Omega Exam

What is the total amount of Dr. Chan's annualized debt pavments assuming that the full balance of the credit card, not just the annualized payment, will be paid off in the next 12 months?

$106,480

What is the total amount of Dr. Chan's annualized debt payments, assuming that the full balance of the credit card, not just the annualized payment, will be paid off in the next 12 months?

$106,480

Hod Ramsay has offered her personal guarantee to support a loan to her business. Her personal financial statement shows only three liabilities: a home mortgage with a remaining balance of $180,000 and monthly payments of $1,000; a personal loan with a balance of $10 000 and monthly payments of $400, and tuition due this year or S5.600. What is the total of Hod Ramsav's current liabilities (liabilities due within one vear)?

$22,400

Santosh McGraw has offered his personal guarantee to support a loan to his business. His personal financial statement shows only three liabilities: a home mortgage with a remaining balance of $350,000 and monthly payments of $1,200; a home equity loan of $100,000 with monthly payments of $200, and a spousal support obligation of $12,000 per year. What is the total of his current liabilities (liabilities due within one year)?

$28,800

What was Frazier & Sons' earnings before interest taxes, depreciation and amortization (EBITDA) for the year 20Y2?

$52,800

Company C's annual sales were $102.598 last year, and accounts receivable days on hand was 30 days. his year, the company expects sales to remain the same level as last ear, but expects accounts receivable das on hand to decrease to 27 days. What impact will the change in receivables have on cash flow for this year?

$843 source of cash

In 20Y2, what is the amount of cash paid for plant and investments (line 32 of the Cash Flow Summary)? Note that the 20Y3 figures are provided; you will need to calculate the amounts for 20Y2 for lines 29 through 32 to answer this question.

($22,000)

The appraised value for his real estate is 80% of the value shown on his finanical statement. What is Charles Andres's ratio of total liabilities to adjust net worth?

.9

When pricing a new variable-rate loan, which of the following should be considered in determining the SPREAD above a specific base rate? The estimate of interest rate volatility The estimate of time and expense required to monitor the loan The loan's risk rating analysis The overnight funds rate on the dav the loan is booked

2&3

In which of the following business types is the owner, shareholder, or general partner personally liable for the debts or the business? 1. S corporaton 2. Limited partnership 3. General partnership 4. Sole proprietorship 5. C corporation

2,3 & 4

When pricing a new variable-rate loan, which of the following should be considered in determining the SPREAD above a specific base rate? 1. The estimate of interest rate volatility 2. The estimate of time and expense required to monitor the loan 3. The loan's risk rating analysis 4. The overnight funds rate on the day the loan is booked

2. The estimate of time and expense required to monitor the loan 3. The loan's risk rating analysis

Which of the following should be considered in determining the SPREAD above prime or other base rate for a new variable-rate loan when the loan is made: 1. The overnight federal runs rale 2. The estimate of interest-rate volatility 3. The loan's risk rating 4. The estimate of time and expense required to monitor the loan

3 & 4

What was the revolutionary designers' return on assets for the year ended Dec 31, 20Y3 (case link)

6%

Which of the following is an example of a personal contingent liability for a business owner?

A guarantee given for a loan to an unrelated business

Which of the following personal assets would be the LEAST acceptable as a potential source of repayment for a business loan?

A loan receivable from the owner's business

Which of the following would be considered a personal contingent liability for a guarantor of a business loan?

A loan receivable from the owner's business

A business owner and guarantor includes rental real estate among his personal assets. What would be the best way to verify his ownership and determine what may be on the property?

A property search

Which of the following could point to a problem with a business's operational management?

A slowdown in production

Hearth and Home has requested a line of credit to fund the increases in assets during the highest points of its annual sales cycle. What collateral would be appropriate to support this line of credit?

Accounts receivable and Inventory

Brook Plumbing has requested a line of credit to fund the increases in assets during the highest point or its annual sales cycle. What collateral would be appropriate to support this line of credit?

Accounts receivable and inventory

Which of the following could point to a problem with a company's operational management?

An environmental injunction against the company

What is the immediate cash flow impact of buying a new computer with cash?

An increase in an asset and a use of cash

Which of the following is an example of an affirmative covenant?

Borrower must maintain casualty insurance on the bank's collateral at all times

Which of the following is an example of a negative covenant?

Borrower must not pay dividends to owners in excess of 40% of net income after tax

A business has requested a loan to finance part of the down payment on the purchase of a new warehouse. The company needs the funds for only one month, when the sale of its existing warehouse will be completed. Which credit facility would you recommend to meet this need?

Bridge loan

Which of the following businesses has the highest risk in terms of asset quality?

Business A has the majority of its assets centered in fresh fish, which is sold to restaurants and supermarkets

Which of the following statements about business tax returns is true?

Business tax returns include notes to the statements similar to those found in a set of GAAP Financial statement

Sideways has been a borrower at your bank for several years. The owner, Mike Frontline, dropped by your office to deliver his year-end financial statements. Glancing through them, you noted that both sales and inventory had decreased by substantial amounts. You asked him if his gross profit margin had changed and what had caused the decrease in inventory. He replied that his margins were virtually unchanged and that inventory shrank because his volume had gone down. Your analysis confirms that gross profit margin is unchanged. Which of the following should you do to verify his statement about inventory?

Calculate the impact of the decrease in cash COGS on inventory to determine whether the entire change in inventory resulted from the change in sales

What is the best type of cash flow to support the repayment of loans for the purchase of long-term assets?

Cash flow from profits

Which of the following personal assets is likely to have the LEAST reliable valuation?

Cash value of life insurance

What personal assets should be included in calculating the amount of the Dwers' liquid assets?

Checking, money market and listed securities

Which of the following personal assets is likelv to have the shortest period of time for conversion to cash?

Closed-end mutual fund

Direct Transport is a private corporation that hauls freight throughout the western half of the country. You have been trying for several months to land the Direct account, and finally were given a chance to offer a $2,000,000 operating line to finance all the company's trading assets, mainly accounts receivable. While the company has been consistently profitable, you still believe that your facility should have some support. You want to protect your institution, but you don't want to appear to be overreaching. Which of the following is the most important item you would require?

Collateral - a blanket first lien on all of Direct's accounts receivable

From a lender's perspective, which of the following manufacturer's income statements should have the most reliable reported net income?

Company D recognizes revenue and related expenses as each shipment is made and accepted

Which of the following would be the most practical method of verifying the approximate amount and terms of any personal lines of credit and personal loans listed on a business owner's personal financial statement?

Compare the liabilities on the financial statement to those shown on a current credit report

Which of the following industries is likely to have the greatest degree of risk from cyclicality? Construction, manufacturers, tire and auto repair shop, or grocery store?

Construction

To which of the following categories do pending lawsuits, outstanding warranties and guarantees of debt belong?

Contingent liabilities

In which of the following forms of business is the owner, shareholder, or GENERAL partner NOT liable for the debts of the business?

Corporation

Which of the following statements best describes the trend in Hearth and Home's leverage and capital structure for the 3 years provided in the financial statements?

Debt to equity has improved each year as a result of retained earnings and reduction in long-term debt

Which of the following statements best describes the change in Frazier & Sons' debt to tangible net worth ratio? (case link)

Debt to tangible net worth increase, indicating higher leverage

In which business growth stage would sales volume fall, ultimately impairing profit and causing less cash to be generated?

Declining

A business owner contributes capital to her business in the form of a long-term subordinated loan. Which of the follow would be an appropriate adjustment for a lender to make for the purpose of analysis?

Decrease liabilities and increase equity by the amount of the loan

The three owners of a small closely-held corporation take money out of the business in the form of dividends. If these dividends are declared and paid on the same day, what is the impact of this transaction on the financial statements of the business?

Decrease retained earnings and decrease cash

Home Construction Company has requested a loan to finance the materials and labor required to build two homes in a new neighborhood. Construction is scheduled to take five months. Which combination of disbursement terms and repayment schedule is the most appropriate for this purpose?

Disburse loan funds as materials and labor are purchased, repayment will be expected in lump sums when the homes are sold

A business owner owns personal rental property. A tenant sues her for health issues related to improper maintenance of gas lines. How should this be treated in analyzing the business owner's personal liabilities?

Disregard the lawsuit until a judgment or settlement is reached, or include an estimated amount as a contingent liability

You are considering a $200,000 loan to Dr. Chan's medical practice for new equipment. What value would Dr. Chan's unsecured guarantee add to this loan request?

Dr. Chan's adiusted net worth shows that his guarantee would provide adequate support for the loan, and the guarantee would encourage Dr. Chan to ensure repayment of the business loan

Which of the following components would you expect to see in all loan agreements?

Events of default

Which of the following best describes a common-sized income statement i

Expenses and profit as percentages of net sales

Which of the following best describes a common-sized income statement?

Expenses and profit as percentages of net sales

Brook Plumbing has a line of credit of $800,000 with peak usage in August and a low point in January. The company's notes payable (the amount outstanding on the line of credit) at year end has been increasing, while long-term debt is decreasing. Sales increased at a rate of between 12 and 13 percent in the last two years. The company expects continued growth and has requested an increase in the line of credit to $1 million. What is your reaction to this request?

Find out more. If the line is not cleaned up annually, the amount in use at the low point of the sales cycle may indicate a need for long-term financing of core current assets or an equity injection instead

Which of the following accounting methods will be most likely to result in overstating profits during a time of rising prices?

First-in, first-out (FIFO) inventory valuation

Company B's owner frequently draws cash out of the business for his personal use. How might this affect the finances of the company?

Inadequate working capital

Which of the following best describes a common-size balance sheet

Individuals accounts as a percentage of total assets

Which of the following is the best single indicator of a company's future performance?

Its past performance

Which of the following lists of personal assets is shown in order of liquidity, from most to least liquid?

Listed corporate bonds, retirement savings plan, unlisted stock

Company C has no system in place for monitoring costs and controlling expenses. How might this affect the finances of the company?

Lower the expected profitability

Which of the following industries is likely to have the greatest degree of risk from new technology?

Manufacturer of computer printers

You are measuring the impact of a printing company's decision to purchase ink from a supplier that offers a lower price. Which of the four financial drivers are you analyzing?

Margins

Which of the following are elements of product-market management?

Market definition, product definition, customer knowledge, and marketing approach

Cube Associates is growing rapidly and would like financing to purchase the manufacturing facility on the property adjacent to its current location, allowing it to expand without having to move its existing operation. The business will be able to fund 40 percent of the purchase and is asking your organization to finance the remaining 60 percent. Which credit facility would be most appropriate for this purpose?

Mortgage loan

What is the trend in Digitonies net profit margin from 2012 to 20Y4 (case link)

Net profit margin has increased each year

What is the trend in Hearth and Home's net profit margin between 20Y1 and 20Y3? (Express your calculation as a percentage and carry to two decimal places.)

Net profit margin increased slightly in 20Y2, then leveled off in 20Y3

The owners of Hearth and Home are asking for a substantial increase in their line of credit. Based on the sales increases they expect in the future. Given the facts of the case,would you increase the line of credit? Why? If not, what would you do instead?

No. The company is experiencing long-term sales growth and an increase in core current assets. Those should be financed with long-term credit. With this new financing, the current line of credit will be sufficient

John realizes that management is unhappy with his decision to waive the cleanup period, and proposes a reducing revolver instead. If this solution is adopted, Hearth and Home will continue to have a line of credit, but the amount available will be reduced each year. John thinks this should satisfy credit management. Do you agree?

No. This would only make the problem worse because it doesn't address the build-up in core current assets. A term loan to finance those core assets or an equity injection would be best; then no increase in the line of credit would be needed this year.

Company A manufactures heavy farm equipment. Which of the following could pose an operational risk to the company?

Ongoing labor disputes

Which of the following personal assets is the most difficult to authenticate (determine its actual existence?

Personal property

Which of the following industries is likely to have the greatest degree of industry risk from vulnerability to substitutes from other industries?

Poultry farming

Which of the following personal assets is likely to have the longest period of time for conversion to cash?

Private company stock

Which of the following poses the greatest product-market risk for a manufacturer of children's car seats?

Product safety complaints from customers

Which of the following purchasing considerations would be a customers' strongest motivator when purchasing commodity items such as salt or sand?

Quality Price

Trackers, a successful restaurant chain, is beginning the remodeling of its 10 locations to refresh the concept and visually update each restaurant. The company will begin with one restaurant next month, test the new look for a month, then refine the concept and apply it to all locations in turn over the next six months. Which credit facility would be most appropriate to finance a portion of the remodeling?

Reducing revolver

Company C uses toxic chemicals in manufacturing its products. Which of the following is most likely to pose an operational risk for the company?

Regulatory compliance

How should the amount shown for notes receivable be treated to determine the amount of the Dewers liquid assets?

Remove the full amount of notes receivable

Which of the following would be the most practical method of verifying the approximate amount and terms of any personal lines of credit and personal loans listed on a business owner's personal financial statement?

Request a balance statement from each creditor and compare them with the liabilities shown

Charles Company has requested a loan to finance a one-time purchase of inventory from a supplier that is going out of business. Because the purchase price is so low, and the items are in demand, Charles Company plans to advertise these items at a bargain price, to help bring customers to its end-of-season blow-out sale. Which credit facility would you recommend to meet this need?

Short-term note

When calculating global debt service capacity, it is important to analyze all entities connected to the business, especially those that represent an ownership in the business

TRUE

Which of the following statements about business tax returns is true?

Tax returns disclose actual bad debt write-offs

Which of the following situations describes a credit risk that is less than excellent, in which you might grant a loan only if you could take acceptable collateral?

The borrower is not able to meet the cleanup period on a line of credit

Which of the following situations indicates a credit risk that is less than excellent, in which you might grant a loan only if you could take acceptable cóllateral?

The borrowers seasonal line of credit usage last year increased with no clean-up

In your review of a borrower's banking relationships, which of the following could indicate credit problems?

The company's financial history involves many financial institutions

Which of the following statements best descirbes the trend in Hearth and Home's current ratio for the 3 years provided in the finaicial statements?

The current ratio has decreased each year however, current assets are still over twice current liabilities

Which of the following is the most important criteria in evaluating the quality of long-term investments and intangible assets?

The ease with which they could be converted to cash

What is the impact on future cash flow of a 1% decrease in gross profit margin?

The firm will have less cash

Which of the following would be the most useful indicator to measure the extent to which a business is able to meet its current obligations with only cash and the collection of accounts receivable?

The quick ratio

A company fulfills one large contract at a time, and fulfillment on a contract takes 15 months. The company completed a contract on December 1, 20Y1, accepted a new contract on February 1, 20Y2, and immediately began work to complete the new contract. The company uses the completed contract method of accounting for revenue rather than the percentage of completion method. Which of the following is the most likely effect on the company's income statements for the years 20Y2 and the succeeding year, 20Y3?

The revenue recognized on the 20Y2 income statement will be lower than the revenue recognized on the 20Y3 income statement

Which of the following would be the most useful indicator to measure the effect of a business reducing its prices while the cost or materials remained constant?

The trend in gross profit margins

For companies using the accrual method of accounting, why is there almost always a difference between a company's net profit for a certain period and its cash flow for that period?

There are timing differences between cash receipts and disbursements and accrual accounting recognition of revenues and expenses.

A business loan guarantor is a member of a profit-sharing plan at his company. Why should you be concerned about depending on the funds in his retirement plan as a source of support for his guaranty?

There may be restrictions on the customer for drawing funds from the plan

Which of the following expresses the purpose of a formal written loan agreement?

To clearly state the intentions and expectations of both the borrower and the lender as they relate to the loan

What is the most reliable way to determine the underlying quality of a business's inventory?

Visit the business and observe the amount of inventory and its condition

As a general rule, what is the earliest point at which a loan request from a new business would be considered bankable?

When the business has passed the breakeven point

Which of the following should you consider when evaluating the general management of a business?

Whether the business has survived long enough to pass the breakeven point

Which of the following should you consider when evaluating the general management of a business?

Whether the company purchases its primary inventory from more than one supplier

Louise Belmont owns a small cosmetics business. Which of the following should she know about her customers?

Who buys her products; who uses her products; who and what influences the purchasing decision

Which of the following statements best describes the trend in Brook Plumbing's working capital for the three years provided in the financial statements (case link)

Working capital has fluctuated from year to year

In 20Y2, did the company internally generate enough cash to cover all of its requirements?

Yes, with $18,000 excess; including the $5,000 additional short-term debt, cash balances increased by $23,000 in 20V2

In which of these business growth stages would a business have few assets. no income and no saleable product?

Young operating

Which of the following poses the greatest product-market risk for a manufacturer of fashions for teenagers?

inadequate market research