Contingency plans often focus on the business supply chain, ensuring that customer service is maintained. The financial supply chain, which is equally critical to the plan, should address:
On the basis of the information above, what level of net collected balances is necessary to compensate a bank for $1.00 worth of services?
Companies in the U.S. with a nationwide over-the-counter/field bank collection and concentration system often deal with:
A company's lockbox bank, which processes 24 hours per day, has a 6:00 P.M. ledger credit cutoff and grants same-day availability on checks drawn on Bank B that are received by 10:00 P.M. Which of the following ledger and collected credit postings would result from a Bank B check received at 11:00 P.M. on Tuesday?
Financial ratios may provide an inaccurate forecast of a company's performance because they are:
Which section of the statement of cash flows includes items that represent the cash inflows and outflows related to the daily functions of a company?
LLZ Company manufacturers metal detectors in California at a cost of $9 per unit. The most expensive component to make is the sensor which goes in the finished product. The cost is $5 per sensor. Last month LLZ acquired a company in Mexico that makes the sensors for $1 per sensor. LLZ plans to move all sensor manufacturing operations to the factory in Mexico. What is the movement of this cost saving process called?
What is the MOST appropriate definition of working capital?
An airline has entered into an agreement with its partners to offset receivables and payables for a specified period of time and to transmit or receive the difference via funds transfer at the end of the period. This is an example of:
When will a depositor receive ledger and collected credit for a western check deposited at 2:00 P.M. Wednesday?
Ledger Credit - Collected Credit
A company seeking an insured investment would avoid investing surplus cash in a:
If a company does not have cash available to make an interest payment on a bond, the company is experiencing difficulty with its:
ABC Company offers trade terms of 2/10 NET 30. For several reasons, ABC has decided to eliminate the requirement for a letter of credit from one of its customers. If ABC puts the customer on open book credit, what is the MOST LIKELY outcome?
The Sarbanes-Oxley Act of 2002 requires that a public company’s financial statements be certified by the company’s:
A major toy retailer operates 65 stores throughout the Midwest. Which of the following collection methods is MOST LIKELY to be used by this company?
When a company creates future receivables and/or payables that are denominated in a currency other than its home or functional currency it is faced with:
When evaluating a FSP during the RFP process, a company should place a high value on a FSPs financial strength when the provider:
The “agency problem” refers to:
Which of the following statements BEST applies when evaluating fees in an RFP for bank services?
A treasurer has been advised that his privately held company has just lost its largest customer, which will have a significant impact on earnings. The treasurer applies an aggressive working capital strategy. Presently, the yield curve is upward sloping. Given this information, the treasurer should ensure that the company has:
The auditors of a private college are examining and auditing the college’s financial statements. The statements are not presented in accordance with GAAP. What should the auditors do?
A call option is said to be “in-the-money” when the market price of the underlying security is:
Unrealized holding gains and losses arise when trading securities are:
A seller’s cost of capital is 12%. The average credit sale is $200,000, and the credit terms are 2/10, net 30. What is the present value of receiving full payment on day 30?
A put option gives the holder the right to:
A company invests all of its short-term excess cash in T-bills on a daily basis. To prevent delays in processing its outgoing wire transfers, the company may ask its cash management bank to establish a:
An accounts payable manager has been mandated to accept all trade discount opportunities with an effective cost of discount above 25%. An invoice has been presented and approved for payment with terms of 3/5, net 30 days. What is the difference between the effective cost of discount offered, and the 25% rate set by the company?
A company with a relatively poor credit rating borrows most of its funds with short maturities. They may want to change its exposure to interest rates to more correctly reflect the long-term nature of the projects it is funding. Or, they may believe that long-term interest rates are going to rise, causing it to seek protection against the impact of higher interest rates on its balance sheet. Which of the following would be a solution?
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?
A company has negotiated a credit facility with the following terms:
What is the annual interest rate on the line of credit?
A company’s credit agreements or loan covenants may require:
The principal roles of corporate finance include which one of the following combination of functions?
BF Company, a manufacturer of food products, reported financial information shown in the Exhibit for the end of the year. BF Company is subject to covenants in its commercial paper program. It is in compliance with which of the following?
A company wishes to monitor and control office expenses incurred by its employees. Which of the following offers the BEST method of providing the employees freedom to choose different vendors while maximizing spending control?
XYZ Company is a net borrower. Its cost of funds is 5.0%, its earnings credit rate is 3.0%, and the reserve requirement is 10%. Average service fees are $50,000 per month. Its average ledger balance is $2,000,000, and its average collected balance is $1,000,000. What are the collected balances required to pay for services during a 30-day month?
The delay between the time a check is deposited and the time the company's account is credited with collected funds is known as:
According to the Capital Asset Pricing Model, which of the following would increase the required rate of return, given a beta of 1?
The discount rate for a T-bill with a face value of $200,000, 182 days to maturity, and a selling price of $194,375 would be:
Which of the following should NOT be a consideration when setting an optimal dividend policy?
On a company’s financial statements, an increase in accounts receivable is reflected as a(n):
The year-end income statement and balance sheet accounts for a company as of December 31, Year 1 are shown in the Exhibit.
If no changes occurred in the current asset and current liability account balances from the beginning of the period, except for cash, what was the net cash flow from operations for Year 1?
Refer to the following information about a company at the end of its fiscal year.
The before-tax cost of long-term debt is 10% and the cost of equity is 12%. The marginal tax rate is 35%.
What is the company's long-term debt to total capitalization ratio?
Based on the above information, before making the major acquisition, several large institutional shareholders have asked management to consider all of the following EXCEPT:
A company has transferred all treasury functions to a new office overseas. When preparing the disaster recovery plan, the treasury manager seeks to identify the mission critical functions and then determine what risks the plan should address. Which of the following risks should be the focus of the Disaster Recovery Plan?
Each of the following statements is true of both defined benefit plans and defined contribution plans EXCEPT:
A commercial paper issuer who repays investors earlier in the day than it receives funds from new investors often creates which of the following?
A trader of ABC Bank executed and audited his own trades. Assigning these two functions to the same person introduced which one of the following risks to the bank?
Which of the following statements are true about the use of different discount rates for different types of projects?
I. Low-risk, short-term projects may be evaluated by using a short-term opportunity cost.
II. High-risk projects may be evaluated by using a discount rate that is greater than the company's normal opportunity cost.
III. A short-term investment (or borrowing) rate may be used as the company's short-term discount rate.
IV. The use of a lower discount rate for riskier projects forces riskier projects to earn higher rates of return.
A major publicly owned U.S. airline announces that it can no longer meet its pension obligations. Which organization will assume control of the airline’s pension plan?
All of the following are discounted instruments EXCEPT:
The risk that one financial institution’s failure could lead to the failure of other financial institutions is known as:
The USA Patriot Act has added significant amounts of overhead to financial transaction processing organizations to prevent money laundering. If an organization does NOT comply with the terms of this act, what external risk is it exposed to?
James Corp has a 7.98% WACC and an assumed tax rate of 30%. James Corp employed €70,000,000 of capital (long-term debt and equity) in a project that generated an operating profit of €9,500,000, after depreciation expense of €300,000. EVA in this case would be:
The executive management of a utility company would like to determine if it would be more cost effective to hire a third-party provider to handle its bill processing functions, which are currently internally operated. What formal selection method should the company use to obtain proposed solutions and detailed pricing from potential vendors?
Which of the following is an example of a typical passive investment strategy?
A cash manager wants to convert wire payments to ACH. Which of the following would NOT be a good application for ACH?
Which of the following is NOT a consideration for treasury managers when implementing electronic communications with FSPs?
The Sarbanes-Oxley Act of 2002:
Corporate governance for publicly traded U.S. companies includes:
An electronics firm realizes that due to adverse events projected over the next 18 months there is a 5% chance that its profits will decrease by $100,000. The company's beta is .08 and its cost of capital is 9%. What approach is the company MOST LIKELY using to determine its level of financial risk?
An accountant is fired after reporting to the SEC that she witnessed the CFO inappropriately reduce expenses ahead of the quarterly earnings announcement. Which of the following would apply?
What is the authoritative accounting standard-setting body for state and local governments, public schools, state universities, and other government-affiliated agencies?
A consumer’s personal check written to pay an electronics store charge-account bill is returned three times by the depositor’s bank as NSF. What process is being used?
Who has responsibility for final approval of treasury policies that have a significant impact on the organization?
An analyst at Davis Company uses the tax payment (TXP) banking convention for payment of state taxes. The analyst is preparing to pay $650,000 in taxes to the state where Davis Company is domiciled. What payment method will the analyst use to make the tax payment?
Which institution or accord was approved in 2009 to strengthen the regulatory capital framework for banks by focusing on minimum capital requirements, supervisory review and market discipline?
A customer buys a laptop for $850 and a CD for $13. Only items with sale price of $15 and greater are subject to value added tax (VAT). Assuming VAT of 8.5%, how much tax does the customer incur at the point of sale?
XYZ Company is a fairly new and high growth company funded by venture capital. Which of the following performance measures is it MOST LIKELY to use?
XYZ Company experienced a substantial monetary loss due to over exposure to one particular sector of the stock market. The Treasurer had invested in companies tied to five different sectors, but violated the company investment policy by exceeding a 10% limit for any sector. In developing its investment policy, what should XYZ Company have considered to prevent this scenario?
ABL Corporation is currently receiving a return of 10% on its investments. The bank is offering them an ECR of 15%. In order to get more value for their money ABL Corp. has decided to take advantage of the higher ECR and use funds from its Money Market Accounts to cover bank service charges.
If ABL already has an average ledger balance of $750,000, how much more do they need to deposit on their account to cover all $10,000 of monthly service charges?
A U.S. company’s pension plan is managed by an investment management firm, headquartered outside the United States. The investment management firm outsources the accounting for the plan to an organization on the Office of Foreign Assets Control (OFAC) sanctions lists and the firm does not advise the U.S. company of this fact. A financial loss in the pension plan is later realized due to the mismanagement of funds. When establishing its contract with the firm to protect itself from losses in the pension plan, the company should have:
ABC Company, a publicly held U.S. multinational, owns several manufacturing plants in Latin America as well as several ships to transport its products globally. 60% of its sales are from its euro-based subsidiaries. The company uses various derivative instruments to mitigate exposure to fluctuations in fuel prices and FX rates. The hedging deals are long-term and placed with many counterparties. ABC Company is also a net borrower and has a syndicated credit facility in place. Which of the following actions to mitigate counterparty risk would MOST benefit the company?
A U.S. company decides to enter a new geographic market facing some dominant competitors, but projects sales growth of 40% in its first year due to its superior product line. The company decides to only offer electronic payment methods for settlement of its receivables. A year later, the company’s sales volume only increases by 10%, but their average days’ sales outstanding of 32 days is the best in the industry. What should the company have considered in its collection policy objectives?
PTC Corporation has determined that the threshold amount for initiating a wire transfer vs. an ACH payment for concentrating funds is $60,225. Wires cost $9.00 and save one day of float. If the opportunity cost is 5%, what is the cost of the ACH payment?
What should a company’s senior management consider in their payment policies to eliminate the co-mingling of funds for payables, receivables and foreign exchange transactions?
Racklyn Paint Company, a new paint and construction company, has vendor payables of $2 million due periodically over the next 3 months; payroll payable to its crews of $500K each month; a mortgage of $4.4 million with a fixed rate of 6.0%; and an equipment loan of $5 million with a bank at a 30-day LIBOR plus 150 bp payment of $100K due monthly. Racklyn receives their first contract valued at $12 million with half of the contract value due at the time of contract and final payment upon completion. Racklyn expects the job to last 6 months. Which option would be the BEST use of Racklyn Paint Company’s cash?
Due to a loss of proprietary information held for clients, ABC Company has been named in a billion dollar lawsuit. It was determined that the loss of information was due to a breach in its computer system firewalls by outside parties. When the lawsuit became public, the company experienced a steep drop in its stock price. This scenario is an example of what kind of risk?
The regional offices of ABC Company implemented a system that would allow the employees to pass information between regions in a secure fashion. This system requires that all offices have the same key in order to read messages sent electronically. Which e-commence security type is MOST LIKELY being used?
The School of Cash Management is dealing with a large bank that has been highly rated by Moody’s and S&P. The School has a purchasing card program in place and is not using a highly secure student registration data base. Both the School and the bank have highly automated payment processes. Based on the automation factor, the School should be MOST concerned about which of the following types of fraud exposure?
A treasury manager has $5 million that is not needed for 6 months. The treasury manager has decided to invest the funds in a liquid instrument, using the current portion of a 5-year AA rated corporate bond that is subject to U.S. Securities and Exchange Commission (SEC) regulations. In what market would the treasury manager purchase this investment?
What kind of budget forecasts the cost for investing activities?
Optimal dividend policy is one that does all of the following EXCEPT:
One of the advantages of raising capital through public offerings is that:
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?
In evaluating alternative capital investments, a company should consider qualitative factors such as:
Assume the cost of an ACH transaction is $0.80, the charges for a wire transfer are $30.00, the monthly account maintenance fee is $10.00, and the company earns interest at an annual rate of 1.825% on overnight investments. What is the break-even point where the interest earned on overnight investments offsets the incremental wire costs?
Which of the following are important uses of variance analysis in comparing actual cash flows with projected cash flows?
I. Identifying unanticipated changes in inventory
II. Enhancing short-term investment income
III. Validating a capital budget
IV. Identifying delays in accounts receivable collections
In terms of capital structure, lease financing normally has the same effect as:
In developing an operating budget, the first and MOST critical step is?
ASC Topic 815 (FAS 133) is applicable when accounting for which of the following?
What is the PRIMARY issue that management needs to consider when determining capital structure?
On which exchange is a company’s stock traded on the over-the-counter market?
The KEY decision in using CCD+ and CTX formats for B2B payments is:
A lender is evaluating the creditworthiness of a company that has high levels of operating leverage. In determining the debt capacity of the company, the bank would MOST LIKELY prefer a:
Company XYZ is now required to make electronic payments by its suppliers. To prevent an increase in costs, the company shoulD.
A public corporation may value a defined contribution plan highly because it:
Which of the following ACH formats is commonly used for consumer payments such as deposits of payroll?
Which of the following MOST often contributes to the misinterpretation of DSO?
The use of debt to finance a company is called:
A company's investment guidelines typically restrict all of the following EXCEPT:
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?
Merchant XYZ has total credit card sales of $20,000 for one day with an average ticket of $200. The merchant’s interchange reimbursement fees are 2% and transactions fees are $0.05. This merchant receives net settlement. Which of the following is the value of the deposit for that day?
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?
Which of the following would MOST LIKELY cause a decrease in a company's deposited checks availability?
Which of the following ways of financing accounts receivable requires a company to relinquish control of the type of customer to which it sells?
Which statement is true about private placements compared to public offerings?
XYZ Corporation is presently a short-term borrower and uses a revolving line of credit with an interest rate of 7%. The Treasurer would like to reduce interest expense and increase liquidity without renegotiating the line of credit. Which of the following projects should the Treasurer support in order to achieve this objective as quickly as possible?
A merchant closes its day with a total of 100 credit card transactions of an average ticket value of $100. The interchange reimbursement fees are 2% and transaction fees are $0.05. If this merchant receives gross settlement, what would be the value of deposit to the account for that day?
All of the following are reasons to use a confirmed irrevocable letter of credit EXCEPT concern about:
Which of the following statements is (are) true about non-repetitive wires?
I. They may require additional security steps.
II. They are typically used for cash concentration.
III. They may be used for transactions where dates, parties, and/or amounts may be variable.
A company has a beginning cash balance of $50,000. Its weekly cash flow forecast shows the following information for the next three weeks.
Which of the following statements is true?
Company RST is a seasonal retailer who has just completed its holiday season and is temporarily flush with cash. The treasurer has identified approximately $15 million of excess balances and is trying to determine what to do with the surplus cash. Cash forecasts show that the funds will be needed in approximately 30 days to replenish inventory. Which of the following plans should the treasurer implement immediately?
A U.S. company that is expecting to receive a payment of C$1,000,000 purchased a put option of C$1,000,000 at a strike price of 1.75 C$/US$. Two days before the receipt of the payment, the spot rate is 1.85 C$/US$. To maximize its receipt of dollars, the company should do which of the following?
Cash management services commonly used outside the United States include which of the following?
I. Interest-bearing deposit accounts
II. Controlled disbursement systems
III. Pooling of bank accounts
A grocery store chain would be likely to use all of the following services EXCEPT:
The time from the deposit of a check in a bank account until the funds can be used by the payee is known as:
A cash manager invests in Treasury bills for which of the following reasons?
A company can use all of the following documents to establish a relationship with a bank EXCEPT:
Which of the following are commonly used for financing accounts receivable?
I. Factoring
II. Issuing credit cards
III. Revolving bank loans
IV. Letters of credit
Which of the following can be used for monitoring accounts receivables?
I. Aging schedule
II. Credit terms
III. Days' sales outstanding
IV. Receivables balance pattern
Components of a field banking system include which of the following?
I. Local bank
II. Concentration bank
III. Lockbox bank
A company that is issuing a new class of stock would use the services of a(n):
A bank uses all of the following to determine whether a company's balances are sufficient to compensate for services EXCEPT:
Treasury management systems help cash managers do which of the following?
I. Reduce borrowing expenses
II. Initiate transfers
III. Determine cash position
IV. Obtain account balances
A retail chain with 500 locations throughout the United States would use which of the following systems?
All of the following items may be found on an income statement EXCEPT:
Compared to debt, which of the following statements is true about a company issuing equity?
A retail lockbox system is characterized by which of the following?
I. An emphasis on processing cost
II. Detailed information on discounts taken
III. Small-dollar amounts per invoice
IV. Multiple invoices per payment
Recently LEW Utilities, a local utility company, began using the company processing center method to process customer payments. Prior to this change, it used its local depository bank’s lockbox to process the payments. The PRIMARY advantage of the new method is to:
What is the premium (price) for an oil contract, if the following conditions are present?
LIBOR rate of 5%
Out of the money cost of $3
Strike price is $4
In the money price of $1
Speculative premium of $2
Based on the above information,
if the company uses the trade-off theory in considering its WACC, how will it finance its growth?
When a company announces a significant and unexpected dividend increase, it signals to the market that management expects:
Which of the following types of risk would an investor who does NOT receive payments on a security under the original terms be subject to?
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?
Which of the following is true of return on investment (ROI)?
A company has six fraudulent checks clear its primary disbursement account for a total of $7,652. The bank agrees to split the loss with the company to maintain a good relationship. As a condition of sharing the expense, the bank requires the company to establish positive pay on its disbursement accounts or have the company absorb the losses on future fraudulent payments.
If the company determines that positive pay is too expensive and decides NOT to implement it, what type of risk financing technique is the company using?
XYZ Inc. has limited cash flow, total liabilities to total assets greater than 52%, and a high WACC. To help meet the goal of lowering their WACC, the company plans to issue several million dollars of private equity to the chairman of the board. If the company proceeds with this plan, the company may:
A small for-profit, start-up company is designing a retirement plan with the goal of minimizing costs and operating income volatility while providing a qualified retirement savings vehicle. Which of the following would be the BEST choice?
Given the above information,
if the risk manager adds a tank at its second facility, what loss control technique is being used?