MBA Finance

Assignment A

Question 1.(i) Sweat equity is the best form of reward for those who contribute to the growth of a company. Discuss.

(ii) Why do investor add real estate in their portfolio?

(iii) What are the steps taken by SEBI in the primary market to protect investors?

Question 2 (i) Discuss the dematerialisation and rematerialisation processes in NSDL?

(ii) ‘Stock market indices are the barometers of the stock market’ – Discuss?

(iii) How can increasing short interest give a bullish interpretation Why?

Question 3.(i) Explain the utility of the economic analysis and state the economic factors considered for this analysis.

(ii) What is meant by fundamental analysis? How does fundamental analysis differ from technical analysis?

(iii) What “industry life cycle exhibits the status of the industry and gives the clue to entry and exit for investors” Elucidate.

Question 4.Stocks L and M have yielded the following returns for the past two years.

(i) What is the expected return on portfolio made up of 60 percent of L and 40 percent of M? Find out the standard deviation of each stock.

(ii) What is the covariance and co-efficient of correlation between stock L and M?

(iii) What is the portfolio risk of a portfolio made up of 60 percent of land 40 percent

Question5. For the first four years XYZ firm is assumed to grow at a rate of 10 per cent. After four years the growth rate of dividend is assumed to decline linearly to 6 per cent. After 7 years, the firm is assumed to grow at a rate of 6 per cent infinitely. The next year dividend is Rs.2 and the required rate of return is 14 per cent. Find out the value of the Stock.

Question 6.Mr. Rajan Tiwari is planning to invest in the equity stocks of Xerox India Limited. The current share price is Rs.150 per share. Xerox has declared a dividend of Rs.10 per share for the current year. Mr. Tiwari is of the opinion that the dividend per share will remain at the same level for the next two years, after which it will grown at the rate of 25% per annum in the third and fourth years. From the fifth year onwards, dividends are expected to grow at a

normal rate of 12% per annum. If the required rate of return of Mr. Tiwari is 14% per annum, do you suggest him to purchase the share at the current price.

a. Intrinsic value of the stock is Rs.551.98 and it is recommended to purchase the share

b. Intrinsic value of the stock is Rs.551.98 and it is nor recommended to purchase the share.

c. Intrinsic value of the stock is Rs.517.83 and it is recommended to purchase the share.

d. Intrinsic value of the stock is Rs.517.83 and it is not recommended to purchase the share

e. Intrinsic value of the stock is Rs.150 and it is recommended to purchase the share.

Question 7. Vishnu ltd, has just paid a dividend of Rs.16 per share. As a part of its major reorganization of its operations, it has stated that it does not intend to pay any dividend for the next two years. In three years time it will commence paying dividend at Rs.12 per share and the directors have indicated that they expect to achieve dividend growth at 14% p.a.thereafter.

If the reorganization does not take place, dividend will be paid in the next two years and the expected dividend growth will remain at the present level of 8% p.a. The firm’s cost of equity is 18% (i.e. the return expected by the equity investors) and will be unaffected by the reorganization. What will be the value of firm’s shares in both the situations? Moreover, advice the directors to which process they should adopt for?

Question 8. Sundaram finance Ltd. has an investment opportunity available which will involve a capital outlay in each of the next 2 years and which will produce benefits during the following 3 years. A summary of the financial implications of this investment is given below.

Assignment B

Read the case study given below and answer questions given at the end.

Case study

Question 1. Compute the beta and interpret it for Prashant. Examine different circumstances with analysis of data.

Assignment C

1. Which of the following is /are true?

a. All investments are speculative by nature

b. Genuine investments involve calculated risks which are consistent with the expected returns

c. The ultimate objective of an investment or speculative stock is to increase the terminal wealth of the person concerned

d. Both b and c above

2. Which of the following is not an investment constraint?

a. Liquidity

b. The absence of the need for regular income

c. the preferred time horizon

d. Risk tolerance

3. A straight debenture is one which

a. Offers straight interest payments and is redeemed at par

b. Can be transferred by simple endorsement and delivery

c. Does not have a charge on any of the company’s assets

d. Is automatically converted into a share at maturity

4. The issuing company has to create a Debenture Redemption Reserve up to _________ of the amount of debentures to be redeemed, before the date of redemption

a. 10%

b. 25%

c. 30%

d. 50%

5. Which of the following is not a non-security form of investment?

a. National savings scheme

b. Purchase of gold and art objects

c. Bank deposits

d. Corporate fixed deposits

6. Corporate fixed deposits

a. Are secured by the fixed assets of the issuing company

b. Have no upper limit on the interest rate they offer

c. Have a minimum maturity of 3 years

d. Cannot exceed 10% of the share capital plus free reserves

7. The threshold limit for total FII investments in an Indian company is

a. 10%

b. 24%

c. 30%

d. none

8. Risk(s) affecting all the securities in the market is/are

a. Risk due to variability in returns due to changed investors’ expectations

b. Financial risk

c. Inflation risk

d. both a & c

9. The risk for the whole market as measured by ‘Beta’ is

a. 1

b. b. 0

c. c. -1

d. Greater than 1

10. Of the following, systematic risk encompasses

a. Business risk

b. Inflation risk

c. Interest rate risk

d. Both b and c

11. Securities which are plotted above the SML line are

a. Under priced

b. Over priced

c. Favourable investments

d. Both a and c

12. Covariance between a stock and a market index and the variance of the market

index were found to be 33.56 and 19.15 respectively. The Beta of the stock is

a. 1.55

b. 1.75

c. 1.85

d. 1.95

13. The beta of a stock is 1.12 and its covariance with the market is 220. The

standard deviation of market returns is

a. 16%

b. 14%

c. 12%

d. 11.30%

14. The characteristic line established the relationship between

a. Return on a security and its beta

b. return on a security and its standard deviation

c. Return on the security and return on the market

d. Risk of the security and risk of the market

15. Which of the following statements is true?

a. Slope of SML is known as beta

b. Slope of CML is known as beta

c. CML includes inefficient portfolios

d. CML is a relationship between total risk and required return.

16. Government securities are free from

a. Default risk

b. Purchasing power risk

c. Interest rate risk

d. Reinvestment risk

17. Riskiness’ of a security in the context of security analysis essentially means

a. Variability of the security’s returns

b. Variability of returns above a benchmark mentioned by clients

c. Variability of returns below a benchmark mentioned by clients

d. Market risk

18. Market Indicators are employed in

a. Studying the behavior of the stock market

b. Evaluating the performance of the portfolios

c. Calculating betas of the securities

d. All of the above

19. As the business cycle enters the initial phase of economic recovery the stock

prices generally

a. Decline

b. Maintain the same trend as before

c. Rise

d. Rise to an extent and then take a downturn

20. Cyclical industries are those

a. Which experience high growth rates when economy is booming

b. Which perform irrespective of the economic conditions

c. Which experience downtrend when economy is in recession

d. Both a and c

21. High growth rates in earnings and market shares is a characteristic of companies which are in

a. Maturity stage

b. Expansion stage

c. Pioneering stage

d. Declining stage

22. Which among the following is not volatile?

a. Cyclical growth industries

b. Growth industries

c. Cyclical industries

d. Defensive industries

23. In a balance sheet, equity and fixed assets are expressed in terms of their

a. Market value

b. Cost

c. Book value

d. Replacement value

24. The measurement of leverage is

a. PAT/Equity

b. Equity/Debt

c. Total assets/Equity

d. Total assets/Debt

25. Which of the following is/are cyclical industries?

a. Steel and Iron

b. Construction

c. Shipping

d. Cement

26. An industry in the expansion stage of its life cycle is indicated by

a. High P/E ratios

b. High dividend pay out ratios

c. High dividend yield

d. High investment in R & D

27. A business division with high growth but low relative market share is referred

to as a

a. Cash cow

b. Profit center

c. Question Mark

d. Star

28. during an inflationary period a company can artificially show higher profits by

a. Moving from FIFO and LIFO method of inventory valuation

b. Moving from LIFO to FIFO method of inventory valuation

c. Shifting from FIFO to the weighted method of inventory valuation

d. None of the above

29. An industry in the growth stage of its life cycle is indicated by

a. High P/E ratios

b. High dividend pay out ratios

c. High dividend yield

d. High investment in R & D

30. Which of the following is not an entry barrier?

a. Profit differentiation

b. Switching costs

c. Capital requirements

d. Low value addition

31. For a symmetrical triangle to be formed in a series of rallies

a. The succeeding peaks are lower than the preceding ones at the top

b. The succeeding crest at the bottom are lower than the preceding ones

c. The succeeding crest at the bottom are higher than the preceding ones

d. Both a and c

32. If a vertical rally or decline comes to a temporary halt to consolidate the

gain/loss after which the prices move in the same direction, give rise to

a. Flag

b. Rectangle

c. Gap

d. Both a and b

33. Which of the following is a measure of momentum against itself?

a. Relative strength indicator

b. Rate of change

c. MACD

d. Stochastic

34. In a technical analysis the exponent value for calculating a 10 day Exponential

Moving Average will be

a. 0.2

b. 0.1

c. 2

d. 20

35. In technical analysis the odd-lot theory is a classic example of

a. Oscillator

b. Breadth of market indicator approach

c. Contrarian opinion theory

d. Dow Theory

36. The argument that when stock prices increase, the closing prices have a tendency to be closest to the peaks of the period, forms the basis of

a. Exponential moving average

b. Confidence index

c. Elliott wave theory

d. Stochastic

37. Which of the following best measures the strength of market advances of

declines?

a. Moving average analysis

b. Stochastic

c. Gap analysis

d. Breadth of market indicators

38. Which of the following is an assumption of technical analysis?

a. market value is determined by the interaction of different judgmental value parameters

b. Supply and demand are governed by factors which are only rational

c. Stock prices tend to fluctuate widely over appreciable period of time and hence

cannot be predicated

d. Chart patterns tend to repeat themselves

39. An investor buys an option contract for a premium or Rs. 200. The exercise price is Rs. 20 and the current market price of the share is Rs. 17, if the share

price after three months reaches Rs. 25, what is the profit made by the option

holder on exercising the option. Contract is for 100 shares. Ignore the transaction charges

a. Rs. 200

b. Rs. 250

c. Rs. 300

d. Rs. 350

40. A put option was written at a premium of Rs. 400. The current market price of

the stock is Rs. 38 and the exercise price of the contract is Rs. 35. After a

period of two months the price of the stock is Rs. 30. The amount of the profit

made by the option holder is Rs. ___________

a. 325

b. 250

c. 150

d. 100

Or

 

1. India’s largest stock exchange is
2. Stock exchanges have  roles in the economy
3. There is usually…….compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange.
4. Buyers and sellers come together to trade ………specific hours on business days.
5. If a particular company is traded on an exchange, it is referred to as ……….
6. When people draw their savings and invest in shares, it leads to a more …………. allocation of resources
7.   Exchanges ……… rules and regulations on the firms and brokers that are involved with them.  
8. investing in shares is open to ……… the large and small stock investors
9. Companies that are not listed on a stock exchange are sold ……..
10. An exchange is an institution, organization, or association which hosts a market where stocks, bonds, options and futures, and commodities are traded. 
11. Listing requirements are the set of conditions imposed by a given ……… upon companies that want to be listed on that exchange
12. Stock exchanges originated as ……. organizations, owned by its member stock brokers.
13. Some exchanges are physical locations where transactions are carried out on a ……….. floor, by a method known as open outcry
14. Actual trades are based on an auction market model where a potential buyer bids a specific price for a ………and a potential seller asks a specific price for the stock. 
15. The stocks are listed and ,……….on stock exchanges 
16.   When a company is delisted, it is a serious sign of financial or managerial trouble and generally causes the stock price to ……………
17. The exchanges provide real-time trading information on the listed securities, facilitating price discovery.
18. Companies that have shares traded OTC are usually …………… and riskier 
19.   The ……… monitors the transactions to avoid illegal activity and / or stock price manipulation.
20. The NASDAQ is a …… listed exchange, where all of the trading is done over a computer network
21. The ……….. that an exchange provides affords investors the ability to quickly and easily sell securities. 
22. the price of shares and other assets is an important part of the dynamics of ….activity
23.   Stock exchange “specialists” play a ………. role in the process, helping to keep an orderly market by deftly matching buy and sell orders.
24. Exchanges also act as the………… for each transaction
25. stock exchanges are……… of a global market for securities.
26. Stock valuation models are methods to value ……..
27. ……….is probably the most common model that you ever heard when it comes to stock valuation
28. The discounted rate normally includes a risk …….. which is commonly based on the capital asset pricing model.
29. Some feel that if the stock is listed in a well organized stock market, with a……….. volume of transactions, the listed price will be close to the estimated fair value
30. Fundamental analysis of a business involves analyzing its financial statements and health, its management and ….. advantages, and its competitors and markets.
31. Fundamental analysis is performed on historical and present data, but with the goal of making …..forecasts. 
32. the discounted cash flow (DCF) method, involves …….. of the profits
33. Investors may use fundamental analysis within different …..management styles.
34. Technical analysis is a security analysis discipline for forecasting the……..direction of prices through the study of past market data, primarily price and volume.
35. Technical analysts may employ models and trading rules based on price and volume transformations, such as the relative strength index, ……. averages, regressions
36. in addition to fundamental economic criteria, ………….. criteria also have to be taken into account market-based valuation.
37. Technical analysis ….. that prices already reflect all such influences before investors are aware of them
38. The term business cycle (or economic cycle) refers to economy-wide fluctuations in production or ………….activity over several months or years. 
39. economic theory has moved towards the study of ………. fluctuation rather than a ‘business cycle
40. managing economic policy to smooth out the cycle is a ……….. task in a society with a complex economy.

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Assignment A

Q1. Cost accounting is becoming more and more relevant in the emerging economic scenario in India’. Comment.
Q2. An efficient system of costing is essential factor for industrial control under modern conditions of business and as such may be regarded as an important part in the efforts of any management to secure business stability’. Elaborate.
Q3. From the following transactions extracted from the books of accounts of a manufacturing concern as on 31 April 2011. Work out a) consumption value of raw material in the month and b) value of closing stock as on 31 April 2011 under the FIFO method of pricing issues:
Q4. From the following information prepare a cost sheet showing cost profit per unit
Direct materials consumed Rs.4, 00,000
Direct labour 40% of direct material cost
Direct expenses 50% of direct labour cost
Factory overheads 25% of prime cost
Office and admin expenses are @ Rs.150 per 10 units produced
Selling & distribution overheads are Rs. 500 per 100 units sold
Opening finished stock 800 units @ Rs.85.50
Closing stock 400 units
Finished goods sold 16,400 units
Profit 1/6th of sales
Q5. Answer any three questions of the following:
a. Explain product cost and period cost with 2 examples of each.
b. What is meant by direct material cost?
c. Find out the cost of raw material purchased from the data given below:
d. Distinguish between costing and cost accounting.
e. Define batch costing. Give examples of industries which adopt batch costing.
Q6. Mosaic Co. Ltd has three production depts A, B & C and two service depts D & E. Info:
Rent Rs. 5000 Indirect wages Rs. 1500
Power Rs.1500 Depreciation of Machinery Rs.10000
General lighting Rs. 600 Sundry expenses Rs. 10000
Prepare a statement showing distribution of overheads to various departments.
Q7. The following information is provided to you:

Selling price per unit Rs. 40
Variable cost Rs. 24
Fixed costs Rs. 6
Profit Rs. 10
Present sales volume is 2000 units
Calculate:
(a) P/V ratio (b) BEP (c) Margin of safety (d) profit at a sales volume of 2500 units (e) sales required to earn a profit of Rs. 26,000
Q8. What are budget and budgetary control? Discuss the advantages and essential for success of budgetary control.

Assignment B
Read the case below and answer the questions given at the end

Case Study

Coffee Cart Supreme sells hot and iced coffee beverages and small snacks. The following is last month’s income statement.

Particulars Amount $ Amount $
Revenue 5000
Cost of Beverage & snacks 2000
Cost of napkins, straws etc500
Cost of rent cart500
Employee wages 1000 4000
Pre tax profit 1000
Taxes 250
After tax profit 750

Q1. What is the total cost function for Coffee Cart Supreme? What is the tax rate for Coffee Cart Supreme?
Q2. Calculate the amount of sales needed to reach a target after-tax profit of $1,500.
Q3. What was Coffee Cart Supreme’s degree of operating leverage and Coffee Cart Supreme’s margin of safety in revenue last month?

Assignment C
Q1. Which of the following statement measures the financial position of the entity on particular time?
B Balance Sheet
Q2. The Process of cost apportionment is carried out so that—
D Common costs are shared among cost centers
Q3. Direct materials cost is Rs. 80,000. Direct labor cost is Rs. 60,000. Factory overhead is Rs. 90,000. Beginning goods in process were Rs. 15,000. The cost of goods manufactured is Rs. 245,000. What is the cost assigned to the ending goods in process?
D There will be no ending Inventory Solution
Q4. When prices are rising over time, which of the following inventory costing methods will result in the lowest gross margin/profits?
B LIFO
Q5. The main difference between the profit center and investment center is—
Q6. Which of the following is a characteristic of process cost accounting system?
Q7. Which of the following manufacturers is most likely to use a job order cost accounting system?
Q8. Production volume of 1,200 units cost incurred Rs. 10,000 and production volume of 1,400 units cost incurred Rs.20, 000. The variable cost per unit would be?
Q9. Cost accounting concepts include all of the following EXCEPT—
Q10. The main purpose of cost accounting is to—
Q11. Period costs are –
Q12. An organization sold units 4000 and have closing finished goods 3500 units and opening finished goods units were 1000.The quantity of unit produced would be—
Q13. Examples of industries that would use process costing include all of the following EXCEPT
Q14. The components of the prime cost are—
Q15. Opportunity cost is the best example of—
Q16. Fixed cost per unit decreases when-
Q17. Prime cost + Factory overhead cost is—
Q18. Find the value of purchases if Raw material consumed Rs. 90,000; Opening and closing stock of raw material is Rs. 50,000 and 30,000 respectively.
Q19. Annual requirement is 7800 units; consumption per week is 150 units. Unit price Rs 5, order cost Rs 10 per order. Carrying cost Rs 1 per unit and lead time is 3 week, The Economic order quantity would be-
Q20. For which one of the following industry would you recommend a Job Order Costing system?
Q21. ______________ method assumes that the goods received most recently in the stores or produced recently are the first ones to be delivered to the requisitioning department.
Q22. Cost of production report is a PRODUCTION PROCESS REPORT
Q23. Opening work in process inventory can be calculated as under—
Q24. Jan 1; finished goods inventory of Manuel Company was Rs.3, 00,000. During the year Manuel’s cost of goods sold was Rs. 19, 00,000, sales were Rs. 2, 000,000 with a 20% gross profit. Calculate cost assigned to the December 31; finished goods inventory.
Q25. The cost expended in the past that cannot be retrieved on product or service–
Q26. When a manufacturing process requires mostly human labor and there are widely varying wage rates among workers, what is probably the most appropriate basis of applying factory costs to work in process?
Q27. A typical factory overhead cost is—
Q28. Complete the following table—
Q29. The Kennedy Corporation uses Raw Material Z in a manufacturing process.
Information as to balances on hand, purchases and requisitions of Raw Material Z is given below:
Jan. 1 Balance:200 lbs. @ $1.50
08 Received 500 lbs. @ $1.55
18 Issued 100 lbs.
25 Issued 260 lbs.
30 Received 150 lbs. @ $1.60
If a perpetual inventory record of Raw Material Z is maintained on a FIFO basis, it will show a month end inventory of:
Q30. The difference between total revenues and total variable costs is known as—
Q31. Percentage of Margin of Safety can be calculated in which one of the following ways?
Q32. Which of the following represents a CVP equation?
Q33. For which one of the following industry would you recommend a Process Costing system?
Q34. If 120 units produced, 100 units were sold @ Rs. 200 per unit. Variable cost related to production & selling is Rs. 150 per unit and fixed cost is Rs. 5,000. If the management wants to decrease sales price by 10%, what will be the effect of decreasing unit sales price on profitability of company? (Cost & volume profit analysis keep in your mind while solving it)
Q35. If 120 units produced, 100 units were sold @ Rs. 200 per unit. Variable cost related to production & selling is Rs. 150 per unit and fixed cost is Rs. 5,000. If the management wants to increase sales price by 10%, what will be increasing sales profit of company by increasing unit sales price? (Cost & volume profit analysis keep in mind while solving)
Q36. The following is the Corporation’s Income Statement for last month: Particular Rs. Sales 4,000,000 Less: variable expenses 2,800,000 Contribution margin 1,200,000 Liss: fixed expenses 720,000 Net income 480,000 The company has no beginning or ending inventories. A total of 80,000 units were produced and sold last month. (Q.no. 36-39) What is the company’s contribution margin ratio?
Q37. What is the company’s break-even in units?
Q38. How many units would the company have to sell to attain target profits of Rs. 600,000?
Q39. Whatis the company’s margin of safety in Rs?
Q40. Inventory control aims at—

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Assignment A
Q1 What is a IPO? What is the procedure for an IPO?
Q2 What are the various aspects of project appraisal? Describe the process and different types of project appraisals.
Q3 What is loan syndication? Who are the various participants? Describe briefly various aspects of accessing debt and capital markets?
Q4 What are the various types of leases? What is the difference in hire purchase and consumer credit?
Q5 What is Venture Capital? What are the various stages of financing offered and factors to be taken into account in order to attract Venture Capital?
Q6 What is a mutual fund? Describe various types of mutual funds. Also describe about organization, management and regulation of mutual funds.
Q7 Write short notes on the following.
a) Credit Rating Agencies
b) Resource Factoring
c) Merchant Banking
Q8 Write short notes on any three of the following:
a) Leasing Vs. Buying
b) Securitization
c) Role of ‘ Factor’ and that of ‘Forfaitor’
d) Prudential norms
e) Loan syndication
Assignment B
Case Study

ABC Industries – Lease Vs. Buy

ABC Company can purchase a $50,000 piece of equipment by putting 25 percent down payment and paying off the balance at 10 percent interest with four annual installments of $11,830. The equipment will be used in your business for eight years, after which it can be sold for scrap for $2,500. The alternative is that it can lease the same equipment for eight years at an annual rent of $8,500, the first payment of which is due on delivery. ABC will be responsible for the equipment’s maintenance costs during the lease.
ABC expects that its combined federal and state income tax rate will be 40 percent for the entire period at issue. Its cost of capital is 6 percent (the 10 percent financing rate adjusted by your tax rate).

Q1.

Assignment C
1. Which of the following must be satisfied to support a classification as a finance lease?

Ownership is transferred by the end of the lease term.
The lease contains a bargain purchase option.
The lease term is for the major part of an asset’s useful life.
The present value of the minimum lease payments are substantially more or equal to the asset’s fair value.
2. Efforts Ltd negotiated a lease on the following terms: the term of the lease was 5 years; the estimated useful life of the leased equipment was 10 years; the purchase price was $ 60,000; and the annual lease payment was $ 5,000. This lease should be classified as-
A An Operating Lease
3. The lease analysis should compare the cost of leasing to the—
4. Operating leases usually have terms that include—
5. Which of the following statements about listing on a stock exchange is most correct?
6. Which of the following refers to mezzanine financing?
7. The Sarbanes-Oxley Act of 2002 (SOX) was largely a response to—
8. A company’s ………. is (are) potentially the most effective instrument of good corporate governance.
9. The focal point of financial management in a firm is—
10. The long-run objective of financial management is to—
11. ____________ of an investment bank.
12. ____________ are financial assets.
13. Firms that specialize in helping companies raise capital by selling securities are called—
14. The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of ________.
15. Corporate shareholders are best protected from incompetent management decisions by—
16. Financial assets ____________.
17. Investment bankers perform the following role(s ____________.
18. Theoretically, takeovers should result in ___________.
19. Important trends changing the contemporary investment environment are –
20. Higher operating leverage is related to the use of additional __________.
21. __________ lease is a long-term lease that is not cancelable and its life often matches the useful life of the asset.
22. __________ lease refers to a short-term lease that is often cancelable. For example, a lease for office space represents this type of lease where the lease life is less than the useful life of the asset.
23. Which of the following is not a type of financial lease arrangement?
24. Which of the following statements is most correct as it relates to the recording of a capital lease?
25. A __________ is generally considered debt that is originally scheduled to be repaid between 1 to 10 years under a formal loan agreement and is usually amortized (principal and interest are paid) in equal periodic installments.
26. A __________ is charged by the lender to hold credit open for the borrower. For example, if the firm only uses $100,000 of a $200,000 limit, then the firm might pay the lender $500 for the unused limit in addition to the interest on the amount borrowed.
27. __________ lease is a lease where the lessee maintains and insures the leased asset rather than the lessor in a full-service lease.
28. Your firm currently has a current ratio of 1.90 on $9.5 million of current assets. You are changing the financing mix of your firm and plan on converting financing of $1,000,000 in a 6-month loan into a 5-year term loan. The purpose of this move is to finance a more permanent portion of inventories with a longer maturity alternative. If the firm issues the term loan, new restrictive covenants will require that the current ratio remain at or above 2.00. Should the firm make this change or is there some obvious problem caused by this proposed change?
29. A __________ represents any restriction imposed on a borrower by a lender and would be part of the loan agreement.
30. A __________ is a continuously offered debt instrument that is designed to fill the gap between commercial paper and long-term bonds with maturities currently ranging from 9 months to 30 years and has gained favor from the existence of shelf registration.
31. A __________ forbids the future pledging or mortgaging of any of the borrower’s assets.
32. For a company subject to the alternative minimum tax (AMT), __________ is a “tax preference item,” whereas __________ is not. Such a company may prefer to __________.
33. A __________ allows the borrower to have credit up to some maximum amount over a specific period, but the notes are usually 90 days and allow the company to renew or borrow additionally.
34. Your firm currently has a current ratio of 2.10 on $5 million of current liabilities. You are financing a $500,000 machine (fixed asset) and $500,000 of additional inventories with a 5-year term loan. Alternatively, the firm can finance the additions with a 6-month loan that they will need to get approval to renew every six months. Existing restrictive covenants require that the current ratio remain at or above 2.00. Which alternative will keep the current ratio above 2.00?
35. With a capital lease, the amount recorded on the asset side of the balance sheet is __________.
36. Which of the following statements is most correct as it relates to the recording of a capital lease?
37. A __________ specifies all of the terms of a loan and the obligations of the borrower.
38. A special purpose vehicle (SPV) raises money by selling __________ where interest and principal payments are provided by cash flows from a discrete pool of assets.
39. _________ is a long-term, unsecured debt instrument with a lower claim on assets and income than other classes of debt; while a/(an) __________ bond issue is secured by the issuer’s property.
40. Which of the following statements concerning the rights of common shareholders is correct, or most accurate?

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