Question
Please see the below 50 questions from FIN 101. Q1. Which of the following will most likely result in an increase in discretionary funding needed?
Please see the below 50 questions from FIN 101.
Q1. Which of the following will most likely result in an increase in discretionary funding needed?
a. The company's profit margin increases.
b. The company's dividend payout ratio increases.
c. The company's assets are only operating at 50% of capacity.
d. The company pays its accounts payable in 50 days, up from 45 days.
Q2. Use the "percent of sales method" of preparing pro forma financial statements to determine the projection for next year's accounts receivable. Make the following assumptions: current year's sales are $45,450,000; current year's cost of goods sold is $26,950,000; sales are expected to rise by 20%. The firm's investment in accounts receivable in the current year is $8,600,000. The firm's marginal tax rate is 35%. What is the projection for next year's accounts receivable?
a. $11,345,000
b. $10,320,000
c. $9,575,000
d. $8,772,000
Q3. Issuing new short-term bonds to finance an expansion is an example of spontaneous financing.
a. True
b. False
Q4. 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.
Q5. The CFO of Twine Enterprises expects sales to increase from $8,000,000 in 2010 to $12,000,000 in 2011. Current assets in 2010 are equal to $5,000,000. Using the percent of sales method, projected current assets for 2011 are equal to
a. $5,500,000.
b. $7,083,333.
c. $9,000,000.
d. $7,500,000.
Q6. 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.
Q7. 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.
Q8. A corporation that increases it net profit margin will need less discretionary financing, other things being equal.
a. True
b. False
Q9. The cash budget can be used to provide an estimate of the firm's future financing needs.
a. True
b. False
Q10. A firm's cash position would most likely be hurt by
a. decreasing excess inventory.
b. establishing stricter (shorter) credit terms.
c. retiring outstanding debt.
d. increasing the net profit margin.
Q11. Accounts payable and accrued expenses are known as discretionary sources of financing.
a. True
b. False
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?
a. $90,000
b. $79,500
c. $55,000
d. $22,500
Q13. Which of the following statements concerning liquidity and debt is true?
a. The greater the use of short-term debt, the lower the risk of illiquidity.
b. Long-term debt is generally less costly than short-term debt.
c. A firm can reduce its risk for illiquidity by shifting from short-term debt to long-term debt.
d. The risk of illiquidity does not depend on the mix of short-term versus long-term debt.
Q14. Total assets must always equal the sum of temporary, permanent, and spontaneous sources of financing.
a. True
b. False
Q15. Hyper Retail Outlets sell goods on terms of net 40. The store's average monthly sales (all on credit) are $70,000. Hyper pledges all of its receivables to the bank, which advances 80% of the face value of the receivables at a rate of 2.5% above prime. The bank also charges a 1% processing fee on all receivables pledged. Hyper borrows the full amount possible, and the current prime rate is 5%. What is the annual percentage rate (APR) of using this source of financing for one full year?
a. 23.5%
b. 22.5%
c. 21.8%
d. 19.1%
Q16. The cash conversion cycle is a measure of a firm's effectiveness in managing its working capital.
a. True
b. False
Q17. 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
Q18. 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
Q19. The primary sources of collateral for secured loans are accounts receivable and inventory.
a. True
b. False
Q20. 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.
a. 7.2%
b. 8.0%
c. 8.2%
d. 10.5%
Q21. Brown Inc. needs to borrow $250,000 for the next 6 months. The company has a line of credit with a bank that allows the company to borrow funds with an 8% interest rate subject to a 20% of loan compensating balance. Currently, Brown Inc. has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs. How much will Brown Inc. need to borrow?
a. $270,000
b. $300,000
c. $312,500
d. $347,222
Q22. The risk-return trade-off in managing a firm's working capital involves which of the following?
a. a trade-off between liquidity and activity
b. a trade-off between debt and equity
c. a trade-off between the firm's liquidity and its profitability
d. none of the above
Q23. Brown Inc. needs to borrow $250,000 for the next 6 months. The company has a line of credit with a bank that allows the company to borrow funds with an 8% interest rate subject to a 20% of loan compensating balance. Currently, Brown Inc. has no funds on deposit with the bank and will need the loan to cover the compensating balance as well as their other financing needs. What will be the annual percentage rate, or APR, for this financing?
a. 10.00%
b. 12.12%
c. 10.67%
d. 13.33%
Q24. 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
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?
a. 9.0%
b. 6.0%
c. 10.6%
d. 12.4%
Q26. 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?
a. 1.825%
b. 1.118%
c. 1.074%
d. 0.735%
Q27. 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.
Q28. Which of the following is generally under the control of the financial manager?
a. the percentage of credit sales to total sales
b. the actual level of sales
c. the credit policies
d. A and B
Q29. Flashbinder Guitars, Inc. is considering a lockbox system that will increase its check processing cost by $.20 per check. The company estimates an average check size of $900 and expects any funds freed up by the new lockbox system can be invested in an account that earns 4% per year before taxes. What reduction in collection time is necessary for the lockbox to be beneficial to Flashbinder Guitars Inc.?
a. 1.96 days
b. 2.03 days
c. 1.73 days
d. 2.15 days
Q30. 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.
Q31. Money market funds
a. are tax exempt.
b. typically invest in a diversified portfolio of short-term, high-grade debt instruments.
c. are generally very profitable but fail to provide liquidity to the small investor.
d. typically sell shares to the public in $25,000 denominations.
Q32. Determine the effective annualized cost of forgoing the trade discount on terms 2/15 net 65.
a. 11.30%
b. 14.69%
c. 32.6%
d. 48.98%
Q33. 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.
Q34. 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.
Q35. 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 make and receive an order. What is the EOQ?
a. 2,750
b. 2,500
c. 2,000
d. 1,850
Q36. A company is technically insolvent when
a. cash outflows in a given period are greater than cash inflows.
b. earnings before interest payments are less than the interest payments.
c. it lacks the necessary liquidity to promptly pay its current debt obligations.
d. current ratio is less than 1.0.
Q37. The speed of the collections process is determined by three types of float: mail float, processing float, and transit float.
a. True
b. False
Q38. Which of the following is a reason for international investment?
a. to reduce portfolio risk
b. to increase P/E ratio
c. to gain an advantage in a foreign country
d. to gain access to foreign currency
Q39. Foreign currency forward rates aid traders by reducing uncertainty regarding future market fluctuations.
a. True
b. False
Q40. 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.
Q41. Exchange rate risk is highest for companies with
a. international trade contracts denominated in the foreign currency.
b. investment portfolios that contain foreign securities.
c. direct foreign investments in foreign subsidiaries.
d. international trade contracts denominated in the domestic currency.
Q42. Argentina experienced a period of extremely high inflation relative to its trading partners and Argentina's currency decreased in value. This is an example of purchasing power parity theory.
a. True
b. False
Q43. International expansion often occurs because it is generally easier for firms to expand the market for their products rather than to develop new products.
a. True
b. False
Q44. Exchange rate changes tend to reflect international differences in inflation rates. What is the name of this theory?
a. the purchasing power parity theory
b. the IMF effect
c. interest rate parity theory
d. the law of one price
Q45. 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?
a. 201,000
b. 84,965
c. 71,642
d. 119,998
Q46. The forward-spot differential is the difference between the forward rate and the expected future spot rate.
a. True
b. False
Q47. 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
Q48. Why do currency exchange rates throughout the world trade within a very narrow range on any given day?
a. because of purchasing power parity
b. because of the international translation effect
c. because of arbitrage
d. because of the law of one price
Q49. Buying and selling in more than one market to make a riskless profit is called
a. profit-maximization.
b. arbitrage.
c. international trading.
d. cannot be determined from the above information
Q50. IMXP Corp. enters into a 30-day forward exchange contract to buy 113,540,000 yen for $100,000. Which of the following statements is true concerning this transaction?
a. IMXP will pay $100,000 and receive 113,540,000 yen 30 days from now.
b. IMXP will pay $100,000 today and receive 113,540,000 yen 30 days from now.
c. The spot exchange rate in 30 days will be 113.54 yen per dollar.
d. IMXP will receive 113,540,000 yen today and pay $100,000 30 days from now.
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