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Short Term Financing 1

# Short Term Financing 1 - \$973.97 How many percentage points...

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Old Exam Questions - Short-term Financing Page 1 of 2 Pages Short-Term Financing 1. A firm is offered trade credit terms of 3/15, net 45. The firm does not take the discount, and it pays after 67 days. What is the effective annual cost (on an EAR basis) of not taking this discount? A. 21.41% B. 22.07% C. 22.95% D. 23.48% E. 24.52% 2. Your company is determining whether to support \$100,000 of its permanent current assets with a bank note or a short-term bond. The firm's bank offers a two-year note where the firm will receive \$100,000 and repay \$118,810 at the end of two years. The firm has the option to renew the loan at market rates. Alternatively, your company can sell 8.5 percent coupon bonds with a 2-year maturity and \$1,000 par value at a price of
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Unformatted text preview: \$973.97. How many percentage points lower is the interest rate on the less expensive debt instrument? A. 0.0%; the rates are equal. B. 1.2% C. 1.0% D. 1.8% E 0.6% 3. Your firm buys on credit terms of 2/10, net 45, and it always pays on Day 45. If you calculate that this policy effectively costs your firm \$157,500 each year, what is the firm's average accounts payable balance? A. \$1,234,000 B. \$ 75,000 C. \$ 157,500 D. \$ 625,000 E. \$ 750,000 4. A firm is offered trade credit terms of 3/10, net 40. The firm does not take the discount, and it pays after 20 days (on day 30). Using a 360-day year, what is the annual cost (on a nominal basis, not effective) of not taking this discount? A. 55.67% B. 57.67% C. 61.67% D. 53.67% E. 59.67%...
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