ADMS 3541 Study Guide - Quiz Guide: Life Insurance, Down Payment, Direct Market

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sapphiremuskrat144

5 Feb 2015

School

York University

Department

Administrative Studies

Course

ADMS 3541

Professor

Kwok Ho

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Document Summary

Due in the beginning of class on wednesday, nov. 26, 2014 (section a) and. Novelty company inc. offers payday loans for a flat fee of 20% of the principal, for up to 21 days. Moffat inc. offers payday loans for a fee of . 00 per loan + 9% of the principal + 59% effective annual rate of interest. Novelty co. inc. (10 marks) (a) (a) cost=()(. 20)= (b) ear = [(1. 20)(365/7) - 1]= 1,344,944% (b) (a) (b) Ear =11,498% (c) (a) (b) 11,498% (d) (a) (b) 6,302% Moffat company (10 marks) (a) (a) cost = +(9% )+ [(1. 59)(7/365) - 1]= . 89 (b) ear =[1+(. 89/)] 1=828,398% (b) (a) +(9% )+ [(1. 59)(14/365) -1]= . 79 (c) You earn a gross annual salary of ,000. You have ,000 in savings which you plan to invest in a three-year gic that pays 3 percent compounded monthly.

Related Questions

Use two decimal places in your answers ( please show work )

1. A firm plans to issue $5,000,000 of commercial paper for 30 days. A dealer will issue the paper at $4,985,000 at a fee of $2,000 in advance. What is the effective annual rate?

2. A firm has agreed to borrow $750,000 at a simple interest rate of 6% for 30 days to meet its short-term funding needs. The bank charges a loan processing fee of $1,000. What is the effective annual rate on this loan?

3. Assume a trade creditor offers you terms of 2/10 net 40. a. What is the effective annual cost of forgoing the discount? b. If the firm=s bank charges 14% on loans, would you take the trade credit discount?

4. A firm has established a revolving line of credit for $900,000 with a bank at a rate of prime plus 2%. There is an annual fee of 1/2% on any unused funds. Interest is discounted on loans. Prime was 5% when the agreement was made. Assume the firm decides to take down the line for $500,000 for 60 days when the prime is at 6%. What is the effective annual rate?

5. A firm has $500,000 in accounts receivable. A commercial bank will accept these accounts receivable as collateral and will advance the firm 75% of the accounts receivable amount on loan at 6%. The bank charges a $5,000 credit checking fee. The firm will use the agreement for 90 days. What is the effective annual rate?

6. A firm needs full use of $2,000,000 to purchase a new machine. A bank has agreed to loan at 9% discounted interest for 180 days. The bank requires a .25% compensating balance. The bank charges fees in advance of $300. a. How much will the firm need to borrow? b. What will be the effective annual rate on the loan?

7. A firm has $900,000 in inventory qualifying for a short-term loan with a warehouse receipt. A commercial bank will accept this warehousing agreement and inventory as collateral and will advance 80% of the value of the inventory on loan at 6%. The bank charges $5,000 upfront for the agreement. The firm will use the borrowing for 60 days. What is the effective annual rate on the borrowing?

QUESTION 1

Flexibility of the source of financing. ____ tends to require fewer specific asset restrictions, while _____ tends to require fewer enterprise restrictions.

	a.	Leases; loans
	b.	Leases, leases
	c.	Loans; loans
	d.	Loans, leases

QUESTION 2

_____ is not really buying on credit, whereas _____ is generally free financing for a specified period of time.

	a.	Cash on delivery, cash in advance.
	b.	Cash in advance; net 30
	c.	Net 30, cash in advance
	d.	Net 30; 1/15 net 40

QUESTION 3

_____ is often used by manufacturers to significantly lower their production cost. It gives them the ability to produce in a level production mode year round, rather than running two or three shifts at the peak of their demand cycle.

	a.	Consignment
	b.	Net cash, bill to bill
	c.	Seasonal dating
	d.	Cash in advance

QUESTION 4

A firm is offered credit terms of 1.5/10, net 40. What would be the cost to this firm of using its vendor as its banker?

	a.	18.53%
	b.	18.25%
	c.	13.90%
	d.	17.63%

QUESTION 5

A company estimates its cost of vendor financing (using its vendor as its banker) is 12.2%. It also estimates its effective cost of bank financing to be 9.1%. Which statement best describes this situation?

	a.	Can't say for sure what the better funding source would be.
	b.	The vendor offers less expensive financing and should be used instead of the bank for that reason.
	c.	The company should use its vendor as its financing source, not its bank.
	d.	The company should borrow from its bank and take advantage of the trade discount being offered.

QUESTION 6

A company is offered purchase terms of 2/10, net 40. If it can borrow from its bank for 8%, how long would it need to wait to pay its supplier to bring the cost of vendor financing down to 8%, making it a matter of indifference which financing source was used. I.e., instead of paying in 40 days, when would it pay to reduce the cost of vendor financing to 8%, assuming the vendor would permit it?

	a.	83 days
	b.	93 days
	c.	103 days
	d.	113 days

QUESTION 7

What is the effective cost of bank financing if the loan amount is $100,000, interest is discounted (advance), a 1% commitment fee is paid up front, and a 9% compensating balance is required? The stated interest rate is 8%.

	a.	8.00%
	b.	8.98%
	c.	10.98%
	d.	9.98%

QUESTION 8

Floor planning is best described as:

	a.	Consignment with interest
	b.	Seasonal dating
	c.	Consignment
	d.	Receivables financing

QUESTION 9

Coverage ratios as covenants are calculated using values from the _________. Current ratios as covenants are calculated using values from the ______.

	a.	Income statement and balance sheet; balance sheet
	b.	Income statement; balance sheet
	c.	Balance sheet; balance sheet
	d.	Income statement; income statement and balance sheet

QUESTION 10

_____________ as a source of short-term financing, is described as spontaneous financing.

	a.	Long-term debt
	b.	Commercial paper
	c.	Bank loans
	d.	Trade credit

1. The 2013 balance sheet of Bear Inc., showed long-term debt of $1.45 million, and the 2014 balance sheet showed long-term debt of $1.52 million. The 2014 income statement showed an interest expense of $127,000. What was the firmâs cash flow to creditors during 2014?
2. The 2013 balance sheet of Bear Inc., showed $490,000 in the common stock account and $3.4 million in the capital surplus account. The 2014 balance sheet showed $525,000 and $3.7 million in the same two accounts, respectively. If the company paid out $275,000 in the cash dividends during 2014, what was the cash flow to stockholders for the year?
3. Given the information for Bear Inc. in the previous two questions, suppose you also know that the firmâs net capital spending for 2014 was $945,000 and that the firm reduced its net working capital by $87,000. What was the firmâs 2014 operating cash flow?
4. Brooks Corp. shows the following information on its 2014 income statement: sales=$185,000; costs=$98,000; other expense=$6,700; depreciation=$16,500; interest expense=$9,000; taxes=$19,180; dividends=$9,500. In addition, you are told that the firm issued $7,550 in new equity during 2014 and redeemed $7,100 in outstanding long-term debt. 1) What is the average tax rate? (Hint: Following the income statement in the notes to find the pretax income in order to calculate tax rate) 2) What is the 2014 operating cash flow? 3) What is the 2014 cash flow to creditors?
4) What is the 2014 cash flow to stockholders? 5) If net fixed assets increased by $26,100 during the year, what was the change to net working capital?
5. An investment offers $4,900 per year for 15 years, with the first payment occurring one year from now. If the required return is 8%, what is the present value of the investment? What would be the value if the payments occurred for 40 years? Forever?
6. Find the EAR in each of the following cases:
APR Compounding period EAR 7% Quarterly 16% Monthly 11% Daily (365 days in a year)
7. Joey Has just arranged to purchase a $550,000 home with a 20% down payment. The mortgage has a 6.1% stated annual interest rate, compounded monthly, and calls for equal monthly payments over the next 30 years. After the down payment, his first monthly payment will be due one month from now. However, the mortgage has an eight-year balloon payment, meaning that the balance of the loan must be paid off at the end of year 8. How much is the balloon payment in 8 years?
8. Given an interest rate of 6.1% per year, what is the value at Date t=7 of a perpetual stream of $2,500 annual payments that begins at Date t=15?
9. You want to buy a new car for $73,000. The contract is in the form of a 60month annuity due at a 6.45% APR. What is your monthly payment?

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ADMS 3541 Study Guide - Quiz Guide: Life Insurance, Down Payment, Direct Market

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