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May I please have some assistance with the below questions?
Q1. A firm’s cash position would most likely be helped by
a. delaying payment of accounts payable.
b. more liberal credit policies for their customers.
c. purchasing land for investment purposes.
d. holding larger inventories.
Q2. Financial forecasting is the process of attempting to estimate a firm’s future financing requirements.
Q3. What differentiates “discretionary financing needs” from “external financing needs”?
b. retained earnings
d. spontaneous liabilities
Q4. MDX Sales Corp. is expecting a 10% increase in sales next year. MDX has an inventory balance of $1,000,000 and uses the percent of sales forecasting method. Which of the following could explain why the inventory forecast of $1,100,000 might be too high?
a. The current inventory balance of $1,000,000 is lower than usual because of a one-time end of year fire sale.
b. The company is going to change its depreciation method in the coming year.
c. The growth in sales could be as high as 15%.
d. A fixed amount of inventory is required to do business, so inventory doesn’t increase proportionally with sales.
Q5. Issuing new short-term bonds to finance an expansion is an example of spontaneous financing.
Q6. Cash budgets do not provide reasonable predictions for asset requirements when the asset purchases are lumpy.
Q7. The cash budget represents a detailed plan of future cash flows.
Q8. A company calculates its discretionary financing needed and determines this amount of capital cannot be raised at a reasonable cost. Which of the following would reduce the amount of discretionary financing needed?
a. reduce the company’s net profit margin
b. reduce the company’s sales growth rate
c. increase the company’s dividend payout ratio
d. increase the proportion of the company’s sales that are made on credit
Q9. Gerentology Associates, a highly profitable company, is considering two growth strategies, one that will achieve sales growth of 20% in one year, and the other that will achieve 20% growth in sales, but over a 4-year time frame. Assuming Gerentology Associates uses the percent of sales method, which of the following statements is true?
a. Discretionary financing needed will be much greater for the 4-year growth strategy.
b. Discretionary financing needed could be much less for the 4-year growth strategy due to retained earnings.
c. The asset balances at the end of 4 years for strategy two will be much greater than the asset balances required at the end of year one for strategy one.
d. Discretionary financing needed could be much greater for the slow growth strategy because interest charges will accumulate on the company’s debt.
Q10. The key ingredient in a firm’s financial planning is an accurate sales forecast.
Q11. For a growing firm, external financing needed will most likely be greater than discretionary financing needed due to increases in accounts payable and accruals.
Q12. A company collects 25% of its sales during the month of sale, 65% one month after the sale, and 10% two months after the sale. The company expects sales of $50,000 in August, $80,000 in September, $90,000 in October, and $60,000 in November. How much money is expected to be collected in October?
Q13. Which of the following is a disadvantage of the use of current liabilities?
a. greater risk of illiquidity
b. less flexibility
c. higher interest costs
d. the hedging principle
Q14. The Missouri River Pendant Company uses commercial paper to satisfy part of its short-term financing requirements. Next week, it intends to sell $18 million in 90-day maturity paper on which it expects to have to pay discounted interest at an annual rate of 7 percent per annum. In addition, Stoney River expects to incur a cost of approximately $25,000 in dealer placement fees and other expenses of issuing the paper. What is the effective annual cost of credit to Missouri River?
Q15. Simpson Conglomerates borrows $12,000 for a short-term purpose. The loan will be repaid after 120 days, with Simpson paying a total of $12,400. What is the approximate cost of credit using the APY, or annual percentage yield, calculation?
Q16. Which of the following would normally occur if a firm increases its investment in current assets?
a. The firm’s liquidity would be improved.
b. The firm’s net working capital would decline.
c. The firm’s liquidity would be worsened.
d. The firm’s profit margin would improve.
Q17. Total assets must always equal the sum of temporary, permanent, and spontaneous sources of financing.
Q18. Blastdale Corp. is considering borrowing $15,000 for a 60-day period. The firm will repay the $15,000 principal amount plus $200 in interest. What is the effective annual rate of interest? Use a 360-day year.
Q19. You are working on your company’s cash budget for the coming year and you believe there may be short periods of time where financing is required. Which of the following sources of short-term financing is most certain to be available when needed?
a. trade credit
b. line of credit with a bank
c. revolving credit agreement with a bank
d. accounts receivable
Q20. Which of the following is most likely to be a temporary source of financing?
a. commercial paper
b. preferred stock
c. long-term debt
d. common stock
Q21. Marley Financial plans to sell $50,000,000 of 120-day commercial paper, on which it expects to pay discounted interest at a rate of 5% per year. Dealer fees are expected to be $30,000. The effective cost of credit to Marley Financial is
Q22. The cash conversion cycle is a measure of a firm’s effectiveness in managing its working capital.
Q23. The primary sources of collateral for secured loans are accounts receivable and inventory.
Q24. The primary advantage that pledging accounts receivable provides is
a. the flexibility it gives to the borrower.
b. that the financial institution bears the risk of collection.
c. the low cost as compared with other sources of short-term financing.
d. that the financial institution services the accounts.
Q25. Idaho Mining, Inc borrows at prime plus 1.5% on its line of credit. The line requires a 15% compensating balance. If prime rate is 9%, what is the nominal APR of the line of credit?
Q26. The time necessary for a deposited check to clear through the commercial banking system causes which of the following types of floats?
Q27. Flashbinder Guitars, Inc. is considering a lockbox system that will increase its check processing cost by $.15 per check. The company estimates an average check size of $1,700 and expects the lockbox to reduce check collection time by 3 days. What annual before-tax yield must Flashbinder Guitars, Inc. earn on its marketable securities for the lockbox system to be beneficial?
Q28. If you were a treasurer for a Fortune 1,000 corporation who has responsibility for investing “excess cash balances,” which of the following alternatives would you be least likely to select?
b. common stock
c. bankers’ acceptances
d. U.S. Treasury bills
Q29. Which of the following would be an example of the “precautionary motive” for a firm holding cash balances?
a. purchase of inventory
b. anticipating a strike
c. purchase fixed assets
d. make dividend payments
Q30. An extremely liquid asset is one that can be sold for cash quickly without a reduction in price below its current market value.
Q31. A retailer sells most of its merchandise on credit and bills clients monthly. Which of the following elements of float does the retailer have the most control over?
a. mail float
b. processing float
c. transit float
d. disbursing float
Q32. In the basic EOQ model the optimal inventory level is the point at which
a. total cost is minimized.
b. total revenue is maximized.
c. carrying costs are minimized.
d. ordering costs are minimized.
Q33. Mountain Snow Sports, Inc. is trying to determine the optimal order quantity for snow boards for the next twelve months. Annual sales are expected to be 1,000,000 units at a retail price of $400 each. The cost of carrying snow boards is $80 per year. Studies show that it costs Mountain Snow $250 to prepare and receive an order. What is the EOQ?
Q34. Cash management system objectives include
a. maintaining sufficient cash to meet disbursal needs.
b. maintaining idle cash balances at “doomsday event” levels.
c. maintaining accounts payable balances at zero by early bill payment.
d. all of the above are objectives of the system.
Q35. Krause Precision Tools, Inc. will use an estimated 700,000 small processors in its manufacturing process next year. The carrying cost of processor inventory is $3.00 per unit and the cost of reordering processors is $100 per order. What is Krause’s economic ordering quantity for small processors?
Q36. Transit float is caused by
a. the time necessary for a deposited check to clear the banking system and become usable funds to the company.
b. the time funds are not available, through the company’s bank account, until its payment check has cleared the banking system.
c. the elapsed time from the moment a customer mails his remittance check until the firm begins to process it.
d. the time required for the firm to process remittance checks.
Q37. The purpose of carrying inventory is to
a. make different production processes more dependent on sales.
b. make sales more independent of the production process.
c. have collateral for loans.
d. improve the current ratio.
Q38. A British-made component costs 36 U.K. pounds. A company in the United States needs to buy these components and the current indirect quote indicates that one dollar will buy .6250 pounds. Ignoring transactions costs, how much will one component cost in U.S. dollars?
Q39. Money-market hedges and forward market hedges rely on the
a. interest rate parity theory.
b. purchasing power parity theory.
c. law of large numbers.
d. capital asset pricing model.
Q40. Suppose the current spot rate in New York is .0119 dollars per yen. Inflation for the coming year in the United States is expected to be 3%, while inflation for the coming year is Japan is expected to be only 1%. Using the purchasing power parity theory, what is the expected spot rate at the end of the year should be
a. .0110147 dollars per yen.
b. .0108159 dollars per yen.
c. .0138373 dollars per yen.
d. .0121356 dollars per yen.
Q41. Foreign currency forward rates aid traders by reducing uncertainty regarding future market fluctuations.
Q42. Only purely domestic firms that buy all of their inputs and sell all of their outputs in their home countries are unaffected by events in international financial markets.
Q43. If you are an importer of goods and you will make payment for the purchase of inventory on 90-day terms, which of the below is the correct term for the exchange rate that you will use?
a. indirect rate
b. spot rate
c. direct rate
d. forward rate
Q44. A narrow spread indicates efficiency in the spot exchange market.
Q45. With international investing, unlike domestic investing, exchange rate risk could cause a marginally-positive-NPV project to be rejected due to the additional risk.
Q46. The spot exchange rate is 1.57 dollars per pound. The 30-day forward exchange rate is .6211 pounds per dollar. Therefore, pounds in the forward market are selling at a ________ to the current spot rate.
a. .958 discount
b. .958 premium
c. .04 discount
d. .04 premium
Q47. Assume that the British pound is worth 1.6242 U.S. dollars. If a new Jaguar costs $138,000, what is the cost in British pounds?
Q48. The 30-day forward exchange rate is .01073033 dollars per yen. If this forward rate represents a per year discount of 2.5% from the current spot rate, what is the current spot exchange rate?
a. .01073033 dollars per yen
b. .01257754 dollars per yen
c. .01329684 dollars per yen
d. .01093833 dollars per yen
Q49. A wide bid/ask spread could indicate which of the following?
a. the presence of arbitrageurs
b. large volume transactions are taking place
c. frequent trading of a currency
d. an inefficient market
Q50. The asked rate is also known as the selling rate or the offer rate.
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