Exam 16: Managing Short-Term Liabilities Financing

A firm that "stretches" its accounts payable rather than paying on net terms is actually increasing its calculated cost of credit given that it already does not take discounts when offered, other things held constant.

The calculated cost of trade credit is reduced by paying late.

An arrangement in which a bank agrees to lend up to a specified maximum of funds as needed over a specified time period is a

If a firm is involuntarily "stretching" its accounts payable then this is one sign that it is undercapitalised; that is, that it needs more working capital for operations.

The pledging of receivables differs from factoring in that, under pledging, the lender normally has recourse against the borrower.

A loan that is backed by collateral is a(n) __________ loan.

Which one of the following aspects of banks is considered most relevant to businesses when choosing a bank?

A commitment fee is a fee charged on unused balance of a revolving credit agreement to compensate the bank for guaranteeing that the funds will be available when needed by the borrower.

Seagar Corporation provides monofilament fishing line to its customers.Seagar gives its customers a three percent discount if the invoice payment is paid within 10 days of the billing date.If the discount is not taken then the balance must paid in full within 45 days of the billing date.Any unpaid balances over 45 days beyond the billing date will be assessed a five percent penalty every 30 days, beginning 46 days after the billing date.Seagar is said to sell on credit with terms of what?

Dixie Tours Inc.buys on terms of 2/15, net 30.It does not take discounts, and it typically pays 35 days after the invoice date.Net purchases amount to R720,000 per year.What is the approximate percentage cost of its non-free trade credit?

Firms generally choose to finance temporary assets with short-term debt because

Which of the following statements concerning commercial paper is false?

Most secured short-term business borrowings involves the use of __________ as collateral.

Which of the following statements is correct?

Small, undercapitalised firms

The risk of default on pledged accounts receivable is borne by the lender to whom the receivables are pledged.

Under the terms of trade found in most industries, the costly component of trade credit

Which of the following statements is correct?

Long-term loan agreements always contain provisions, or covenants, which constrain the firm's future actions.Short-term credit agreements are just as restrictive in order to protect the interests of the lender.

A document specifying the terms and conditions of a bank loan, including the amount, interest rate, repayment schedule, and any other terms or conditions of the loan is a