10% (APR)loan.The lender requires that a warehouse arrangement be used,with a warehouse fee of $8,500,payable at the end of the month.What is the firm's EAR for this loan?

Accepted Answer

A)  18.2% 
B)  16.8% 
C)  10.5% 
D)  17% 
E)  17.4% 
A)  18.2% 
B)  16.8% 
C)  10.5% 
D)  17% 
E)  17.4%

Question 7

Matt's Machine Company has borrowed $10 million for four months at 5.5% APR,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?

Accepted Answer

A)  5.5% 
B)  7.20% 
C)  0.58% 
D)  7.01% 
E)  3.46% 
A)  5.5% 
B)  7.20% 
C)  0.58% 
D)  7.01% 
E)  3.46%

Question 8

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(s)are Hasbeen's seasonal working capital needs the smallest?

Accepted Answer

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

Question 9

Commercial paper is rated by credit rating agencies.

Accepted Answer

A) True 
 B)False

Question 10

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. 
E)  Cost of goods sold, along with administrative and other costs, will remain relatively steady. 
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. 
E)  Cost of goods sold, along with administrative and other costs, will remain relatively steady.

Question 11

Pembina Properties issues commercial paper with a face value of $450,000 and a maturity of three months.The firm receives $442,000 when it sells the paper.If the prime rate is 9% APR compounded quarterly,how much interest savings did Pembina realize by using commercial paper?

Accepted Answer

A)  $1,945 
B)  $9,945 
C)  $8,000 
D)  $31,780 
E)  $1,625 
A)  $1,945 
B)  $9,945 
C)  $8,000 
D)  $31,780 
E)  $1,625

Question 12

Use the information for the question(s) below.
   
Glenside Industries is a domestic machinery manufacturer which specializes in the production of snowblowers. The above figures show the anticipated sales over the next four quarters. Glenside carries inventory equal to 25% of next quarter's sales, has accounts payable of 15% of next quarter's sales, and accounts receivable of 23% of this quarter's sales.
-If its net income is 10% of sales,in which quarter(s)is it expected that Glenside's seasonal working capital needs will be the smallest?

Accepted Answer

A)  Q1 
B)  Q2 
C)  Q3 
D)  Q4 
E)  Q5 
A)  Q1 
B)  Q2 
C)  Q3 
D)  Q4 
E)  Q5

Question 13

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(s)are Fancy's seasonal working capital needs the smallest?

Accepted Answer

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

Question 14

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(s)are Fancy's seasonal working capital needs the greatest?

Accepted Answer

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

Question 15

ToysToysToys Corporation wants to borrow $500,000 for one month.It uses its inventory as collateral for a 16% (APR)loan,under a warehouse arrangement where the warehouse fee is $14,000,paid at the end of the month.What is the EAR of this loan for ToysToysToys?

Accepted Answer

A)  4.1% 
B)  15.4% 
C)  45.8% 
D)  62.6% 
E)  27.3% 
A)  4.1% 
B)  15.4% 
C)  45.8% 
D)  62.6% 
E)  27.3%

Question 16

What is a public warehouse arrangement?

Accepted Answer

A)  a warehouse arrangement in which the inventory is stored and tracked by the lender on the lender's premises 
B)  a warehouse arrangement in which the inventory is stored on the borrower's premises but is tracked by the lender 
C)  a warehouse arrangement in which the inventory is stored by a business that exists for the sole purpose of storing and tracking the inflow and outflow of inventory 
D)  a warehouse arrangement that is operated by a third party but is set up on the borrower's premises in a separate area so that the inventory collateralizing the loan is kept apart from the borrower's main plant 
E)  a warehouse arrangement in which the inventory is stored and tracked by the borrower on the borrower's premises 
A)  a warehouse arrangement in which the inventory is stored and tracked by the lender on the lender's premises 
B)  a warehouse arrangement in which the inventory is stored on the borrower's premises but is tracked by the lender 
C)  a warehouse arrangement in which the inventory is stored by a business that exists for the sole purpose of storing and tracking the inflow and outflow of inventory 
D)  a warehouse arrangement that is operated by a third party but is set up on the borrower's premises in a separate area so that the inventory collateralizing the loan is kept apart from the borrower's main plant 
E)  a warehouse arrangement in which the inventory is stored and tracked by the borrower on the borrower's premises

Question 17

How can a conservative financing policy reduce firm value?

Accepted Answer

With a conservative financing policy the

Question 18

A firm issues four-month commercial paper with a $450,000 face value and receives $442,000.What is the EAR the firm is paying for these funds?

Accepted Answer

A)  7.4% 
B)  5.4% 
C)  5.5% 
D)  7.1% 
E)  5.3% 
A)  7.4% 
B)  5.4% 
C)  5.5% 
D)  7.1% 
E)  5.3%

Question 19

Sask Seed wishes to borrow $3 million for two months.Using its inventory as collateral,it can obtain a 9% (APR)loan.The lender requires that a warehouse arrangement be used,with a warehouse fee of $9,000,payable at the end of the month.What is the firm's EAR for this loan?

Accepted Answer

A)  17.4% 
B)  21.6% 
C)  11.3% 
D)  9.3% 
E)  9% 
A)  17.4% 
B)  21.6% 
C)  11.3% 
D)  9.3% 
E)  9%

Question 20

A firm issues two-month commercial paper with a $200,000 face value and receives $196,000.What is the EAR the firm is paying for these funds?

Accepted Answer

A)  12.5% 
B)  12.6% 
C)  12.9% 
D)  12% 
E)  12.2% 
A)  12.5% 
B)  12.6% 
C)  12.9% 
D)  12% 
E)  12.2%

Exam 20: Short Term Financial Planning

Which of the following best describes a loan where the firm must pay interest on the loan and pay back the principal in one lump sum at the end of the loan?

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

What is temporary working capital?

A written,legally binding agreement that obligates the bank to lend a firm any amount up to a stated maximum,regardless of the financial condition of the firm (unless the firm is bankrupt)as long as the firm satisfies any restrictions in the agreement is called

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

Winnipeg Washing Machines wishes to borrow $1.5 million for one month.Using its inventory as collateral,it can obtain a 10% (APR)loan.The lender requires that a warehouse arrangement be used,with a warehouse fee of $8,500,payable at the end of the month.What is the firm's EAR for this loan?

Matt's Machine Company has borrowed $10 million for four months at 5.5% APR,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?

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(s)are Hasbeen's seasonal working capital needs the smallest?

Commercial paper is rated by credit rating agencies.

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

Pembina Properties issues commercial paper with a face value of $450,000 and a maturity of three months.The firm receives $442,000 when it sells the paper.If the prime rate is 9% APR compounded quarterly,how much interest savings did Pembina realize by using commercial paper?

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(s)are Fancy's seasonal working capital needs the smallest?

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(s)are Fancy's seasonal working capital needs the greatest?

ToysToysToys Corporation wants to borrow $500,000 for one month.It uses its inventory as collateral for a 16% (APR)loan,under a warehouse arrangement where the warehouse fee is $14,000,paid at the end of the month.What is the EAR of this loan for ToysToysToys?

What is a public warehouse arrangement?

How can a conservative financing policy reduce firm value?

A firm issues four-month commercial paper with a $450,000 face value and receives $442,000.What is the EAR the firm is paying for these funds?

Sask Seed wishes to borrow $3 million for two months.Using its inventory as collateral,it can obtain a 9% (APR)loan.The lender requires that a warehouse arrangement be used,with a warehouse fee of $9,000,payable at the end of the month.What is the firm's EAR for this loan?

A firm issues two-month commercial paper with a $200,000 face value and receives $196,000.What is the EAR the firm is paying for these funds?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

The Valuation Principle: the Foundation of Financial Decision Making

The Time Value of Money

Interest Rates

Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

Determining the Cost of Capital

Risk and the Pricing of Options

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modelling and Pro Forma Analysis

Working Capital Management

Risk Management

International Corporate Finance

Leasing

Mergers and Acquisitions

Corporate Governance

Filters