1. What is the purpose of loan covenants?

a. To make the monitoring process more efficient, as the lender can determine creditworthiness based on whether any covenants have been breached.

b. To encourage the company to be run with financially sound best practices.

c. To require or restrict the borrower from doing something that could affect their creditworthiness.

d. To allow the financial institution to affect the decision-making of the borrower.

2. What should NOT be included in the conclusion and recommendation section of the credit application?

a. Why the analyst is comfortable with the risks of the transaction.

b. The analysts comfort level with the loan structure and collateral.

c. A short summary of the points discussed throughout the application.

d. The key strengths and weaknesses of the company and the transaction.

3. Stampedes A/R turnaround days are higher than industry benchmarks. Despite this, why is this not considered a warning signal against lending to the company?

a. Stampedes credit application is over-secured so small warning signals like these ratios are ultimately insignificant to the application.

b. Stampede purposely extends favorable payment terms to one of their key customers as part of its business strategy.

c. Stampede operates at a large enough scale that we are assured that loan payments will be made, despite suboptimal performance ratios.

d. Stampedes performance ratios are not far enough from industry benchmarks to be a concern.

4. Which of the following is a factor that should have been included or discussed in Stampedes credit application?

a. Succession planning regarding the likely impending retirement of the CEO.

b. Detailed year-over-year financial information and ratios for each account.

c. Comprehensive analysis of Stampedes two main competitors.

d. Risks of company management being run entirely by the same family.