FIN 3300 Exam Questions with Verified
Solutions
Cost of Debt - ANS-The return that lenders require on the firm's debt
Weighted Average Cost of Capital - ANS-The weighed average of the cost of equity and
the aftertax cost of debt
Pure Play Approach - ANS-Use of a WACC that is unique to a particular project based
on companies in similar lines of business
Operating Cycle - ANS-The time period between the acquisition of inventory and the
collection of case from receivables
Inventory Period - ANS-The time it takes to acquire and sell inventory
Accounts Receivable Period - ANS-The time between sale of inventory and collection of
the receivable
Accounts Payable Period - ANS-The time between case disbursement and case
collection
Cash Cycle - ANS-The time between case disbursement and case collection
Cash Flow Time Line - ANS-Graphical representation of the operating cycle and the
cash cycle
Carrying Costs - ANS-Costs that rise with increases in the level of investment in current
assets/ cost of storing larger amounts of inventory
Shortage Costs - ANS-order costs and stock out costs
Order costs - ANS-The cost of ordering additional inventory or transferring cash
Stock-Out Costs - ANS-The cost of lost sales due to lack of inventory, including lost
customers
Cash Budget - ANS-A forecast of cash receipts and disbursements for the next planning
period
, Line of Credit - ANS-A formal (committed) or informal (noncommittal) prearranged,
short-term bank loan
Mortgage Document - ANS--technically the security of the debt
-Lender is now called the "Mortgagee"
-and the borrower is now called "Mortgagor"
Mortgage Document #2 - ANS-legal description on it
- you must maintain the property
covenant of removal - ANS-you're not allowed to pick up the house and move it to a
new property
-literally move the collateral on the property
-sometimes you are restricted from cutting trees down
-you have to keep the property insured
-record interest on the property
---Record the mortgage or a mortgage lien
---can get more than one mortgage on a home
pay property taxes - ANS-if you don't the government will sell the property
New loan transfer settings - ANS-borrower gets a new loan plus the down payment and
they pay the...
Cash transfer setting - ANS-Pay in cash/ or check
subject to or assumption - ANS-the buyer pays the seller the equity and simply takes
over the other persons loan.
due on sales clause - ANS-whatever the loan balance is at the time of sale, you have to
pay the balance
terminating the loan - ANS-the most common way to terminate the loan is to (pre-pay)
-7 years most loans are (pre-payed)
-pay it off over the life of the loan (doesn't happen very often)
-back in the day loans used to be 20 years, and that didn't change until relatively
recently
-you couldn't't even refinance your home (that changed in the 70s)
Mortgage burning party - ANS-parties when the mortgage document was completed
foreclosure - ANS--not a happy ending
-lenders don't like foreclosure
----because of money; lender loses money when a house goes into foreclosure
Solutions
Cost of Debt - ANS-The return that lenders require on the firm's debt
Weighted Average Cost of Capital - ANS-The weighed average of the cost of equity and
the aftertax cost of debt
Pure Play Approach - ANS-Use of a WACC that is unique to a particular project based
on companies in similar lines of business
Operating Cycle - ANS-The time period between the acquisition of inventory and the
collection of case from receivables
Inventory Period - ANS-The time it takes to acquire and sell inventory
Accounts Receivable Period - ANS-The time between sale of inventory and collection of
the receivable
Accounts Payable Period - ANS-The time between case disbursement and case
collection
Cash Cycle - ANS-The time between case disbursement and case collection
Cash Flow Time Line - ANS-Graphical representation of the operating cycle and the
cash cycle
Carrying Costs - ANS-Costs that rise with increases in the level of investment in current
assets/ cost of storing larger amounts of inventory
Shortage Costs - ANS-order costs and stock out costs
Order costs - ANS-The cost of ordering additional inventory or transferring cash
Stock-Out Costs - ANS-The cost of lost sales due to lack of inventory, including lost
customers
Cash Budget - ANS-A forecast of cash receipts and disbursements for the next planning
period
, Line of Credit - ANS-A formal (committed) or informal (noncommittal) prearranged,
short-term bank loan
Mortgage Document - ANS--technically the security of the debt
-Lender is now called the "Mortgagee"
-and the borrower is now called "Mortgagor"
Mortgage Document #2 - ANS-legal description on it
- you must maintain the property
covenant of removal - ANS-you're not allowed to pick up the house and move it to a
new property
-literally move the collateral on the property
-sometimes you are restricted from cutting trees down
-you have to keep the property insured
-record interest on the property
---Record the mortgage or a mortgage lien
---can get more than one mortgage on a home
pay property taxes - ANS-if you don't the government will sell the property
New loan transfer settings - ANS-borrower gets a new loan plus the down payment and
they pay the...
Cash transfer setting - ANS-Pay in cash/ or check
subject to or assumption - ANS-the buyer pays the seller the equity and simply takes
over the other persons loan.
due on sales clause - ANS-whatever the loan balance is at the time of sale, you have to
pay the balance
terminating the loan - ANS-the most common way to terminate the loan is to (pre-pay)
-7 years most loans are (pre-payed)
-pay it off over the life of the loan (doesn't happen very often)
-back in the day loans used to be 20 years, and that didn't change until relatively
recently
-you couldn't't even refinance your home (that changed in the 70s)
Mortgage burning party - ANS-parties when the mortgage document was completed
foreclosure - ANS--not a happy ending
-lenders don't like foreclosure
----because of money; lender loses money when a house goes into foreclosure
