FNCE 3P93 Lecture Notes - Contingency Plan, Corporate Finance, Effective Interest Rate
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Questions and Practice Problems
Multiple Choice Questions
Which of the following is not near-cash?
Which of the following descriptions about near-cash is false?
Minimal additional risk
Which of the following statements about float time is false?
Historically, mailing time is the shortest.
An efficient credit policy speeds up inflows.
Cheque-processing time is one source of float.
Using preauthorized payment is one way to shorten float time.
A firm is offered by its supplier the following credit terms: 2/30 net 45. The sales
price of the products is $1,000. What is the effective annual cost of forgoing the
Which of the following statements about bank loans is false?
The rate is normally variable.
Lines of credit usually link to the firm's chequing account.
Operating loans are usually secured by accounts receivable and inventory.
The cost of operating loans is quite high.
Suppose a firm is offered a two-year variable rate monthly pay loan at prime plus 1
percent, with a prime rate of 5 percent. What is the effective annual cost of the loan
regardless of other fees?
Which of the statements about money market instruments is false?
They provide large amounts of short-term financing for firms with good credit
Two main types available are: commercial paper and bankers' acceptances.
They are similar to bonds.
CP can be issued by any firm that needs large amounts of short-term financing.
Which of the following statements about factor arrangements is false?
A factor is an independent company.
A factor often checks the credit of new customers.
Factor arrangements can be costly.
A factor does not purchase accounts receivable from its clients.
Which of the following is a weakness of the inventory turnover ratio?
It does not measure costs incurred due to a shortage of inventory.
It does not explicitly measure financing costs.
It cannot be used to compare companies that use different methods to account for
All of the above.
Explain how commercial paper differs from bankers' acceptances.
What are three major sources of float? What are some common methods that address
Explain the function of a factor in working capital management.
What is the purpose of credit analysis and how is it accomplished?
When deciding whether or not to extend credit to an applicant, what two things need
to be established about the applicant?
What are captive finance companies?