Exam 15: Management of Current Liabilities

A firm purchased goods with a purchase price of $1,000 and credit terms of 1/10 net 30. The firmpaid for these goods on the 5th day after the date of sale. The firm must pay__________ for the goods.

If a firm anticipates stretching accounts payable, its cost of giving up a cash discount is increased.

The risk to a Canadian importer with foreign-currency-denominated accounts payable is that the dollar will depreciate.

A floating inventory lien is most attractive when the firm has a stable level of inventory that consists of a diversified group of relatively inexpensive merchandise.

Unlike the spontaneous sources of unsecured short-term financing, bank loans are negotiated and result from deliberate actions taken by the financial manager.

Collateral is typically required for a

The effective interest rate

Pledges of accounts receivable and factoring of accounts receivable are made on__________ basis, respectively.

The interest rate charged on secured short-term loans is typically higher than the rate on unsecured short-term loans.

Commercial banks and other institutions do not normally consider secured loans less risky than unsecured loans, and therefore require higher interest rates on them.

A firm should take the cash discount if the firm's cost of borrowing from the bank is greater than the cost of giving up a cash discount.

The two major sources of short-term financing are

Lenders require collateral to

A bank lends a firm $1,000,000 for one year at 12 percent on a discounted basis and requirescompensating balances of 10 percent of the face value of the loan. The effective annual interest rateassociated with this loan is

Although more expensive than a line of credit, a revolving credit agreement can be less risky from the borrower's viewpoint.

A bank lends a firm $500,000 for one year at 8 percent and requires compensating balances of 10percent of the face value of the loan. The effective annual interest rate associated with this loan is

Notes payable can be either spontaneous secured or spontaneous unsecured financing and result from the normal operations of the firm.

Commercial banks lend unsecured short-term funds in the following three basic ways

With a floating-rate note, the interest rate on the note changes

A firm issued $2 million worth of commercial paper that has a 90-day maturity and sells for$1,900,000. The annual interest rate on the issue of commercial paper is