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CTP · Question #369
CTP Question #369: Real Exam Question with Answer & Explanation
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Question
- (Topic 4) Racklyn Paint Company, a new paint and construction company, has vendor payables of $2 million due periodically over the next 3 months; payroll payable to its crews of $500K each month; a mortgage of $4.4 million with a fixed rate of 6.0%; and an equipment loan of $5 million with a bank at a 30-day LIBOR plus 150 bp payment of $100K due monthly. Racklyn receives their first contract valued at $12 million with half of the contract value due at the time of contract and final payment upon completion. Racklyn expects the job to last 6 months. Which option would be the BEST use of Racklyn Paint Company's cash?
Options
- BPay current payables and invest any excess cash in a money market account earning
- CPay off the mortgage and invest remaining funds in a 6-month CD at 2.5%.
- DInvest $4 million in a CD at 2.5% for 3 months.
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