1.


What are the two variables involved in the riskreturn tradeoff in managing the firm’s working capital?


2.


Matching the cash flowgenerating characteristics of an asset with the maturity of the source of financing used to finance its acquisition is called


3.


The biggest risk a firm faces when using commercial paper is that


4.


Spontaneous sources of financing for a firm include


5.


Which of the following four assets should be financed with permanent sources of financing according to the hedging principle?: (1) Minimum level of accounts receivable required year round. (2) Machinery. (3) Minimum level of cash required for year round operations. (4) Expansion of inventory to meet seasonal demands.


6.


A Corporation plans to borrow $10,000 for a 60day period. At maturity, the firm will repay the $10,000 plus interest at an annual rate of 12 percent. What is the effective rate of interest (APR) on this loan?


7.


The XYZ Company makes its purchases under the terms 2/10, net 30. If XYZ forgoes the discount and pays for its purchases according to the terms of its trade credit, the effective cost (APR) of using this source of credit is


8.


The XYZ Company makes its purchases under the terms 2/10, net 30. If the XYZ Company forgoes the discount and then does not pay for its purchases until day 40, the effective cost (APR) of using this source of credit is


9.


Use the following information to answer the next two questions. ABC Inc. requires $270,000 in shortterm credit and is currently arranging a loan with its bank. ABC plans to use the funds for 6 months, the annual rate on the loan is 12 percent, and the bank will require a 10 percent compensating balance. If ABC must have loan proceeds of $270,000, then it must borrow


10.


What is the effective annual cost of the loan?


11.


Beta, Inc. plans to sell $1,000,000 in 270daymaturity commercial paper. It will pay discounted interest at an annual rate of 12 percent. Beta expects to incur a cost of $1,000 in dealer placement fees and other expenses to issue the paper. The effective cost (APR) of the paper to Beta, Inc. is:


12.


Assume that your firm sells supplies to firms on terms of net 60. The firm’s average accounts receivable balance is $400,000 for the 60day period, and your firm pledges all its receivables to a local bank. The bank in turn advances up to 70 percent of the face value of the receivables at 3 percent over prime and with an annual processing charge of $24,000 on all receivables pledged. Your firm borrows the maximum amount possible, and currently the prime rate is 10 percent. What is the effective cost of this arrangement?


13.


Assume that your firm sells supplies to firms on terms of net 60. The firm’s average accounts receivable balance is $400,000 for the 60day period, and your firm pledges all its receivables to a local bank. The bank in turn advances up to 70 percent of the face value of the receivables at 3 percent over prime and with an annual processing charge of $24,000 on all receivables pledged. Your firm borrows the maximum amount possible, and currently the prime rate is 10 percent. In addition, your firm saves credit department expenses of $20,000 per year by pledging all of its receivables and letting the lender provide those services. What is the effective cost of the arrangement?


14.


The terminal warehouse agreement differs from the field warehouse agreement because
