Question 1

Use the following information to answer the question(s)  below.
Taggart Transcontinental needs a $100,000 loan for the next 30 days. Taggart has three alternatives available:
Alternative #1: Forgo the discount on its trade credit agreement that offers terms of 2/5 net 35.
Alternative #2: Borrow the money from Bank A, which has offered to lead the firm $100,000 for one month at
an APR of 9%. The bank will require a (no-interest)  compensating balance of 10% of the face-value of the loan and will charge a $200 loan origination fee, which means that Taggart must morrow even more than the $100,000 they need.
Alternative #3: Borrow the money from Bank B, which has offered to lend the firm $100,000 for one month at an APR of 12%. The loan has a 1% origination fee.
-The effective annual rate for Taggart if they choose alternative #1 is closest to:

Accepted Answer

A)   13.9%
B)   18.8%
C)   27.0%
D)   27.9%E) B) and C)
F) All of the above

Question 2

Which of the following firms is likely to have the highest short-term financing needs?

Accepted Answer

A)   A pharmaceutical manufacturer
B)   A grocery store
C)   An electric utility
D)   A toy storeE) B) and D)
F) All of the above

Question 3

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 millionE) A) and C)
F) All of the above

Question 4

Which of the following statements is false?

Accepted Answer

A)   Unlike long-term debt, because of its short maturity, commercial paper is not rated by credit rating agencies.
B)   The interest on commercial paper is typically paid by selling it at an initial discount.
C)   Commercial paper is short-term, unsecured debt used by large corporations that is usually a cheaper source of funds than a short-term bank loan.
D)   Extending the maturity of commercial paper beyond 270 days triggers a registration requirement with the Securities and Exchange Commission (SE
C)  , which increases issue costs and creates a time delay in the sale of the issue.E) B) and C)
F) A) and D)

Question 5

Luther Industries is offered a $1 million dollar loan for four months at an APR of 9%.Luther's bank requires that the firm maintain a compensating balance equal to 5% of the loan amount in a non-interest bearing account and the bank charges a 1% origination fee.Calculate the the effective annual rate EAR for this loan.

Accepted Answer

The origination fee is charged on the pr...

Question 6

Wyatt Oil has an issue of commercial paper with a face value of $10,000,000 and a maturity of three months.Wyatt received $9,800,000 when it sold the paper.The effect annual rate for this financing is closest to:

Accepted Answer

A)   5.6%
B)   6.6%
C)   7.2%
D)   8.4%E) A) and D)
F) None of the above

Question 7

Which of the following statements is false?

Accepted Answer

A)   The matching principle indicates that the firm should finance permanent working capital with short-term sources of funds.
B)   Following the matching principle should, in the long run, help minimize a firm's transaction costs.
C)   In a perfect capital market, the choice of financing is irrelevant; thus how the firm chooses to finance its short-term cash needs cannot affect value.
D)   A portion of a firm's investment in its accounts receivable and inventory is temporary and results from seasonal fluctuations in the firm's business or unanticipated shocks.E) B) and C)
F) A) and C)

Question 8

Which of the following statements is false?

Accepted Answer

A)   Commercial banks, finance companies, and factors, which are firms that purchase the receivables of other companies, are the most common sources for secured short-term loans.
B)   The factoring arrangement may be without recourse, in which case the lender bears the risk of bad-debt losses.
C)   In a floating lien, general lien, or blanket lien arrangement, specific inventory is used to secure the loan.
D)   If a firm sells its goods on terms of net 30, then the factor will pay the firm the face value of its receivables, less a factor's fee, at the end of 30 days.E) None of the above
F) B) and D)

Question 9

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)   Like seasonalities, positive cash flow shocks can 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.E) A) and B)
F) A) and C) C

Question 10

Luther Industries is offered a $1 million dollar loan for four months at an APR of 9%.If Luther's bank requires that the firm maintain a compensating balance equal to 10% of the loan amount in a non-interest bearing account,then the effective annual rate EAR for this loan is closest to:

Accepted Answer

A)   50.0%
B)   12.6%
C)   14.4%
D)   71.5%E) B) and D)
F) None of the above A

Question 11

Kinston Industries issued $4,000,000 in commercial paper which matures in six months and received $3,876,000.Calculate the effective annual rate that Kinston is paying.

Accepted Answer

<img  loading="lazy" src="/assets/images/blured-textbook.svg" class="d-inline m-1" alt="blured image" width="139" height="30"> - 1 = .031992 or 3....

Question 12

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 permanent working capital needs for Hasbeen Toys is closest to:

Accepted Answer

A)   $1,100 million
B)   $2,435 million
C)   $1,275 million
D)   $770 millionE) B) and C)
F) None of the above

Question 13

Rearden Metal wants to raise $5 million using six-month commercial paper.The net proceeds to Rearden will be $4,865,000.The effect annual rate for this financing is closest to:

Accepted Answer

A)   5.6%
B)   6.6%
C)   7.2%
D)   8.4%E) A) and B)
F) B) and C)

Question 14

Which of the following statements is false?

Accepted Answer

A)   A public warehouse is a business that exists for the sole purpose of storing and tracking the inflow and outflow of the inventory.
B)   A warehouse arrangement is the riskiest collateral arrangement from the standpoint of the lender.
C)   Because the warehouser is a professional at inventory control, there is likely to be little loss due to damaged goods or theft, which in turn lowers insurance costs.
D)   A field warehouse 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) B) and C)
F) A) and B)

Question 15

Which of the following statements is false?

Accepted Answer

A)   On the other hand, by relying on short-term debt the firm exposes itself to funding risk, which is the risk of incurring financial distress costs should the firm not be able to refinance its debt in a timely manner or at a reasonable rate.
B)   An ultra-conservative policy would involve financing even some of the plant, property, and equipment with short-term sources of funds.
C)   With a conservative financing policy, the firm would use short-term debt very sparingly to meet its peak seasonal needs.
D)   Short-term debt can have lower agency and lemons costs than long-term debt, and an aggressive financing policy can benefit shareholders.E) C) and D)
F) All of the above

Question 16

Use the following information to answer the question(s)  below.
Taggart Transcontinental needs a $100,000 loan for the next 30 days. Taggart has three alternatives available:
Alternative #1: Forgo the discount on its trade credit agreement that offers terms of 2/5 net 35.
Alternative #2: Borrow the money from Bank A, which has offered to lead the firm $100,000 for one month at
an APR of 9%. The bank will require a (no-interest)  compensating balance of 10% of the face-value of the loan and will charge a $200 loan origination fee, which means that Taggart must morrow even more than the $100,000 they need.
Alternative #3: Borrow the money from Bank B, which has offered to lend the firm $100,000 for one month at an APR of 12%. The loan has a 1% origination fee.
-Which alternative should Taggart choose?

Accepted Answer

A)   Alternative #1 since it has the lowest EAR
B)   Alternative #2 since it has the lowest EAR
C)   Alternative #3 since it has the lowest EAR
D)   Alternative #2 since it has the highest actual rateE) B) and C)
F) None of the above

Question 17

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

Question 18

Rearden Metal has borrowed $4 million for three months at a stated annual rate of 8%,using inventory stored in a field warehouse as collateral.The warehouse charges a $10,000 fee,payable at the end of the month.The effect annual rate on this loan is closest to:

Accepted Answer

A)   9.3%
B)   11.3%
C)   15.2%
D)   17.1%E) C) and D)
F) B) and C)

Question 19

Inventory can be used as collateral for a loan in all of the following ways except

Accepted Answer

A)   a floating lien.
B)   a warehouse arrangement.
C)   a factoring arrangement.
D)   a trust receipt.E) A) and D)
F) B) and C)

Question 20

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:

Accepted Answer

A)   8.0%
B)   7.5%
C)   1.8%
D)   7.3%E) All of the above
F) C) and D)

Exam 27: Short-Term Financial Planning

Correct Answer
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Which of the following firms is likely to have the highest short-term financing needs?

Correct Answer
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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:

Correct Answer
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Which of the following statements is false?

Correct Answer
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Correct Answer
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The origination fee is charged on the pr...
View Answer

Wyatt Oil has an issue of commercial paper with a face value of $10,000,000 and a maturity of three months.Wyatt received $9,800,000 when it sold the paper.The effect annual rate for this financing is closest to:

Correct Answer
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Which of the following statements is false?

Correct Answer
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Which of the following statements is false?

Correct Answer
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Which of the following statements is false?

Correct Answer
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C

Luther Industries is offered a $1 million dollar loan for four months at an APR of 9%.If Luther's bank requires that the firm maintain a compensating balance equal to 10% of the loan amount in a non-interest bearing account,then the effective annual rate EAR for this loan is closest to:

Correct Answer
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A

Kinston Industries issued $4,000,000 in commercial paper which matures in six months and received $3,876,000.Calculate the effective annual rate that Kinston is paying.

Correct Answer
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- 1 = .031992 or 3....
View Answer

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 permanent working capital needs for Hasbeen Toys is closest to:

Correct Answer
verified

Rearden Metal wants to raise $5 million using six-month commercial paper.The net proceeds to Rearden will be $4,865,000.The effect annual rate for this financing is closest to:

Correct Answer
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Which of the following statements is false?

Correct Answer
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Which of the following statements is false?

Correct Answer
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Correct Answer
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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?

Correct Answer
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C

Rearden Metal has borrowed $4 million for three months at a stated annual rate of 8%,using inventory stored in a field warehouse as collateral.The warehouse charges a $10,000 fee,payable at the end of the month.The effect annual rate on this loan is closest to:

Correct Answer
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Inventory can be used as collateral for a loan in all of the following ways except

Correct Answer
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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:

Correct Answer
verified

Exam 27: Short-Term Financial Planning

Correct AnswerverifiedShow Answer

Which of the following firms is likely to have the highest short-term financing needs?

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe origination fee is charged on the pr...View AnswerShow Answer

Wyatt Oil has an issue of commercial paper with a face value of $10,000,000 and a maturity of three months.Wyatt received $9,800,000 when it sold the paper.The effect annual rate for this financing is closest to:

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedC

Luther Industries is offered a $1 million dollar loan for four months at an APR of 9%.If Luther's bank requires that the firm maintain a compensating balance equal to 10% of the loan amount in a non-interest bearing account,then the effective annual rate EAR for this loan is closest to:

Correct AnswerverifiedA

Kinston Industries issued $4,000,000 in commercial paper which matures in six months and received $3,876,000.Calculate the effective annual rate that Kinston is paying.

Correct Answerverified - 1 = .031992 or 3....View AnswerShow Answer

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 permanent working capital needs for Hasbeen Toys is closest to:

Correct AnswerverifiedShow Answer

Rearden Metal wants to raise $5 million using six-month commercial paper.The net proceeds to Rearden will be $4,865,000.The effect annual rate for this financing is closest to:

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedC

Rearden Metal has borrowed $4 million for three months at a stated annual rate of 8%,using inventory stored in a field warehouse as collateral.The warehouse charges a $10,000 fee,payable at the end of the month.The effect annual rate on this loan is closest to:

Correct AnswerverifiedShow Answer

Inventory can be used as collateral for a loan in all of the following ways except

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

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The origination fee is charged on the pr...
View Answer

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C

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A

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- 1 = .031992 or 3....
View Answer

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C

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