Reference no: EM133077092

Questions -

Q1. Bridgeport Inc has a P30 million revolving credit agreement with its bank at prime plus 3.2% based on a calendar year. Prior to the month of April, it had taken down P15 million that was outstanding for the entire month. On April 10, it took down another P5 million. Prime is 8.2%, and the bank's commitment fee is 0.25% annually. Calculate the total charges associated with Bridgeport's revolving credit agreement for the month of April.

a. P174,167 b. P2,427 c. P176,594 d. P171,740

Q2. The Milton Company currently purchases an average of P22,000 per day in raw materials on credit terms of "net 30." The company expects sales to increase substantially next year and anticipates that its raw material purchases will increase to an average of P25,000 per day. Milton feels that it may need to finance part of this sales expansion by stretching accounts payable. Assuming that Milton currently waits until the end of the credit period to pay its raw material suppliers, what is its current level of trade credit? (Assume a 365-day year when converting from annual to daily amounts or vice versa.)

a. P750,000 b. P660,000 c. P90,000 d. P364,999

Q3. Using the information in, now, if Milton stretches its accounts payable an extra 10 days beyond the due date next year, how much additional short-term funds (that is, trade credit) will be generated?

a. P340,000 b. P220,000 c. P250,000 d. P660,000

Q4. The Pulaski Company has a line of credit with a bank under which it can borrow funds at an 8% nterest rate. The company plans to borrow P100,000 and is required by the bank to maintain a 15% compensating balance. What is the annual financing cost of the loan if the company currently maintains P7,000 in its bank account that can be used to meet the compensating balance requirement. (Assume a 365-day borrowing period.)

a. 7.6% b. 8.0% c. 8.7% d. 9.2%

Q5. Refer to #4. Determine the annual financing cost of the loan if the company currently has no funds in its account at the bank that can be used to meet the compensating balance requirement. (Assume a 365-day borrowing period.)

a. 9.41% b. 8.50% c. 17.6% d. 7.41%

Q6. What is the effective annual cost of trade credit given payment terms offering a 3% discount if payment is received 15 days after purchase or payment in full is due in 45 days (Assume 360 days per year)?

a. 36% b. 37.11% c. 45.03% d. 30%

Q7. The York Company has an average receivables balance of P55,000, which turns over once every 30 days. It offers all of its receivables to its bank as collateral for short-term borrowing (pledging). The bank generally accepts 60% of the accounts offered and advances cash equal to 85% of those. Interest is 3% over prime and the bank charges a 1% administrative fee on the gross value of all accounts offered. The prime rate is currently 9.5%. What effective rate is York paying for its receivables financing (Assume 360 days per year)?

a. 12.5% b. 18.4% c. 23.5% d. 36.0%

Q8. Peterson Electronics is considering using wire transfers instead of depository transfer checks in moving funds from the six collection centers to its concentration bank. Wire transfers would reduce the elapsed time by 3 days. Depository transfer checks cost P0.50 (including postage), and wire transfers cost P10. Assume there are 250 working days per year. Peterson can earn 7 percent before taxes on any funds that are released through more efficient collection techniques. What is the net (pretax) benefit to Peterson of using wire transfers if annual sales are P15 million (Assume 365 days per year)?

a. -P8,630 b. -P5,620 c. P14,250 d. P5,620

Q9. Pyramid Products Company has a revolving credit agreement with its bank with which the company can borrow up to P1 million at an annual interest rate of 9%. Pyramid is required to maintain a 10% compensating balance on any funds borrowed under the agreement and to pay a 0.5% commitment fee on the unused portion of the credit line. Assume that Pyramid has no funds in the account at the bank that can be used to meet the compensating balance requirement. Determine the annual financing cost of borrowing P250,000 under the credit agreement. (Assume a 365-day borrowing period.)

a. 15.32% b. 10.4% c. 11.67% d. 12.41%

Q10. Refer to #9. Determine the annual financing cost of borrowing P500,000 under the credit agreement. (Assume a 365-day borrowing period.)

a. 11.67% b. 14.22% c. 9.56% d. 10.56%

Q11. Refer to #10. Determine the annual financing cost of borrowing P1,000,000 under the credit agreement. (Assume a 365-day borrowing period.)

a. 11.67% b. 10.00% c. 12.56% d. 10.56%

Q12. The Odessa Supply Company is considering obtaining a loan from a sales finance company secured by inventories under a field warehousing arrangement. Odessa would be permitted to borrow up to P300,000 under such an arrangement at an annual interest rate of 10%. The additional cost of maintaining a field warehouse is P16,000 per year. What will be the annual financing cost of a loan under this arrangement if Odessa borrows the P300,000?

a. 11.6% b. 12.6% c. 15.3% d. 18.7%

Q13. Refer to #12. Determine the annual financing cost of a loan under this arrangement if Odessa borrows P250,000.

a. 14.7% b. 10.0% c. 15.6% d. 16.4%

Q14. Baltic Compounds' financial managers estimate that the firm will require P1.5 million in short-term financing over the coming year. How large a loan should the managers obtain from the firm's bank if the loan calls for discount interest with a stated interest rate of 10%?

a. P1,666,667 b. P1,350,000 c. P150,000 d. P666,667

Q15. How large a loan should the managers obtain from the firm's bank if the loan calls for simple interest with a stated interest rate of 10% and a 15% compensating balance requirement?

a. P1,666,667 b. P1,764,706 c. P1,350,000 d. P1,275,000

Q16. How large a loan should the managers obtain from the firm's bank if the loan is a discount loan with a 10% stated rate and a 15% compensating balance requirement?

a. P1,666,667 b. P1,764,706 c. P2,000,000 d. P1,125,000

Q17. Raleigh Manufacturing needs P5.0 million short-term credit for 90 days. The firm intends to sell commercial paper with a discount interest rate of 15%, dealer placement fees of P75,000, and other flotation costs of P15,000. How large should the commercial paper issue be (Assume 360 days per year)?

a. P5,090,000 b. P5,288,312 c. P5,015,000 d. P3,817,500

Q18. The following information relates to Zinc Corporation for last year:

Sales P500,000

Net operating income P25,000

Degree of operating leverage 5

Sales at Zinc are expected to be P600,000 next year. Assuming no change in cost structure, this means that net operating income for next year should be:

a. P30,000 b. P45,000 c. P50,000 d. P125,000

Q19. Sales in East Company declined from P100,000 per year to P80,000 per year, while net operating income declined by 300 percent. Given these data, the company must have had an operating leverage of:

a. 15 b. 2.7 c. 30 d.12

Q20. Gamma Company has sales of P120,000, a contribution margin of P48,000, and a net operating income of P12,000. The company's degree of operating leverage is:

a. 2.5 b. 4.0 c. 10.0 d. 4.8

Q21. Alpha Company reported the following data for its most recent year: sales, P500,000; variable expenses, P300,000; and fixed expenses, P150,000. The company's degree of operating leverage is:

a. 10 b. 2 c. 4 d. 2.5

Q22. Moruzzi Corporation is a single-product company that expects the following operating results for next year:

Sales P320,000

Contribution margin per unit P0.20

Contribution margin ratio 25%

Degree of operating leverage 8

How many units would Moruzzi have to sell next year to break-even?

a. 50,000 b. 200,000 c. 280,000 d. 350,000