Exam 16: Short-Term Business Financing

Assume that Ningbo Steel borrows $1,000,000 for one year under a line of credit with a stated interest rate of 7.5 percent and a 15 percent compensating balance and that the firm keeps no money on deposit in its checking account. Based on this information, the effective annual interest rate on the loan is

The ________ is the lowest rate of interest charged on business loans to the best business borrowers by the nation's leading banks.

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

A short-term promissory note sold by high-credit-quality corporations and is backed solely by the credit quality of the issuer is called:

If a firm actually sells its accounts receivable, the process is known as:

The need for current funds increases when there is an upswing in the business cycle or the sales cycle of an industry.

If net working capital is negative, current assets are partially financed by the firm's long-term debt.

The maturity matching approach is a financing strategy that attempts to match the maturities of assets with the maturities of the liabilities which they are financed.

Which of the following are typical financing strategies used by businesses?

Ningbo Steel was extended credit terms of 3/15 net 30 EOM.The cost of giving up the cash discount, assuming payment would be made on the last day of the credit period, is 75.26 percent.If the firm were able to stretch its accounts payable to 560 days without damaging its credit rating, the cost of giving up the cash discount would only be

The most frequently cited justification for requiring a compensating balance is:

Tangshan Mining was extended credit terms of 34/105 net 30 EOM.The cost of giving up the cash discount, assuming payment would be made on the last day of the credit period, is closest towould be ________.If the firm were able to stretch its accounts payable to 60 days without damaging its credit rating, the cost of giving up the cash discount would only be ________.

A receivable from the sale of merchandise on the basis of a draft or bill of exchange drawn against the buyer or the buyer's bank is termed a (n):

When old short-term debt is replaced by new short-term debt as the old debt comes due, the process is known as:

Discounting has the effect of reducing the available funds received by the borrower while raising the effective interest rate.

Factoring accounts receivable has all of the following characteristics except:

In general, a firm that secures a bank line of credit pays interest on:

-The effective annual interest rate on a loan in which a company borrows $1,000,000 for one year at 8 percent and requires a compensating balance of 10 20 percent is:

Eriez Magnetics purchased goods with a purchase price of $10,000 and credit terms of 3/10 net 40. The firm paid for these goods on the 5th day after the date of sale. The firm must pay ________ for the goods.

When accounts receivable are factored: the borrower sells the receivable; accounts receivable balances are removed from the balance sheet; the customer payment is made to the factor; and interest is charged on the funds advanced.