FIN302 Final Exam

127 A furniture company maintains a large inventory during the summer sales season. One of the PRIMARY benefits of this approach is that the company avoids which of the following costs? (A) Holding (B) Opportunity (C) Order (D) Stock-out

-D

3 Which of the following BEST describes an advantage of a company going public? (A) Increased management control (B) Increased public disclosure (C) Increased managerial flexibility (D) Increased liquidity

-D

8 Which of the following can be considered key responsibilities of daily cash management? I. Overseeing compensation for bank services II. Management of short-term borrowing and investing III. Projecting future cash shortages and surpluses (A) I only (B) I and II only (C) II and III only (D) I, II, and III

-D

99 In a typical swap transaction, two parties agree to exchange: (A) notional principal amounts. (B) amortization schedules. (C) maturity dates of obligations (D) cash flows at future points in time.

-D

94 Company A has $1,375,000.00 that it plans to invest for three years at an interest rate of 4%, with all interest paid at maturity. How much interest will the company receive at the end of the third year? (A) $16,566.09 (C) $55,000 (B) $165,000 (D) $171,688

-D 1375000 x 1.04 x 1.04 x 1.04 = 1546688 = 1546688 - 1375000 = 171688

93 Which of the following trade payment methods virtually eliminates the seller's credit risk? (A) Bankers' acceptance (B) Cash before delivery (C) Countertrade (D) Consignment

-B

101 Which two of the following are optimal uses for short-term excess cash? I. Pay down credit lines. II. Make overnight investments. III. Repurchase stock. IV. Make capital expenditures. (A) I and II (B) I and III (C) II and III (D) II and IV

-A

139 Upon entering into an interest rate swap with a notional principal of $10,000,000, what is the initial amount of money the counterparties must exchange at the beginning of the swap? (A) $0 (B) $5,000,000 (C) The future value of $10,000,000 (D) $10,000,000 discounted

-A

53 Company X, a Singapore based multi-national, is exploring the option of locating a subsidiary in another country where there has been some historical risk of expropriation of local assets of foreign corporations. Therefore, as part of the risk assessment process the company must specifically quantify the: (A) political risk. (B) physical security risk. (C) financial institution risk. (D) property risk.

-A

74 Establishing the authority to open bank accounts is the responsibility of: (A) the board of directors. (B) the CFO. (C) the treasurer. (D) the board of governors.

-A

87 A company wants to gather daily balance reporting from its international subsidiaries' bank accounts. Which of the following systems would allow the company's bank to gather the balance positions from the local banks? (A) SWIFT (B) CHIPS (C) Giros (D) EDI

-A

The minimum level of ongoing inventory and receivables that is required by the firm's operations is referred to as ______________ current assets. A. permanent B. fixed C. transitory D. temporary

-A

What is the maximum maturity for commercial paper that is used for funding working capital? A. 270 days B. 45 days C. 30 days D. 365 days

-A

111 Company T pays $12.00 for a wire and $2.00 for an ACH transaction. They receive a wire one day sooner than they do an ACH and they earn 1.75% on the funds. What is the break-even amount for a wire instead of an ACH? (A) $246,114.29 (C) $2,085.71 (B) $208,571.43 (D) $20,857.14

-B

152 Capital budgeting is defined as the: (A) determination of the optimal level of debt versus equity. (B) process of evaluating alternative investment projects. (C) provision of sufficient borrowing facilities to meet transaction requirements. (D) addition of capital to the firm which results in a cash inflow.

-B

157 A company in the market to purchase a treasury management system (TMS) has issued a request for proposal to evaluate various vendors. One of the evaluation factors focuses on the long-term viability of the vendor. The company may have to choose between an untested new vendor with a superior product and an established vendor with an incomplete product suite. This dimension of the RFP is measuring what type of risk? (A) Reputational risk (B) Supplier risk (C) Technology risk (D) Financial risk

-B

42 Which of the following is a source of short-term financing? (A) Bond issuance (B) Factoring of accounts receivable (C) Issuance of common stock (D) Retaining profits

-B

46 A company is experiencing the following long-term trend on a month-over-month basis: *Sales are increasing by $100,000, a 15% increase. *Accounts receivable are increasing by $5,000, a 1% increase. *Accounts payable are increasing by $20,000, a 4% increase. *Labor expenses are increasing by $40,000, a 3% increase. With all other income, expenses, long-term assets and liabilities remaining stable, this trend would MOST LIKELY prompt what action by the company? (A) Financing working capital requirements (B) Repaying short-term debt (C) Reducing labor costs (D) Factoring accounts receivable

-B

91 In order to be defined as independent, a corporate director: (A) cannot have owned preferred stock shares in the company. (B) cannot have a material relationship with the company. (C) cannot meet regularly with executive management outside of board meetings. (D) cannot have been an employee with the company during the past three years.

-B

The purchasing power parity hypothesis suggests that exchange rates are influenced by: A. central bank intervention. B. inflation rates. C. nominal rates. D. interest rates.

-B

148 The accounting requirement that a product's selling costs be recorded in the same period as the product's revenue is recorded, regardless of when the cash is paid, is an example of the: (A) full disclosure principle. (B) historical cost principle. (C) matching principle. (D) revenue recognition principle.

-C

16 An airline wants to lock in the price of the jet fuel it needs to purchase to satisfy the peak in-season demand for travel. The airline wants to manage its exposure to fluctuations in fuel prices. What type of exposure is this? (A) Translation (B) Delivery (C) Commodity (D) Speculative

-C

26 Examples of traditional factors used in making a credit decision include which of the following? I. Capacity II. Capital III. Compliance IV. Character (A) IV only (B) I and III only (C) I, II, and IV only (D) I, II, III, and IV

-C

In a forward currency contract, which of the following items are subject to negotiation? A. the amount B. the currency C. the amount and the currency D. the maturity E. the amount, the currency, and the maturity

-E

18 The right of stockholders to purchase, on a pro-rata basis, any new shares issued by the company is referred to as: (A) preemptive right. (B) right of first refusal. (C) existing ownership right. (D) prevention of dilution right.

-A

59 Company Q has average daily credit sales of $15,875.00. The daily cash sales are $8,750.00. The AR ending balance for June 30 is $387,500.00. What is the average days' sales outstanding for Company Q? (A) 24.41 (B) 0.04 (C) 15.74 (D) .06

-A ...to see how well you are collecting on AR, you omit the cash sales from the calculation. 387500 / 15875 = 24.41

1 Company ABC has a concentrated investor base consisting primarily of large institutional shareholders. It would like to increase its number of smaller shareholders using the most cost effective method of raising capital available. What should Company ABC do to accomplish this goal? (A) Issue preferred stock. (B) Implement a dividend reinvestment plan. (C) Issue warrants. (D) Implement a stock repurchase plan.

-B

112 Company XYZ is a high technology company. It is planning on acquiring another company in the high technology sector. Company XYZ does not have enough cash to acquire the company and is planning on financing the acquisition through a bond offering. Which of the following measures is company XYZ MOST LIKELY to use in its analysis of operating profits considering it is a high debt transaction? (A) Long-term debt to capital (B) EBITDA margin (C) Net profit margin (D) Return on equity

-B

128 In order to increase liquidity, ABC Motor Company bundled its customers' installment payments and resold them to other investors. This is known as: (A) factoring. (B) securitization. (C) reclassification. (D) secondary distribution.

-B

136 All of the following are advantages of using traditional financial ratios for analysis EXCEPT: (A) they can easily be computed from the information found in publicly available financial reports. (B) they usually reflect accounting rather than economic values. (C) they can be used to view historical trends and availability over time. (D) they allow comparisons to be made between like companies.

-B

14 A company can pay their supplier by check or by electronic transfer. If the difference between the value date of the payment methods is 4 days from the company's perspective, what discount should the supplier offer them to get the company to pay on the same day as they did when they paid by check (rounded to the nearest 100th percent)? Assume no difference in the cost of the payment method, an opportunity cost of 8%, and float neutrality. (A) 2.00% (B) 0.09% (C) 0.87% (D) 0.02%

-C 0.08 / 365 = 2.19178 = 2.19178 X 4 ( days ) = 8.7671 ( Round ) = 9 %

67 A merchant presents 2 different batches of credit card transactions for processing, each batch has the same dollar value and number of transactions, but the fees are different. Which of the following explains why? (A) Use of a different terminal (B) Goods or services sold (C) Type of card accepted (D) Time of batch closure

-C ...That is because some companies (primarily American Express) charge merchants a higher fee than others (Visa).

Your firm is located in the U.S. and a major customer is located in Europe. Due to historical negotiations, your customers pay your firm in Euros. Your firm has just recorded a sale to the customer for €50,000,000. The customer has 30 days to pay the invoice. The current spot rate is 1€ = $1.38. The foreign exchange expert at your firm believes that the FX rate in 30 days will either be 1€ = $1.10 or 1€ = $1.50. Assuming that the US$ depreciates, what is the expected US$ value of this sale at the future exchange rate? A. $69,000,000 B. $55,000,000 C. $50,000,000 D. $75,000,000

-D Value at Spot = euro 50,000,000 * $1.50/C1 = $75,000,000

123 The MOST common way that companies structure their treasury operations is as a(n): (A) cost center. (B) profit center. (C) shared service center. (D) in-house bank.

-A

126 Which of the following is true when a company purchases goods using trade credit from suppliers? (A) The buyer incurs no added cost if it pays on time. (B) The supplier will charge interest to the buyer. (C) The buyer should record this as a long-term liability. (D) The supplier places a lien on the goods sold until payment.

-A

137 Which of the following are important uses of variance analysis in comparing actual cash flows with projected cash flows? I. Identifying unanticipated changes in inventory II. Enhancing short-term investment income III. Validating a capital budget IV. Identifying delays in accounts receivable collections (A) I and II only (C) II and IV only (B) I and IV only (D) I, II, III, and IV

-B

147 A treasury professional is deciding between two investment opportunities. The first is a taxable security in the amount of $2,000,000 with a yield of 3.6%. The second is a tax-exempt security for the same amount with a yield of 2.85%. Both securities have the same maturity and a similar risk profile. The marginal income tax rate is 35%. What is the taxable equivalent yield for the tax exempt security? (A) 5.54% (C) 1.15% (B) 4.38% (D) 4.15%

-B

100 Company R has an AR balance pattern of 8% in the current month, 47% in the first month, 30% in the second month, 10% in the third month, and 5% in the fourth month. If AR for July is $598,000, what amount of cash do they expect to collect in October? (A) $281,060 (B) $59,800 (C) $179,400 (D) $47,840

-B 0.10 X 598000 = 59800 (for the month of October)

70 Amalgamated Binding Consolidators takes 20 days to convert its raw materials to finished goods, 5 days to sell it, and 15 days to collect its credit sales. What is the company's days receivable period? (A) 5 days (B) 15 days (C) 20 days (D) 40 days

-B ...how long does it take to collect on a credit sale? And it tells you 15 days.

36 ABC Company offers a discount of 2/10, net 30 to its customers. ABC factored its accounts receivables with an outside vendor, under a "with recourse" arrangement. What impact might this have on the company? (A) Increase days sales outstanding. (B) Improve cash conversion cycle. (C) Reduce bad debt expense. (D) More customers may take the discount.

-B ...is the answer because factoring speeds up the cash cycle

39 The yield curve is inverted. A creditworthy firm considering alternative debt maturities would MOST LIKELY: (A) enter into a short-term floating rate agreement. (B) obtain long-term fixed interest rate debt. (C) roll-over short-term debt at each maturity. (D) obtain a long-term floating rate agreement.

-B ...use idle cash to pay down short term debt and save the interest cost.

103 Company ABC needs external capital to finance a new product line. Its operating leverage is high, and its revolving credit agreement contains a ratings trigger. What will Company ABC MOST LIKELY do to finance its new product line? (A) Issue convertible debentures. (B) Issue long-term notes. (C) Issue common stock. (D) Use retained earnings.

-C

124 Why would a company establish a short-term credit facility? (A) Short-term interest rates are expected to rise. (B) The company would like to improve bank relationships. (C) Cash shortages are being forecasted due to seasonality. (D) There is an anticipated failure of the company's main depository bank.

-C

79 Securities sold by companies in an initial public offering (IPO) are: (A) a specific type of security sold by a public company for the first time. (B) debt securities sold on the open market. (C) public securities sold by a private company for the first time. (D) securities sold by a private company to a limited number of investors.

-C

84 The rate of interest commercial banks charge their best credit rated customers is called the: (A) discount rate. (B) call rate. (C) prime rate. (D) real interest rate.

-C

89 The company currently calculates its Days' Receivables at 42 days, its Days' Payables at 31 days, and its Days Inventory at 58 days. What is the cash conversion cycle for the company? (A) 131 days (B) 15 days (C) 69 days (D) 47 days

-C

A foreign exchange rate may be defined as: A. the number of units of gold that can be bought in a foreign country for one unit of that country's currency. B. the interest rate of the overnight funds in the foreign country's money market. C. the amount of a second currency that can be purchased a unit of another currency. D. the price of a futures contracts in the financial futures market.

-C

Which of the following refers to the risk that a firm using an aggressive financing strategy will not be able to raise funds precisely when the funds are needed? A. Aggressiveness risk B. Default risk C. Refinancing risk D. Interest rate risk

-C

37 The treasury manager of a chain of clothing stores wants to develop a medium-term forecast. Management plans to open two new stores, and anticipates same-store sales to increase by 15%. Which of the following items can be predicted with the highest degree of certainty? (A) Taxes on stock options (B) New product sales (C) Fixed bond interest payment (D) Refranchising proceeds

-C ...bond interest payments are 100% predicable.

56 Loss exposures related to treasury management may include which of the following? (A) Excessive product recalls (B) PBGC violations (C) Deterioration of investment principal (D) Bank consolidations

-C ...happens, this does fall under the responsibility of the treasury manager to address and fix.

129 A $100,000 T-bill currently sells for $98,600 and matures in 90 days. What is the discount rate for this investment? (A) 5.51% (B) 5.57% (C) 5.60% (D) 5.68%

-B

135 A treasurer has been advised that his privately held company has just lost its largest customer, which will have a significant impact on earnings. The treasurer applies an aggressive working capital strategy. Presently, the yield curve is upward sloping. Given this information, the treasurer should ensure that the company has: (A) short-term non-committed lines. (B) short-term committed lines. (C) long-term non-committed lines. (D) long-term committed lines.

-B

133 Two months after a government overthrow, the new Minister of Industry and Culture took over the country's largest steel company and compensated the owners at 50% of book value. What is the government's action called? (A) Consolidation (B) Deregulation (C) Expropriation (D) Nationalization

-C

A treasury manager is examining the potential to issue commercial paper based on the following assumptions: Face Value = $25,000,000 Discount Rate = 0.75% Dealer Fee = 0.25% Commitment Fee = 0.15% Days to Maturity = 30 Based on these assumptions, what is the effective cost of the commercial paper? A. 1.58% B. 0.75% C. 1.17% D. 0.76%

-C

The assets of a foreign subsidiary of a U.S. multinational corporation will experience a _____________________ if the foreign currency depreciates relative to the U.S. dollar, assuming that the dollar is the currency in which the parent company's assets are denominated. A. transaction gain B. translation gain C. transaction loss D. translation loss

-C

Which of the following is not true? A. Short-term debt through credit lines must be deliberately acquired by the company. B. Short-term debt through credit lines is a direct way of getting funds. C. Short-term debt through credit lines is an indirect way of getting funds. D. Short-term debt through credit lines has an explicit cost.

-C