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1 | | In a bank's credit analysis of a business loan application, typical uses of financial ratios would include: |
| | A) | a cross-sectional analysis of ratios, with other firms. |
| | B) | a time series analysis of ratios, with the applicant's historical ratios. |
| | C) | a ratio analysis conducted by Federal banking authorities. |
| | D) | All of the above |
| | E) | (a) and (b) |
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2 | | When a lending institution is trying to assess whether a borrowing firm's management is trustworthy, it is focusing on which of the "Five Cs"? |
| | A) | Character |
| | B) | Capacity |
| | C) | Capital |
| | D) | Collateral |
| | E) | Conditions |
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3 | | A "common size" analysis implies: |
| | A) | comparing firms having the same asset size. |
| | B) | comparing firms having the same stockholders' equity |
| | C) | expressing income statement items as a percentage of sales. |
| | D) | expressing balance sheet items as a percentage of total assets. |
| | E) | (c) and (d) |
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4 | | Which of the following would be viewed as "liquidity ratio"? |
| | A) | current assets/current liabilities |
| | B) | debt/net worth |
| | C) | debt/total assets |
| | D) | sales/total assets |
| | E) | b and c |
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5 | | "EBIT" is a/an: |
| | A) | balance sheet item, found among the assets. |
| | B) | income statement item, relating to earnings. |
| | C) | balance sheet item, found among the liabilities. |
| | D) | income statement item, found among the operating expenses. |
| | E) | balance sheet item, found among the stockholders' equity items. |
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6 | | A bond with a high degree of credit risk would: |
| | A) | be more liquid |
| | B) | be a junk bond |
| | C) | be priced to give a lower yield |
| | D) | be selling for a higher price |
| | E) | c and d |
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7 | | One particular approach to credit risk modeling is based on the idea that a borrowing firm holds a valuable default or repayment option. This is: |
| | A) | the RAROC model |
| | B) | Altman's Z-score model |
| | C) | the "common size" model |
| | D) | the KMV model |
| | E) | the ratio model |
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8 | |
Consider the following data, for a given firm: Total assets | $100 million | Current assets | 40 million | Current liabilities | 35 million | Long-term debt (book) | 50 million | Total stockholders' equity (book) | 15 million | Retained earnings | 10 million | Sales | 150 million | EBIT | 8 million | Market value of equity | 30 million |
Compute Altman's Z-score for this firm. |
| | A) | 0.82 |
| | B) | 2.32 |
| | C) | 4.20 |
| | D) | 3.73 |
| | E) | 2.09 |
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9 | | Of the following Z-scores, which would suggest the highest probability of bankruptcy? |
| | A) | .70 |
| | B) | 1.80 |
| | C) | 3.00 |
| | D) | 3.60 |
| | E) | 4.20 |
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10 | |
Consider the following financial statement data submitted in conjunction with a loan request. Current assets | $1.2 billion | Current liabilities | 1.5 billion | Total assets | 3.8 billion | Total liabilities | 2.2 billion | Sales | 4.2 billion | Cost of goods sold | 1.9 billion | Net income | 0.85 billion |
What is the firm's "gross profit"? |
| | A) | $2.3 billion |
| | B) | $1.6 billion |
| | C) | $0.85 billion |
| | D) | $3.8 billion |
| | E) | $6.1 billion |
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11 | |
Consider the following financial statement data submitted in conjunction with a loan request. Current assets | $1.2 billion | Current liabilities | 1.5 billion | Total assets | 3.8 billion | Total liabilities | 2.2 billion | Sales | 4.2 billion | Cost of goods sold | 1.9 billion | Net income | 0.85 billion |
Compute the firm's "gross margin." |
| | A) | 0.202 |
| | B) | 0.250 |
| | C) | 0.548 |
| | D) | 0.452 |
| | E) | 0.676 |
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12 | |
Consider the following financial statement data submitted in conjunction with a loan request. Current assets | $1.2 billion | Current liabilities | 1.5 billion | Total assets | 3.8 billion | Total liabilities | 2.2 billion | Sales | 4.2 billion | Cost of goods sold | 1.9 billion | Net income | 0.85 billion |
Compute the firm's "return on equity." |
| | A) | -0.188 |
| | B) | 0.224 |
| | C) | 0.531 |
| | D) | 0.202 |
| | E) | 0.654 |
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13 | |
Consider the following financial statement data submitted in conjunction with a loan request. Current assets | $1.2 billion | Current liabilities | 1.5 billion | Total assets | 3.8 billion | Total liabilities | 2.2 billion | Sales | 4.2 billion | Cost of goods sold | 1.9 billion | Net income | 0.85 billion |
Compute the firm's "debt to asset" ratio. |
| | A) | 0.367 |
| | B) | 0.536 |
| | C) | 0.224 |
| | D) | 1.467 |
| | E) | 0.579 |
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14 | | Information in the text suggests that in the early 2000s, _______________ provided superior warning signs about the deteriorating financial condition at Worldcom, when compared to the S&P ratings. |
| | A) | the total debt/net worth ratio |
| | B) | Fitch Investors |
| | C) | the gross profit margin |
| | D) | the KMV model |
| | E) | the current ratio |
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15 | | Some borrowers may be required by their lenders to hold a/an _________________, which is a percentage of the loan amount that must be kept on account at the lending institution. |
| | A) | reserve requirement |
| | B) | net worth requirement |
| | C) | compensating balance |
| | D) | collateral account |
| | E) | letter of credit |
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16 | | One model, pioneered by Bankers Trust, computes a loan's rate of return by dividing expected one-year loan income by the loan's value at risk. This approach is the: |
| | A) | KMV model |
| | B) | required reserve model |
| | C) | compensating balance model |
| | D) | Altman's Z-score model |
| | E) | RAROC model |
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17 | | When a bank's credit analysis focuses on the assets offered by the loan applicant as security for a loan, which of the "Five Cs" is being assessed? |
| | A) | Character |
| | B) | Capacity |
| | C) | Capital |
| | D) | Collateral |
| | E) | Conditions |
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18 | | Jane is applying for a mortgage loan. The monthly payment on the proposed loan will be $784. Annual property taxes for the property are $3,340. Jane's gross monthly income is $5,250. What is the "gross debt service" ratio? |
| | A) | 78.6% |
| | B) | 14.9% |
| | C) | 20.2% |
| | D) | 5.3% |
| | E) | 21.4% |
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