Question 1

If a company has $126 million in debt at an average cost of 7% and $234 million in equity at a cost of 11%, what is its weighted average cost of capital, assuming a marginal tax rate of 35% and a risk-adjusted rate of 13%?

Options :

A : 8.7%

B : 9.6%

C : 10.0%

D : 10.9%

Answer: A

Question 2

The issue of corporate governance in publicly traded companies arises from:

Options :

A : the separation of shareholder ownership and management control.

B : the conflict between the interests of bond holders and equity holders.

C : the secrecy surrounding the proceedings of board of directors meetings.

D : the inherent conflict of interest that exists when accounting firms are paid to provide audit services.

Answer: A

Question 3

A pizza restaurant chain maintains separate accounts at bank branches near each of their1,067 restaurants to handle the deposit of cash received. Early each morning, thecompany’s point-of-sale system electronically transmits collection totals from the previousday to its main computer. ACH debits are then initiated to concentrate the funds from thelocal accounts to the concentration account the following day. Recently, several of the ACHdebits have been returned for insufficient funds because deposits weren’t being taken tothe bank on a timely basis by the local employees. Without increasing staff at therestaurants, what could Treasury do to prevent this from happening and avoid overdrafts atthe local banks?

Options :

A : Negotiate better float schedules at its local banks.

B : Install smart safes at each restaurant location.

C : Use a courier to deposit to each bank 3 times per week

D : Use wire transfers to concentrate the cash instead of ACH.

Answer: B

Question 4

A diversified industrial company operates multiple remote manufacturing facilities that manage local supplier relationships. The company draws on a single line of credit for all of its working capital needs. Which of the following types of disbursement systems would BEST meet this company's needs?

Options :

A : Centralized check issuance drawn on a central disbursement bank

B : Decentralized check issuance drawn on a local disbursement bank

C : Decentralized check issuance drawn on a central disbursement bank

D : Centralized check issuance drawn on a local disbursement bank

Answer: C

Question 5

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?

Options :

A : ABC’s credit rating will suffer.

B : The customer’s working capital has deteriorated.

C : ABC’s working capital is unchanged.

D : The customer’s cost of borrowing will increase.

Answer: C

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