1. A levered firm is a company that has:

A.finances some of its operations with debt.

B.a tax loss carry forward.

C.an all-equity capital structure.

D.taxable income.

E.accounts payable as its only liability.

2. Commercial paper is generally issued:

A.by large firms.

B.at the prime rate offered by the firm's bank.

C.for 190 days or less.

D.by commercial banks.

E.for 90 to 180 days.

3. Heritage Farms has sales of $1.62 million with costs of goods sold equal to 78 percent of sales. The average inventory is $369,000, accounts payable average $438,000, and receivables average $147,000. How long is the cash conversioncycle?

A.7.54 days

B.14.30 days

C.13.19 days

D.17.29 days

E.53.05 days

4. Jaxon Markets currently has credit terms of net 30, an average collection period of 29 days, and average receivables of $211,410. The firm estimates that if it offered terms of 2/10, net 30 that 45 percent of its customers would pay on day 10 with the remainder paying on average in 32 days. How much cash could the company free up from its accounts receivables if it switched its credit policy?

A.$50,301

B.$65,009

C.$58,336

D.$38,762

E.$64,219

5. The firm's capital structure refers to the:

A.amount of dividends a firm pays.

B.mix of current and fixed assets a firm holds.

C.amount of cash versus receivables the firm holds.

D.amount of capital invested in the firm.

E.mix of debt and equity used to finance the firm's assets.

6. Uptown Bank has granted a line of credit of $80,000 with an interest rate of 7.5 percent and a compensating balance requirement of 2.5 percent to Jones Hardware. The compensating balance requirement is based on the total amount borrowed. What is the effective annual interest rate if the firm needs $55,000 for one year to finance its inventory?

A.8.12%

B.7.78%

C.8.80%

D.9.44%

E.7.69%

7. Which one of these statements concerning the cash conversion cycle is correct?

A.The most desirable cash conversion cycle is the one that equals zero days.

B.The cash conversion cycle is equal to the operating cycle minus the inventory conversion period.

C.The cash conversion cycle plus the accounts receivable period equals the operating cycle.

D.Granting credit to slower paying customers tends to decrease the cash conversioncycle.

E.A negative cash conversion cycle is actually preferable to a positive cash conversion cycle

8. Wilson's Dry Goods has a line of credit with a local bank for $250,000. The loan agreement calls for interest of 7.6 percent with a compensating balance requirement of 5 percent, which is based on the total amount borrowed. What is the effective interest rate if the firm needed $138,000 for one year to cover its expansion costs?

A.8.13%

B.8.38%

C.7.60%

D.8.00%

E.8.55%

9. Yesterday, Smiley Company sold $22,500 of merchandise on credit. The invoice was sent today with the terms, 3/10 net 40. This customer normally pays on the net date. What is the effective rate of interest the customer is paying by not taking the discount? Assume a 365-day year.

A.45.38%

B.39.27%

C.40.54%

D.44.86%

E.42.31%

10. Gladys Turner borrowed $12,000 from the bank using a 10.19 percent "add-on", one-year installment loan, payable in four equal quarterly payments. What is the effective annual rate of interest?

A.20.38%

B.16.98%

C.10.19%

D.9.50%

E.15.99%

11. Suppose that you're planning a vacation and borrow $2,000 from a bank for one year at a stated annual interest rate of 14 percent, with interest prepaid (a discount interestloan). Also, assume that the bank requires you to maintain a compensating balance equal to 10 percent of the initial loan value. What effective annual interest rate are you being charged?

A.28.00%

B.16.28%

C.14.00%

D.24.00%

E.18.42%

12. The Arthos Group needs to borrow $200,000 from its bank. The bank has offered the company a 12-month installment loan (monthly payments) with 9 percent add-on interest. What is the effective annual rate (EAR) of this loan?

A.17.97%

B.17.48%

C.16.22%

D.18.00%

E.18.67%

13. Harris Flooring Inc. is planning to borrow $12,000 from the bank for new sanding machines. The bank offers the choice of a 12 percent discount interest loan or a 10.19 percent add-on, one-year installment loan, payable in 4 equal quarterly payments. What is the effectiveannual rate of interest on the 12 percent discounted loan?

A.10.7%

B.14.12%

C.12.00%

D.12.52%

E.13.64%