21. Your manager has asked you to prepare an analysis for a borrowing request at
ID: 346569 • Letter: 2
Question
21. Your manager has asked you to prepare an analysis for a borrowing request at Your Bank. Which of the following tasks are you most likely to complete first?
A. Prepare a term sheet.
B. Create a projection.
C. Analyze the company’s available collateral.
D. Evaluate the company’s business strategy.
22. You are preparing to meet with the owner of Style-For-Less, a successful retailer of apparel geared to young professionals. The owner has obtained and outfitted a second location in a high-traffic retail mall in preparation for its planned opening and has asked to meet with you to discuss a possible financing need. Based on the industry, you think the owner will most likely have a need for:
A. A commercial mortgage to purchase the new location
B. A lease to fund the acquisition of store fixtures
C. A line of credit to purchase inventory for the upcoming season
D. A term loan to purchase a point-of-sale system
23. Weatherproof Windows is a manufacturer of replacement windows for residential use. The company reports fixed asset turnover ratios as follows for the last four years:
Year 1
Year 2
Year 3
Year 4
5.4x
6.0x
6.2x
1.45x
Which statement is the most logical reason for the change in turnover seen in Year 4?
A. The company’s sales grew sharply in Year 4.
B. The company opened a new plant in Year 4.
C. The company changed its sales mix in Year 4.
D. The company sold some of its delivery trucks in Year 4.
24. Which of the following best describes the order in which a manual projection is constructed?
A. The amount of existing and new debt is determined to project interest and principal payments.
B. Capital expenditures and working capital needs are forecast to estimate total borrowing needs.
C. The income statement is constructed before calculating the swing factors and other elements on the balance sheet.
D. Net income and dividends are projected to determine retained earnings and total net worth on the balance sheet.
25. A company’s accounts payable days have increased from 14 to 37. Which of the following explanations suggests the least appropriate management decision from the bank’s perspective that lead to this change?
A. Management decided to stock commonly purchased items formerly sold as special-order merchandise. They relinquished some trade discounts by extending payments to suppliers to finance the inventory. The net effect on cash flow was a small increase in net cash after operations.
B. Management purchased extra inventory, at a very attractive price, from a supplier left with excess stock after its own largest customer canceled an order. The supplier agreed to extend terms for the purchase. The net effect on cash flow was a slight decrease in net cash after operations.
C. Management used supplier credit to reduce its bank line of credit, so it could meet a debt service coverage covenant on a term loan. Relinquished supplier discounts offset the saved interest expense. The net effect on cash flow was a significant increase in net cash after operations.
D. Management extended its supplier payments to manage cash flow during very slow seasonal sales caused by unusually harsh weather conditions. Inventory days have increased, and the company relinquished supplier discounts. The net effect on cash flow was a small decrease in net cash after operations.
26. The NBER has released a report that suggests the economy is showing signs that it is moving into early contraction. You review your current portfolio to develop a list of customers that are likely to fare best through this cycle. Which of the following would be included on your list?
A. A plumbing supplies distributor
B. A local high fashion retailer
C. A manufacturer of auto engines
D. A local accounting firm
27. In which company lifecycle stages is a company most likely to be profitable?
A. Introductory and growth
B. Growth and mature
C. Mature and declining
D. Introductory and declining
28. Which of the following sources of information is least critical when developing a set of projections?
A. Past operating results of the company.
B. Management reports including business plan, strategic objectives, mission statements, management and forecast.
C. Industry and economic reports.
D. Organizational charts and job descriptions.
29. A distributor of office equipment has experienced moderate sales growth in each of the last three years while gross and operating profit margins have remained stable. Each year the company has shown a declining amount of cash after operations. What is the most logical cause of the declining cash after operations?
A. Higher dividend and interest payments.
B. Increasing reliance on trade creditors.
C. Less efficient inventory management.
D. Acquisition of new capital equipment.
30. In which industry lifecycle stage would companies be most likely to focus on cost discipline?
A. Introductory
B. Growth
C. Mature
D. Decline
Year 1
Year 2
Year 3
Year 4
5.4x
6.0x
6.2x
1.45x
Explanation / Answer
21. Your manager has asked you to prepare an analysis for a borrowing request at Your Bank. Which of the following tasks are you most likely to complete first?
Answer = C. Analyze the company’s available collateral.
22. You are preparing to meet with the owner of Style-For-Less, a successful retailer of apparel geared to young professionals. The owner has obtained and outfitted a second location in a high-traffic retail mall in preparation for its planned opening and has asked to meet with you to discuss a possible financing need. Based on the industry, you think the owner will most likely have a need for:
Answer = B. A lease to fund the acquisition of store fixtures
23. Weatherproof Windows is a manufacturer of replacement windows for residential use. The company reports fixed asset turnover ratios as follows for the last four years:Which statement is the most logical reason for the change in turnover seen in Year 4?
Answer = B. The company opened a new plant in Year 4.
27. In which company lifecycle stages is a company most likely to be profitable?
Answer = B. Growth and mature
28. Which of the following sources of information is least critical when developing a set of projections?
Answer = D. Organizational charts and job descriptions.
29. A distributor of office equipment has experienced moderate sales growth in each of the last three years while gross and operating profit margins have remained stable. Each year the company has shown a declining amount of cash after operations. What is the most logical cause of the declining cash after operations?
Answer = B. Increasing reliance on trade creditors.
30. In which industry lifecycle stage would companies be most likely to focus on cost discipline?
Answer = D. Decline
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