False 3. Question - Financing a business (15 marks) Question #1 - True and False - answer with X True 1 Equipment is the best source of collateral for a company (highest loan value) 2 The debt to equity ratio is a positive covenant in a bank loan. 3 Working capital policy changes generate the most cash for a company. 4 Bank loans can be secured or not secured depending on the company financial position. 5 Match term funding is used when long term permanent assets are funded by short-term bank loans Question #2 - Financing analysis The client has the following: Answer the following: A How much good collateral does the company have? Accounts Receivable 250,000 [ignore existing debt for this calculation) Inventory 250,000 Fixed Assets 475,000 Goodwill 50,000 Total Assets 1,025,000 Cash B How much financing would a banker extend given the company's collateral (show calculation) Accounts Payable Short-term Bank Loan Long-term Bank Loan Total Debt Equity 225,000 200,000 400,000 825,000 200,000 C How would you assess the company's debt situation? Net Income for the year 100,000 Includes: Interest - 5% 30,000 EBIT 170,000 Cash flows for the year 50,000 Bank covenants: Debt to Equity 4.0 Current Ratio 2.0 Keep Bank Loans within collateral coverage Question #3 - Would you lend the company more funds? How much? Yes or No- Whyor Why Not - How Much - Zeroor? Question #4 - Which two risks would you monitor regarding this company? 1 2 False 3. Question - Financing a business (15 marks) Question #1 - True and False - answer with X True 1 Equipment is the best source of collateral for a company (highest loan value) 2 The debt to equity ratio is a positive covenant in a bank loan. 3 Working capital policy changes generate the most cash for a company. 4 Bank loans can be secured or not secured depending on the company financial position. 5 Match term funding is used when long term permanent assets are funded by short-term bank loans Question #2 - Financing analysis The client has the following: Answer the following: A How much good collateral does the company have? Accounts Receivable 250,000 [ignore existing debt for this calculation) Inventory 250,000 Fixed Assets 475,000 Goodwill 50,000 Total Assets 1,025,000 Cash B How much financing would a banker extend given the company's collateral (show calculation) Accounts Payable Short-term Bank Loan Long-term Bank Loan Total Debt Equity 225,000 200,000 400,000 825,000 200,000 C How would you assess the company's debt situation? Net Income for the year 100,000 Includes: Interest - 5% 30,000 EBIT 170,000 Cash flows for the year 50,000 Bank covenants: Debt to Equity 4.0 Current Ratio 2.0 Keep Bank Loans within collateral coverage Question #3 - Would you lend the company more funds? How much? Yes or No- Whyor Why Not - How Much - Zeroor? Question #4 - Which two risks would you monitor regarding this company? 1 2
