CEC Study Guide

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Texas Southern University *

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339

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Finance

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Feb 20, 2024

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docx

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1. 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 2. You are calling for the first time on the owner of a successful local business that currently banks with another bank in your market. You are very interested in developing a banking relationship with the business and its owner. Which of the following goals will be most important to achieve in the initial meeting? A. obtain a commitment from the owner to open a checking account at your bank B. Offer a term sheet outlining a loan at a competitive rate C. Learn about the owner's business and personal objectives D. Gather the most recent financial statements on the business 3. Gruper Home Appliances, Inc., a manufacturer of kitchen appliances, sells 70% of its goods to X-Mart, a large national retailer of consumer durables. Which of the following best describes the reason why Gruper has a low degree of bargaining power with X- Mart? A. There are no substitutes for the product B. The suppliers have high variable costs C. Customers have brand loyalty D. Sales are concentrated with a large volume buyer 4. The NBER has released a report that suggest 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 school fashion retailer C. A manufacturer of auto engines D. A local accounting firm 5. Parsons and Associates is a highly regarded business financial advisory firm located in a downtown office building that was founded thirty-five years ago by Grant Parsons. Your bank has a long-term relationship with both the business and the founder. You recently saw Grant Parsons at a bank-sponsored economic outlook forum and he suggested you stop by his office to discuss some potential opportunity. Based on the type of company and the life cycle stage, which of the following do you think is the most likely opportunity to be discussed? A. A mortgage to fund the purchase of a new building B. A line of credit to fund a seasonal buildup in receivables C. A term loan to fund the buyout of his interest by his partners D. A new loan to refinance his home mortgage

6. The Conference Board's Report of Economic Indicators recently published the following report: "The Conference Board announced today that interest rates remain low. Reports indicated that companies are holding lower inventories and capital expenditures have decreased. The availability of credit continues to be tight" Based on the above report, which of the following best describes the current stage in the general business cycle? A. Early Expansion B. Late Expansion C. Early contraction D. Late contraction 7. You are preparing to meet with the owner of 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, the owner will most likely have a need for: A. a commercial mortgage loan to purchase a 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 8. The economy is entering the late contraction stage of the business cycle. Your Bank has four customers requesting an increase to their lines of credit. Assuming their overall creditworthiness is comparable, which of the following customers would exhibit the least risk to the Bank? A. a wholesaler of floor coverings B. An upscale children's clothing boutique C. A beer and soda distributor D. a temporary staffing firm 9. In which industry lifecycle stage would companies be most likely to focus on cost discipline? A. Introductory B. Growth C. Mature D. Decline 10.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 11.In which company lifecycle stage is a company most likely to invest in equipment that adds efficiency? A. Introductory B. Growth C. Mature D. Declining 12.Which of the following statements best describes the relationship between product and industry lifecycle stages? A. a product's lifecycle stage by definition coincides with its industry's lifecycle stage B. product lifecycle stages generally lag their industry by one stage C. product lifecycle stages generally lead their industry by one age D. Individual products can be variable in their lifecycle timing compared to overall industry stage 13.Clara's Costumes is a retailer of costumes, primarily purchased for Halloween. Which of the following characteristics would most likely be present in Clara's financial statements? A. Inventory will increase immediately following the seasonal peak B. The need for credit will be lowest during the high point in the operating cycle C. Receivables will increase after the increase in inventory D. Fixed asset spending will be highest at the seasonal peak 14.GCC, Inc. is a local firm that provides general contracting services to commercial real estate developers operating in your region. In assessing the sustainability of the company's revenues, which of the following questions would be least relevant to ask? A. what is your current backlog of contracts? B. how many developers do you work with? C. What is the outlook for the economy in the region? D. How much did your sales grow last year? 15.Which of the following expenses is not included in an income statement? A. Interest expense B. Depreciation C. Principal repayment D. Repairs and maintenance

16.Which of the following would be considered a variable cost? A. cost of property and casualty insurance B. Salary paid to the CFO C.rent of the production and office facilities D. wages paid to customer service reps 17.Six months ago a high fashion retailer opened an outlet store to sell out-of- season goods left over from its main location. A review of the retailer's current year results compared to prior years is likely to show which of the following results? A. lower sales growth B. higher operating margin C. lower gross profit margin D. higher income taxes 18.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: Y1: 5.4x, Y2:6.0x, Y3:6.2x, Y4:1.45x which statement is the most logical reason for the change in turnover seen in Y4? A. company's sales grew sharply in Y4 B. company opened a new plant in Y4 C. company changed it's sales mix in Y4 D. company sold some of its delivery trucks in Y4 19.As the credit analyst of Your Bank, you have been asked to assess the liquidity of Burgess Corp, a distributor of office supplies. Which of the following measures would provide the most accurate measure of liquidity? A. NWC B. Quick ratio C. Current ratio D. working capital/sales 20.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 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 equiptment 21.During a recent meeting with Your Bank's loan committee, you were asked to determine why Clear Lights, a manufacturer of lights used in office buildings, requested financing. It was stated that the company has positive cash flow after debt amortization. What then would be the cause of the financing request? A. operating expenses B. dividend payments C. interest expense D. capital expenditures 22.Which of the following events would create a cash inflow in a DCF statement? A. stable sales with declining margins B. longer customer payment terms C. slower payment of trade creditors D. pay off existing bank debt 23.If a company has negative net cash income, which of the following observations is true? A. the company did not generate enough cash flow from sales to cover cash production costs B. The company did not generate enough net cash after operations to cover interest and dividends C. the company did not generate enough cash after operations to pay its taxed D. the company did not generate enough cash profits to cover its cash operating expenses 24.A company with current-year sales of $4,500,000 and COGS of $3,248,000 reduced its inventory days from 119 days in the prior year to 115 days for the current year. Its receivable days slowed from 40 days to 43. What was the cash flow effect of these swing-factor efficiency changes? A. no cash flow effect B. ($1,000) C. $9,000 D. $12,000 change in receivable went from 493(4500/365x40) to 530(4,500/365x43), which is an increase (outflow) of $37 inventory went from $1059 (3,248/265x119) to $1,023(3,248/365x115), which is

a decrease of $36. net cash flow effect is $36-$37 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.Cheap Stuff, ltd. is a distributor of goods to discount stores. The company has experienced 12% sales growth over the last three years. Despite continued economic declines projected, the company is forecasting continued sales growth of 10-15% each year over the next 3 years. Which of the following sources of financing would be most appropriate to support related increases in receivables and inventory? A. demand note B. seasonal line of credit C. bridge loan D. revolving line of credit 27.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 forecasts C. industry and economic reports D. organizational charts and job descriptions 28.Which of the following best describes the order in which a manual projection is constructed?

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