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Question
Exchange rate riskA) arises from the fact that the spot exchange rate on a future date is a random variable.
B) applies only to certain types of international businesses.
C) has been phased out due to recent international legislation.
D) has been reduced by the adoption of floating exchange rates.
Answer
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Related questions
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The firm's total investment in current assets should be financed with temporary sources of financing.
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The hedging principle involves the use of hedge funds to manage the firm's working capital.
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How does the use of current liabilities enhance profitability and also increase the firm's risk of default on its financial obligations?
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Current assets would usually NOT include
A) plant and equipment.
B) marketable securities.
C) accounts receivable.
D) inventories.
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A firm increases the risks of insolvency by keeping relatively large amounts of money tied up in marketable securities.
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Symco Corp. needs $500,000 for 90 days to get through a period of unexpectedly high oil prices. Symco's line of credit with the bank allows the company to borrow at 6% per year with a compensating balance of 10% of the amount borrowed. Currently, Symco has no money on deposit with the bank.
a. Calculate the amount Symco must borrow to meets its needs plus the compensating balance.
b. What is the annual percentage rate for this financing?
c. If the bank requires discount interest, what is the annual percentage rate for this financing?
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Dazzly Diamond Corp. called for credit at the Home Alone Bank of Paris, TX. The terms included a $35,000 maximum loan with interest of 1 percent over prime, and the agreement also requires a 15% compensating balance throughout the year. The prime rate is currently 12 percent.
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Crenshaw Inc. has a $400,000 line of credit with a local bank. The bank requires a compensating balance of 10% of the loan and extends credit to Crenshaw at 1% over the current prime rate. Crenshaw needs the use of $200,000 for the three-month period. They currently have no deposits with the lending bank.
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MovieTone, Inc. is a producer and distributor of specialty DVDs. It sells directly to large retail firms on terms of net 60 and has average monthly sales of $350,000. It has recently decided to pledge all of its accounts receivable to its bank. The bank advances up to 80 percent of the face value of these receivables at a rate of 4 percent over the prime rate, while charging 2.5 percent on all receivables pledged for processing to cover billing and collection services. Prior to this arrangement MovieTone was spending $50,000 a year on its credit department. The prime rate is 6 percent.
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The Rosewood Corporation established a line of credit with a local bank. The maximum amount that can be borrowed under the terms of the agreement is $500,000 at a rate of 10 percent. A compensating balance averaging 15 percent of the loan is required. Prior to the agreement, Rosewood had maintained an account at the bank averaging $25,000. Any additional funds needed for the compensating balance will also have to be borrowed at the 10 percent rate. If the firm needs $280,000 for 6 months, what is the annual cost of the loan?
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A company that has an unpredictable cash flow, and is holding cash because of things that might happen due to this uncertainty, is holding a larger minimum cash balance due to which type of motive?
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Which of the following affects the precautionary motive for holding cash?
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A) risk, investment, and liquidity.
B) transaction, speculative and precautionary.
C) transaction, liquidity, and speculative.
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Cash inflows come from
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B) purchase of fixed assets.
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The speed of the collections process is determined by three types of float: mail float, processing float, and transit float.
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Money-market mutual funds are diversified portfolios of short-term, high-grade debt instruments.
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Marketable securities are only those security investments the firm can convert into cash balances within one year.
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B) $1,780,000
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D) $1,430,000
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J.B. Enterprises purchased a new molding machine for $85,000. The company paid $8,000 for shipping and another $7,000 to get the machine integrated with the company's existing assets. J.B. must maintain a supply of special lubricating oil just in case the machine breaks down. The company purchased a supply of oil for $4,000. The machine is to be depreciated on a straight-line basis over its expected useful life of 8 years. Which of the following statements concerning the change in working capital is MOST accurate?
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Your company is considering the replacement of an old delivery van with a new one that is more efficient. The old van cost $40,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight-line method over a useful life of 8 years. The old van could be sold today for $7,000. The new van has an invoice price of $80,000, and it will cost $6,000 to modify the van to carry the company's products. Cost savings from use of the new van are expected to be $28,000 per year for 5 years, at which time the van will be sold for its estimated salvage value of $18,000. The new van will be depreciated using the simplified straight-line method over its 5-year useful life. The company's tax rate is 35%. Working capital is expected to increase by $5,000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the incremental free cash flow for year one?
A) $18,875
B) $19,985
C) $22,305
D) $24,220
Q:
A new project is expected to generate $800,000 in revenues, $250,000 in cash operating expenses, and depreciation expense of $150,000 in each year of its 10-year life. The corporation's tax rate is 35%. The project will require an increase in net working capital of $85,000 in year one and a decrease in net working capital of $75,000 in year ten. What is the free cash flow from the project in year one?
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B) $84,000
C) $90,000
D) $94,000