CNN Corporation needs $750,000 and plans to borrow from its bank under the terms of
its line-of-credit arrangement. These terms call for a minimum compensating balance of
12 percent. How much will CNN have to borrow to obtain the needed cash?
A.$750,000
B.$798,307
C.$840,000
D.$852,273
A piece of machinery cost $50,000.00 when purchased and has been depreciated half of
its value. Assuming the machinery can be sold for $30,000.00, how much accounting
profit does the machinery generate?
A.-$20,000.00
B.$5,000.00
C.$30,000.00
D.$25,000.00
The direct and indirect quotes on the Swiss franc are 0.75 and 1.33, respectively. The
direct and indirect quotes on Poland€s zloty are 0.25 and 3.94, respectively. How many
zloty will it cost a Polish merchant to purchase a watch priced at 270 Swiss francs.
A.90 zloty
B.154 zloty
C.810 zloty
D.2400 zloty
How much cash does Gray Computer Co. have if the firm has a current ratio of 2.5, a
quick ratio of 1.2, and current liabilities of $12,000? Gray’s credit sales are $98,000 and
its average collection period is 40 days. (Assume 365 days per year.)
A.$3,660
B.$14,440
C.$10,740
D.None of the above
You plan to place an order with a new supplier. You have been offered terms of 2/10,
net 50 from the date your supplies are shipped. The cost of borrowing from the bank is
15 percent on an annual basis. What is the best course of action in paying the supplier,
assuming the firm will need to borrow if it takes the discount?
A.Pay as soon as supplies are received.
B.Pay on the 10th day.
C.Pay on the 50th day.
D.Pay on the 51st day.
A firm’s balance sheet discloses cash of $300,000, other assets of $600,000, liabilities of
$500,000, preferred stock of $100,000, common stock of $200,000, and retained
earnings of $100,000. What is the maximum cash dividend the firm can pay?
A.$100,000
B.$200,000
C.$300,000
D.$400,000
Which of the following is NOT an example of systematic risk?
A.Inflation
B.Recession
C.Management risk
D.Interest rate risk
If net working capital became negative, this is considered _____.
A.bad, because it will reduce cash flow
B.good, because entities other than the firm are supplying all of the short-term funding
for running the operations of the firm
C.bad, because it makes the current ratio less than one
D.good, because it makes the current ratio greater than one
The financial plan is:
A.the financial portion of a business plan.
B.the most important part of the strategic plan.
C.frequently not included in business plans.
D.All of the above
Nearly all preferred stock comes with the right to receive all past unpaid dividends
before common shareholders can receive any dividends. This right is referred to as:
A.the preference feature.
B.the liquidation preference.
C.the cumulative feature.
D.voting preference.
When using the net present value technique to evaluate the quality of an investment, if
the resulting NPV is positive, the cost of capital will generally be:
A.less than the internal rate of return.
B.greater than the internal rate of return.
C.equal to the internal rate of return.
D.None of the above
A firm is planning for next year and has developed the following information.
What inventory balance should be included in next year’s plan if management intends to
increase inventory turnover by one turn in the coming year? Calculate using ending
balances and the COGS formulation of inventory turnover.
A.$1.74M
B.$1.90M
C.$1.58M
D.$1.24M
Which of the following would increase the WACC?
A.an increase in flotation costs
B.a decrease in tax rates
C.a decrease in preferred dividends
D.Both a & b
E.All of the above
An operating plan:
A.translates business ideas into concrete relatively short-term projections.
B.backs up financial projections with a great deal of detail.
C.concentrates on broad strategic issues despite its shorter term focus.
D.a and b