ASSESSMENT
ANSWER ALL QUESTIONS IN THIS SECTION
QUESTION 1
Which of the following scenarios is most likely to indicate high lending risk? -
ANSWERS-Low interest coverage ratio
QUESTION 2
What is the best next step when there is a breach of a loan covenant? -
ANSWERS-Investigate why the breach happened
QUESTION 3
Calculate debt service coverage ratio (using EBITDA instead of EBIT) based on
the company's financial information below:
Net Operating Profit: 12,000
Depreciation & Amortization: 2,000
Accounts Payable: 2,000
Line of Credit: 2,500
Current Portion of Long-Term Debt: 3,000
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, CFI CBCA CORE COURSE 2024
ASSESSMENT
Interest Expense: 800 - ANSWERS-= 2.2 = 12,000+2,000/(2,500+3,000+800)
QUESTION 4
Calculate funded debt to EBITDA ratio based on the company's financial
information below:
Net Operating Profit: 12,000
Depreciation & Amortization: 2,000
Accounts payable: 2,000
Line of Credit: 2,500
Current Portion of Long-Term Debt: 3,000
Non-Current Portion of Long-Term Debt: 15,000 - ANSWERS-= 1.5 =
(15,000+3,000+2,500)/(12,000+2,000)
QUESTION 5
If a company takes out a 5-year equally amortizing loan of 20,000, and 6 months
later purchases equipment with that loan, what will happen to its financial
statements? - ANSWERS-Current portion of long-term debt will increase by 4,000.
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ASSESSMENT
QUESTION 6
Monitoring - ANSWERS-It involves determining new level of credit risk
associated with a borrower.
QUESTION 7
Documentation - ANSWERS-It provides timely, relevant and thorough
information for loan approval, security and monitoring.
QUESTION 8
Re-classifying - ANSWERS-It involves undertaking regular reviews of a
borrower's financial statements and evaluating changes in a borrower's business.
QUESTION 9
Which of the following statements is NOT true about credit administration? -
ANSWERS-Credit administration is about documentation, ongoing monitoring,
and possibly re-classifying a borrower before a loan has been made.
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ASSESSMENT
QUESTION 10
Which of the following statements are true about credit administration? -
ANSWERS-Appropriate credit administration and documentation practices allow
for better information for more informed decision regarding actions taken towards
a borrower's account.
Proper credit documentation practices allow for more flexibility to respond to
changes in a borrower's circumstances.
Credit administration is important for identifying problems in a borrower's account
and reducing the risk of credit default.
QUESTION 11
Loan approval documentation - ANSWERS-Term sheet, loan agreement,
commitment letter
QUESTION 12
Monitoring documentation - ANSWERS-Annual review; monthly/quarterly report
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