CTP Sample Test Questions
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?
24.41
A $100,000 T-bill currently sells for $98,600 and matures in 90 days. What is the 365 day basis yield for this investment?
5.76%
Earnings Credit calculation: Assumptions - Average ledger balance $1,500,000 Deposit Float $250,000 Reserve Requirement 10% Earnings Credit Rate 45 bps Service Charges for the month $12,500 Days in the Month 30 What is the earnings credit the company is receiving for this month?
$416.10
Using the information provided for question 10, what would the earnings credit change to if the company negotiated a 50% decrease in deposit float ?
$457.71
Company R has an AR collection 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?
$59,800
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?
15 days
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.
0.09%
Company S wants to issue $25,000,000 of commercial paper at a discount of 35 bps and a maturity of 27 days. The dealer fee is 10 bps annually and the bank assesses a backup L/C fee of 20 bps. What is the approximate annual interest rate the company pays for this issue of commercial paper?
0.66%
Company XYZ is now required to make electronic payments by its suppliers. To prevent an increase in costs, the company should:
Negotiate a change in payment timing with its suppliers
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?
69 days
Which of the following is subject to transaction risk exposure?
A Japanese company's foreign subsidiary in the U.S. has a receivable denominated in Yen
After several internal discussions about treasury management systems (TMSes), ABC Company has determined that it has no need for customization but that it does want a backup for high priority capabilities. The company needs access to knowledgeable IT support resources but wants to reduce overall IT costs. These parameters will MOST LIKELY result in what kind of TMS?
A hosted ASP TMS
Which of the following contributes MOST to the marketability of a security?
A large, active secondary market
A large retailer is preparing to accept credit cards and anticipates monthly credit card sales of $1,000,000. If the terms with the acquiring bank include bundled allocated fees of 6% and the retailer wishes to delay fee payment as long as possible, what should the retailer do?
Accept gross settlement
Optimal dividend policy is one that does all of the following EXCEPT:Balance tax shield benefits against agency costs
Balance tax shield benefits against agency costs
Which of the following global cash concentration methods would be MOST appropriate for a single company with operations in the United States, Germany, Mexico, and Japan looking to minimize expenses?
Bank overlay structure
French corporation purchases finished products from a U.K. subsidiary and sells raw materials to the subsidiary several times in one month. To minimize foreign exchange transaction costs, the French corporation's cash manager would MOST LIKELY use:
Bilateral netting
Treasury policies should be approved by the:
Board of directors
Convertible securities consist of preferred stock and:
Bonds
A large, mature, diversified and publicly traded company sells the smallest of its business segments to a strategic buyer for cash. It uses the proceeds to pay off all bank debt and subordinated debenture debt on its books. The company believes the stock is trading at a reasonable price and continues to pay a regular, steady dividend to shareholders. Management's strategy is to embark on an aggressive growth plan including a major acquisition. Based on the above information, if the company uses the trade-off theory in considering its WACC, how will it finance its growth?
By using long-term debt
In order to be defined as independent, a corporate director:
Cannot have a material relationship with the company
Which of the following trade payment methods virtually eliminates the seller's credit risk?
Cash before delivery
In a typical swap transaction, two parties agree to exchange:
Cash flows at future points in time
Making payments through electronic payments networks can be a part of a treasury management system's functionality, but it is subject to numerous constraints. Which of the following is a true statement of those constraints?
Collecting payment-routing details, and populating these into the software, is a significant task
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?
Commodity
A company plans to issue additional equity within the next 12 months but needs to issue debt at a low interest rate now. Which of the following instruments would BEST meet this objective?
Convertible bonds
In evaluating alternative capital investments, a company should consider qualitative factors such as:
Corporate strategy
When using the Internet to access auction markets, companies may use certificate authorities to reduce their exposure to which of the following types of risk?
Counterparty
One reason for using a sale and lease-back arrangement in lease financing is to:
Create an infusion of cash into the company
Which of the following is a ratio that is often used by commercial banks to measure a company's leverage and does not include the effect of assets that are difficult to value or are NOT easily converted to cash?
Debt to tangible net worth
Loss exposures related to treasury management may include which of the following?
Deterioration of investment principal
Which of the following is NOT a key area to consider when establishing treasury policies?
Equity method investments accounting
Company XYZ is aggressively expanding globally. It is evaluating four markets: Latin America, Europe, Asia and Middle East. Latin America: Risk adjusted discount rate: 15%, Payback period=7 years, IRR=15% Europe: Risk adjusted discount rate: 8%, NPV=$20M Middle East: Risk adjusted discount rate: 11%, IRR=12%, NPV=$5M Asia: WACC: 9%, Payback=2 yrs, IRR=8% Based on the information, which two markets will company XYZ MOST LIKELY pursue?
Europe and Middle East
A manufacturing company is working to improve its cash conversion cycle. Factory production has increased over the last year to increase inventory levels. They have an inventory turnover of 3.1 and asset turnover of 5.0. The company has a days' payable of 30 and a days' receivable of 60. It has started enforcing its net 30 terms and placed customers with balances outstanding more than 45 days on credit hold. As a result, the company collected receivables quicker but it suffered a 10% loss in sales. What can the company do to reduce its cash conversion cycle?
Extend payables deferral period
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?
Fixed bond interest payment
Netting is used by which of the following as a cross-border payment technique?
Foreign subsidiaries of a company
A publicly traded company is looking to fund its next project with the issuance of stock. The company's stock is primarily held by a small group of investors. The company is concerned that issuing stock may upset these investors because it would dilute their holdings. Which of the following strategies would help address the investors' concern?
Grant the investors preemptive rights to the new issue
A main characteristic of a company with regional offices using a centralized treasury function is:
High level of control
Company XYZ is a manufacturer of industrial equipment and has enjoyed a large percentage increase in profits from a small increase in revenues. Sales recently plummeted resulting in steep decline in profitability. Which of the following BEST describes the cost structure of the company?
High operating leverage
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
I, II, & III
Examples of traditional factors used in making a credit decision include which of the following? I. Capacity II. Capital III. Compliance IV. Character
I, II, and IV only
A properly designed concentration system will potentially achieve which of the following results? I. Increased authority to field offices II. Increased investment income III. Improved ability to take discounts IV. Reduced dependence on third-party concentration vendors
II and III only
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?
Implement a dividend reinvestment plan
Company ABC experienced a loss in the past when an employee in the treasury department was able to transfer $1.5 million to a personal account offshore. The company is working with a security agent to prevent this from happening in the future. ABC also accepts a large number of checks as payment. The agent has suggested upgrades to ABC's payment process. What step should be taken to help mitigate this type of risk in the future?
Implement dual approval
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?
Improve cash conversion cycle
A company is interested in lowering its overall banking costs, managing netting, pooling, re-invoicing, and centralizing FX exposure at headquarters. Which of the following options will accomplish this?
In-house banking
MCA, Inc. upgraded the treasury workstation that had been in place for two years and used data from that 24-month period to develop a new short-term forecast. A trend factor was applied to controlled disbursements of 97% on a month-by-month basis and the variance to actual disbursements is less than 1%. Which of the following model validation techniques was utilized?
In-sample validation
Which of the following BEST describes an advantage of a company going public?
Increased Liquidity
The treasury manager of a privately held company is looking to finance new equipment that has a useful life of 5 years. What type of financing would the Treasury Manager MOST LIKELY employ to finance the equipment?
Installment term loan
Financing decisions in a budget are used to construct all of the following pro forma financial statement components EXCEPT:
Inventory
ABC Company, a leading provider of office supplies, has successfully implemented EDI based on a request from one of its customers. ABC will not only benefit from the strategic alliance that will result, but as more of ABC's customers adopt the program, ABC will also experience a positive impact on its:
Inventory levels
A retail brokerage firm is MOST like which one of the following types of financial institutions?
Investment banks
Company A regularly modifies its capital structure by repurchasing stock. Which one of the following is a true statement?
Investors may feel that management is manipulating the stock price
Which of the following is a KEY operational advantage of short-term debt?
It can be arranged quickly and easily
A cash manager at a retailer forecasts a positive collected cash position for the end of the current day. The company has an overdraft facility at 10%, a separate investment account earning 8% before taxes, an earnings credit rate of 8% and an outstanding single payment note at 9.5% maturing in 1 week. This month's bank service fees are expected to exceed the earnings credit. Which of the following intra-day options would be the MOST economically positive for the company?
Leave the funds in the account
A French exporter sells goods to a foreign buyer in euros and wants to guarantee that payment is made by the buyer. The exporter would MOST LIKELY require a(n):
Letter of credit
A daily short-term forecast and variance analysis for LMN, Inc. is updated with relevant trends and actual data every Monday. Upon review, the treasurer assessed that sales were higher than forecasted, inventory was up and yields being earned on excess cash were lower. The MOST important reason for this cash forecast process is:
Liquidity management
ABC Company is a national retail company and uses XYZ Bank for its collections and payroll services. XYZ has recently experienced financial problems; what is the greatest risk to ABC Company?
Loss of assets
What does a company with a restrictive current asset investment strategy typically have?
Low accounts receivable balances
A put option on a company's stock has an exercise price of $20. On the delivery date, the stock is trading at $24 per share. What should the investor who has paid $2 for the option do?
Not exercise the option and lose $2
The yield curve is inverted. A creditworthy firm considering alternative debt maturities would MOST LIKELY:
Obtain long-term fixed interest rate debt
Money market funds are able to obtain very competitive trading terms because:
Of the economies of scale
In an organization with personnel limitations, which of the following strategies should be considered to mitigate cash management system risk?
Outsourcing
A wholesale foods supplier receives an order from ABC Foods located in Minnesota. The supplier's policy is to bill upon fulfillment of the order and not at delivery. ABC Foods pays upon receipt of goods. A blizzard has closed the manufacturing facility and roads; delivery will be delayed by two days. Which type of float occurs between the receipt of an invoice by ABC Foods, including the credit period, and the time ABC Burgers' account is debited?
Payment
A company has grown quickly in the euro zone market. It wants to maximize its excess cash. Which would be the BEST method of concentrating funds?
Physical Pooling
The right of stockholders to purchase, on a pro-rata basis, any new shares issued by the company is referred to as:
Preemptive right
Treasury management systems and ERP systems allow companies to do all of the following EXCEPT:
Reduce cash processing costs
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?
Repaying short-term debt
A large mature company with limited growth opportunities (positive NPV projects) achieved abnormally high profits this year. After paying mandatory principal, interest, and taxes, the company has $200 million in surplus cash on hand. Assuming its investor base is most concerned with capital appreciation, which of the following is the BEST option for the company?
Repurchase shares of outstanding stock
XYZ Company has decided to purchase a close competitor. This acquisition would make XYZ Company the 4th largest in its industry allowing it better purchasing power and greater distribution channels. After completing the M&A analysis, it is determined that the combined companies would produce a 40% increase in revenue, reduce manufacturing costs by 30%, but would increase current liabilities by 27%. Which of the following would keep the acquisition from happening?
Restrictive bond covenants
A portfolio manager purchases a floating rate mortgage backed security that would currently provide a 4% yield to the company. Since mortgage rates have been fluctuating significantly over the past month, the manager is thinking about entering into an interest rate swap to hedge against the rate movements. Although the manager would remove most of the price sensitivity of the asset by executing the swap, it would also lower the total yield on the investment due to swap costs. What objective in the company investment policy is guiding the portfolio manager's decision?
Risk/return trade of
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?
SWIFT
An equity management company's Chief Financial Officer and Treasurer are evaluating their corporate investments and decide that they need to diversify their stock holdings to include personal care products companies. Based on their analysis, publicly-traded companies A and B stand out as choices. Company A has a beta value of 0.65 while company B has a beta value of 1.10. They decide to invest in Company A. What objective of their investment policy did they use to make their decision?
Safety
Which of the following is a tool that companies use to obtain a quantitative rating of a financial institution's level of service?
Score card
A U.S. company has a secured committed line of credit of $5.5 million and has an available balance of $4 million. The company successfully transmitted a $5.5 million wire transfer instruction out to the bank via SWIFT. The bank contacted the company and informed it that the wire transfer would not be processed. What is the MOST LIKELY reason the bank gave the company?
The bank imposed a guidance line of credit on the account
Establishing the authority to open bank accounts is the responsibility of:
The board of directors
The key parties involved in a disaster recovery plan are generally classified as internal resources or external counter parties. When evaluating the risks of both parties, which of the following can be assumed?
The infrastructure linking the parties' systems must be considered
A company hires an investment firm to fully underwrite a new stock issuance. Which of the parties carries the MOST risk?
The investment firm
As an internal control tool, what does the matching of an invoice to the original purchase confirm?
The placement of the order
XYZ Company has a well established commercial paper (CP) program that they use to fund operations. The company is expanding by purchasing a new factory. The CFO is worried about the time and expense needed to issue long-term debt and decides to use the funds they raise in the CP market to pay for the purchase of the factory. This strategy will be successful if:
The yield curve remains upward sloping
An international company would establish a re-invoicing center for which of the following reasons?
To manage the foreign exchange exposure of its foreign subsidiaries
A company has decided to manage its short-term investment portfolio in-house. It is looking for enhanced capital gains as well as the ability to sell the instruments on the secondary market at a premium. The investment manager has forecasted the interest rates shown below: Month Short-term rates Long-term rates January 0.25% 0.27% February 0.28% 0.30% March 0.26% 0.29% April 0.24% 0.27% May 0.25% 0.28% June 0.26% 0.29% Which investment strategy should be employed by the company?
Total-return strategy
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?
Type of card accepted
When a short-term loan is paid with a lump sum payment and the payment includes both interest and principal, the loan is often referred to as a:
Single payment note
A U.S. firm acquires a large U.K. manufacturer that generates high levels of cash flow in its local currency. The purchase is denominated in British pounds and is financed through the issuance of 10-year, 7.5% U.S. dollar bonds. The U.S. firm will rely entirely on the U.K. manufacturer's cash flows to fund the interest payments on the bonds. What derivative instrument would help the U.S. firm manage its FX exposure?
Currency swap
. ABC Company's treasury department outsourced its overnight investment duties to XYZ Money Management. XYZ placed the funds received from ABC into corporate commercial paper, which has recently gone into default after numerous ratings downgrades. The investment policy of ABC Company states that all investments must be in investment grade commercial paper; however, the agreement gives XYZ the ability to make exceptions with the approval of the treasurer of ABC Company. The treasurer was never notified of the ratings downgrades. What role or responsibility, if any, was violated with regards to the investment policy?
Policy approvals and exception management
The rate of interest commercial banks charge their best credit rated customers is called the:
Prime rate
Securities sold by companies in an initial public offering (IPO) are:
Public securities sold by a private company for the first time
A company has asked its marketing, payroll and sales teams to collaborate in finding a solution that could augment its customer base, reduce payroll cost and increase sales. The solution has to be market ready. Which of the following will serve all 3 purposes?
Stored value card
An intern was hired by the VP of Accounts Payables to process the electronic payments that come through the bank. The intern is responsible for manually entering payee information into the system at each step of the process. The VP directed the intern to enter the information as fast as possible without mistakes to optimize the number of transactions that could be processed. Instead of manually entering information the VP should have utilized:
Straight-through processing
Company A has $1,375,000 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?
$171,688
Using the above information, what is the cash turnover for the company?
5.3 times
In which of the following international cash management methods is title for goods transferred for intercompany sales?
Re-invoicing
After a recent review of its insurance policies, a petroleum products company determines it needs to re-evaluate its risk exposure to potentially reduce its insurance premiums. The company has operated in two locations for 20 years but only produces and stores petroleum at one location. In doing so, the risk manager determines the following exposures: • The number of employee workers compensation claims due to injuries while loading trucks has increased 25% in the past 12 months • The primary tank used for petroleum storage is 13 years old and standard life of tanks of this model is 20 years • There is only one road into the current petroleum storage facility Given the above information, if the risk manager constructs a second road into the petroleum storage facility, what risk management strategy is being used?
Risk mitigation
Senior management at ABC Company plans to make a large capital expenditure to bolster its infrastructure exactly one year from now. Their primary concern is to preserve the current capital position until the expected cash outlay. The majority of the cash at ABC Company is held in treasury notes, but management would like to also invest some of the money into corporate bonds and money market funds. Which investment objective BEST suits the needs of ABC Company?
Safety
The stock of a manufacturing company is priced so that its expected rate of return is below its required rate, as calculated by the Capital Asset Pricing Model (CAPM). Which of the following will occur in an efficient capital market?
Selling pressure for the firm's stock will drive the price down
The treasurer of a corporation is negotiating with one of his/her suppliers to allow the corporation to have 30 days to pay the supplier's invoices. The treasurer is arranging:
Short-term financing
The Company J portfolio consists of two stocks, 65% of Stock A with a return of 7.63% and 35% of Stock B with a return of 3.89%. What is the Company J portfolio return?
6.32%
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:
Political risk
Which of the following is a source of short-term financing?
Factoring of accounts receivable
