Exam 16: Managing Short-Term Liabilities Financing
Exam 1: An Overview of Managerial Finance50 Questions
Exam 2: Analysis of Financial Statements86 Questions
Exam 3: The Financial Environment: Markets, Institutions, and Investment Banking40 Questions
Exam 4: The Time Value of Money95 Questions
Exam 5: The Cost of Money45 Questions
Exam 6: Bonds Debt-Characteristics and Valuation105 Questions
Exam 8: Risk and Rates of Return67 Questions
Exam 9: Capital Budgeting Techniques94 Questions
Exam 10: Project Cash Flows and Risk103 Questions
Exam 11: The Cost of Capital86 Questions
Exam 12: Capital Structure86 Questions
Exam 14: Working Capital Policy31 Questions
Exam 15: Managing Short-Term Assets108 Questions
Exam 16: Managing Short-Term Liabilities Financing101 Questions
Exam 17: Financial Planning and Control91 Questions
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Which of the following is not a common type of short term financing?
(Multiple Choice)
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If one of your firm's customers is "stretching" its accounts payable, this may be a nuisance but does not represent a real financial cost to your firm as long as the firm periodically pays off its entire balance.
(True/False)
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On a 1-year loan for R10,000, a firm would be better off borrowing at a rate of 9.5 percent discounted interest than 9 percent simple interest.
(True/False)
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Trade credit is seldom used by firms and is an insignificant component of short-term debt for most firms.
(True/False)
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Accruals are generally considered __________ debt since __________ interest is paid on accruals.
(Multiple Choice)
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You go to three different banks to borrow R10,000 for one year.Each says it will lend you the money at 10 percent, but their terms differ as follows:
Banks A and C require a single payment at the end of the year.Bank B requires 12 equal monthly payments beginning at the end of the first month.What is the difference between the highest and lowest effective annual rate in this case?

(Multiple Choice)
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The calculated cost of trade credit for a firm that buys on terms of 2/10, net 30, is lower (other things held constant) if the firm pays in 40 days than if it pays in 30 days.
(True/False)
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Quickbow Company currently uses maximum trade credit by not taking discounts on its purchases.Quickbow is considering borrowing from its bank, using notes payable, in order to take trade discounts.The firm wants to determine the effect of this policy change on its net income.The standard industry credit terms offered by all its suppliers are 2/10, net 30 days, and Quickbow pays in 30 days.Its net purchases are R11,760 per day, using a 360-day year.The rate on the notes payable is 10 percent and the firm's tax rate is 40 percent.If the firm implements the plan, what is the expected change in Quickbow's net income?
(Multiple Choice)
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Jarrett Enterprises is considering whether to pursue a restricted or relaxed current asset investment policy.The firm's annual sales are R400,000; its fixed assets are R100,000; debt and equity are each 50 percent of total assets.EBIT is R36,000, the interest rate on the firm's debt is 10 percent, and the firm's tax rate is 40 percent.With a restricted policy, current assets will be 15 percent of sales.Under a relaxed policy, current assets will be 25 percent of sales.What is the difference in the projected ROEs between the restricted and relaxed policies?
(Multiple Choice)
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A firm constructing a new manufacturing plant and financing it with short-term loans that are scheduled to be converted to bonds when the plant is completed, would want to separate the construction loan from other current liabilities associated with working capital management.
(True/False)
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A promissory note is a document specifying the terms and conditions of a loan, including the amount, interest rate, and repayment schedule.
(True/False)
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A bank with fluctuating deposit liabilities in a static community will tend to follow creative banking practices when approving loans.
(True/False)
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When a firm factors its accounts receivable, the factor normally performs the functions of risk bearing, credit checking, and lending.
(True/False)
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The factor (lender) purchasing accounts receivable from borrower has recourse against the borrower if the accounts receivable can not be collected.
(True/False)
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Your company has been offered credit terms on its purchases of 4/30, net 90.What will be the approximate cost of trade credit if your company pays on the 35th day after receiving the invoice?
(Multiple Choice)
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A line of credit and a revolving credit agreement are similar except that a line of credit creates a legal obligation for the bank.
(True/False)
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As a rule, managers should try to always use the free component of trade credit but should use the costly component only after comparing its costs to the costs of similar credit from other sources.
(True/False)
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Which of the following is not one of primary purchasers of commercial paper?
(Multiple Choice)
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The prime rate charged by big money center banks can vary greatly (for example, as much as 2 to 4 percentage points) across banks due to banks' ability to differentiate themselves and because particular banks develop particular clienteles, such as mainly making loans to small firms.
(True/False)
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Many firms borrow by using banker's acceptances (i.e., getting a bank to guarantee the firm's debt) when they are too small or too risky to use the commercial paper market.
(True/False)
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