Financial Exam Review
Calculate the present value of the following cash flow: $75,000 to be received in 10 years at a discount rate of 7%.
$38,122.50
Calculate the future value (annuity) of the following cash flow. $2500 deposited in a bank account every year, starting now, for 20 years at an interest rate of 5%.
$82,665.00
Rose Beach Line Farms wants to buy Ridgeline Landscaping for $1M. It takes a careful look at Ridgeline's projections of $785,000 (cash flow) for the next 10 years. What is the NPV?
($215,000)
A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, with the payer named on the document. Examples of negotiable instruments include:
-Promissory notes, -Bills of exchange, -Banknotes, -Demand draft -Checks
The major elements of of current liabilities include:
1.Accounts Payable 2.Bank Overdrafts 3.Revolving Lines of Credit
The major elements of of current assets include:
1.Inventory 2.Accounts Receivable 3.Cash
It has been argued that businesses have a pecking order when increasing long-term financing. This is...
1.Retained earnings will be used to finance the business if possible. 2.Where retained earnings are insufficient, or unavailable, debt will be used. 3.Where debt is insufficient, or unavailable, shares will be used.
Ridgeline Landscaping plans a massive project with an investment of $2M and a total profit of $1,350,000 over 5 years. What is the ARR?
13.5%
A typically lease needs ______ essential elements to be considered valid.
4
Rose Beach Line farms is planning to undertake a project requiring initial investment of $105 million. The project is expected to generate $25 million per year for 7 years. Calculate the payback period of the project.
4.2
Under what circumstance might a Ridgeline Landscaping find it useful to delay paying creditors?
A business in financial difficulty may need funds to meet operating costs so paying a creditor may be a burden.
Which of the following is an advantage of the ABC system of inventory control?
ABC inventory analysis places tighter and more frequent controls on high-priority inventory
One of the criteria in the 5 C's of Credit is 'Capacity'. How is this explained?
Addresses the past financial performance of the enterprise, a prime indicator of its future viability and the likelihood of loans being repaid in an orderly manner.
One of the criteria in the 5 C's of Credit is 'Character'. How is this explained?
Assesses the experience and capacities of the business' management personnel. Includes planning skills and experience, financial skills, credit history and integrity.
One of the criteria in the 5 C's of Credit is 'Conditions'. How is this explained?
Assesses the future viability of the enterprise and determines risk. We evaluate external conditions related to the business, like legislation that could affect the industry, market conditions, current and potential economic impact, and potential environmental impacts.
Share options are used by shareholders to reward senior managers because managers will..?
Become shareholders and their interests will become more closely aligned with the shareholders who hired them
Diversification of investments refer to..
Buying several investements
Most farmers find that a combination of both ownership and leasing is desirable, especially when ________ is limited.
Capital
The two basic types of non real estate leases are?
Capital and Operating
_____ Is used to describe the ways in which companies are directed and controlled
Corporate Governance
Under a _________ lease, a tenant pays the landowner a certain percentage of harvested crops.
Crop Share
____ is the term used to describe a situation where the interests of the shareholders conflict with the senior managers who have been hired to run the company
Disclosure
Accumulated _______ in land provides an excellent source of collateral for borrowing money.
Equity
When finance department staff provide information to ensure that business plans are achieving expected profit levels and cash flow, they are performing the function of
Financial Control
The most important advantage to a business in hiring outside directors is that
In not being full-time employees, they are more independent than executive directors
Land provides a hedge against _________ over the long run.
Inflation
Which of the following combination of factors may affect a firm's investment in working capital?
Interest rates, market demand, the seasons, and the state of the economy.
Which of the following typically applies to Just-in-Time (J-I-T) systems?
Inventory holding costs are carried by the supplier instead of the manufacturer.
One of the criteria in the 5 C's of Credit is 'Collateral'. How is this explained?
Is the secondary source of repayment. To ensure adequate coverage for the loan.
What is the risk in using a bank overdraft as a source of financing?
It may have to be paid in full with little prior notice.
An inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs.
JIT
Owning land eliminates the uncertainty of losing a _________ and the impact that would have on the overall operation.
Lease
What has been the most popular way of obtaining new financing by Canadian businesses in recent years?
Leases
A lease is a ________________ allowing the owner of real property, equipment, and/or livestock to convey the right to use that property to a person in exchange for rent.
Legally enforceable contract
When choosing an appropriate source of funding, some of the following issues should be considered.
Matching Flexibility Renewal Risk Interest Rates
Of the five C's of credit, what is considered when attempting to determine a business's capacity to borrow?
Measures a borrower's ability to repay a loan by comparing income against recurring debts
Which of the following is an internal source of financing?
Retained Earnings
What does the materials requirement planning (MRP) system start with to determine inventory requirements?
Sales forecasts.
When managing inventory, forcasting future demand is imperative. Two approaches which are recommended include:
Subjective and Objective
Erie Glass & Window Ltd. operates in a highly competitive environment where products are custom-designed for large, well-established, construction companies who use standard contractual terms to compare bids. Which is the best of the following methods for Erie to use to minimize risk of non-payment?
Take out insurance against the risk of non-payment.
The system that weighs five characteristics of the borrower, attempting to gauge the chance of default is known as:
The 5 C's of Credit
Today, financial management can be appropriately described as?
The economics of time and risk
Which of the following is a cost of holding too low a level of inventory?
The loss of satisfaction from customers for company being unable to satisfy demand
One of the criteria in the 5 C's of Credit is 'Commitment'. How is this explained?
The owners commitment to the enterprise is crucial to its success. We consider both financial and non-financial commitment to the business.
In addition to retained earnings, other types of equity financing may include
Tighter credit control Reduced inventory levels Delayed payments to creditors
What is the most common purpose for sale and lease-back arrangements?
To finance a business by selling assets to a financial institution and leasing them back.
A contract is a legally binding agreement between two or more parties.
True
Personal property transactions are governed by the Uniform Commercial Code.
True
Promissory notes lie somewhere between the informality of an IOU and the rigidity of a loan contract in terms of their legal enforceability.
True
Real property consists of real estate (land), buildings, houses, and various types of improvements to real estate.
True
Tangible property in law is, literally, anything which can be touched.
True
The two most important documents of title for goods in storage or transit are:
bills of lading warehouse receipts
A key activity in capital market operations involves..
determining market reaction to proposed investment plans
the four main tasks of the financial function are to manage and plan..?
finances, capital market operations, financial control, and investment appraisal
Satisfying the needs of shareholders, instead of other stakeholders, must be paramount to a business because
if the management team does not pursue this goal, they will replaced
Ridgetown Financial Corporation provides farm equipment dealerships in its region with a direct loan program to be made available to the purchasers of farm equipment. In addition to normal consumer loan obligations, each loan also has a lien against the purchased equipment which serves as collateral for the loan. The loans which Ridgetown provides are then packaged together and are sold to investors. What is the name for the sale of this type of investment package?
securitization
Among the potential advantages of capital leasing are:
the conservation of working capital, nearly 100% financing, the use of modern equipment and facilities, and possible tax benefits.
The types of deeds to real property included the general warranty deed, the quitclaim deed, and special purpose deeds.
true