Question 1

The two major sources of short-term financing are

Accepted Answer

A)  a line of credit and accounts payable. 
B)  accounts payable and accruals. 
C)  a line of credit and accruals. 
D)  accounts receivable and notes payable. 
A)  a line of credit and accounts payable. 
B)  accounts payable and accruals. 
C)  a line of credit and accruals. 
D)  accounts receivable and notes payable.

Question 2

The effective interest rate for a discount loan is greater than the loan's stated interest rate.

Accepted Answer

A) True 
 B)False

Question 3

3/10 net 45 EOM translates as

Accepted Answer

A)  a 10 percent cash discount may be taken if paid in three days; if no cash discount is taken, the balance is due in 45 days. 
B)  a 3 percent cash discount may be taken if paid in 10 days; if no cash discount is taken, the balance is due 45 days after transaction is complete. 
C)  a 3 percent cash discount may be taken if paid in 10 days; if no cash discount is taken, the balance is due 45 days after the end of the month. 
D)  a 3 percent discount may be taken on 10 percent of the purchase if the account is paid within 45 days after the end of the month. 
A)  a 10 percent cash discount may be taken if paid in three days; if no cash discount is taken, the balance is due in 45 days. 
B)  a 3 percent cash discount may be taken if paid in 10 days; if no cash discount is taken, the balance is due 45 days after transaction is complete. 
C)  a 3 percent cash discount may be taken if paid in 10 days; if no cash discount is taken, the balance is due 45 days after the end of the month. 
D)  a 3 percent discount may be taken on 10 percent of the purchase if the account is paid within 45 days after the end of the month.

Question 4

________ are the major source of unsecured short-term financing for business firms.

Accepted Answer

A)  Accounts receivable 
B)  Accruals 
C)  Notes payable 
D)  Accounts payable 
A)  Accounts receivable 
B)  Accruals 
C)  Notes payable 
D)  Accounts payable

Question 5

Commercial paper is generally issued in multiples of

Accepted Answer

A)  $1,000 or more. 
B)  $10,000 or more. 
C)  $100,000 or more. 
D)  $1,000,000 or more. 
A)  $1,000 or more. 
B)  $10,000 or more. 
C)  $100,000 or more. 
D)  $1,000,000 or more.

Question 6

For firms that are in a financial position to take a cash discount, it is generally a more financially sound decision to take the discount if the terms offered are 2/10 net 30.

Accepted Answer

A) True 
 B)False

Question 7

Pledges of accounts receivable are normally made on a notification basis because the lender does not trust the borrower to collect the pledged account receivable and remit these payments as they are received.

Accepted Answer

A) True 
 B)False

Question 8

Tangshan Mining borrowed $10,000 for one year under a line of credit with a stated interest rate of 8 percent and a 10 percent compensating balance. Normally, the firm keeps a balance of about $800 in its checking account. Based on this information, the effective annual interest rate on the loan was 8.89 percent.

Accepted Answer

A) True 
 B)False

Question 9

Tangshan Mining 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, would be

Accepted Answer

A)  75.26%. 
B)  18.56%. 
C)  72.99%. 
D)  37.12%. 
A)  75.26%. 
B)  18.56%. 
C)  72.99%. 
D)  37.12%.

Question 10

Accruals and accounts payable are ________ sources of short-term financing.

Accepted Answer

A)  negotiated, secured 
B)  negotiated, unsecured 
C)  spontaneous, secured 
D)  spontaneous, unsecured 
A)  negotiated, secured 
B)  negotiated, unsecured 
C)  spontaneous, secured 
D)  spontaneous, unsecured

Question 11

Spontaneous liabilities such as accounts payable and notes payable represent a source of financing that arise from the normal course of business.

Accepted Answer

A) True 
 B)False

Question 12

Lines of credit are guaranteed loans that specify the maximum amount that a firm can owe the bank at any point in time.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A)  Single-payment note, lines of credit, and commercial paper. 
B)  Single-payment note, lines of credit, and revolving credit agreements. 
C)  Single-payment note, revolving credit agreements, and commercial paper. 
D)  Commercial paper, lines of credit, and revolving credit agreements. 
A)  Single-payment note, lines of credit, and commercial paper. 
B)  Single-payment note, lines of credit, and revolving credit agreements. 
C)  Single-payment note, revolving credit agreements, and commercial paper. 
D)  Commercial paper, lines of credit, and revolving credit agreements.

Question 14

Short-term self-liquidating loans are intended to

Accepted Answer

A)  finance capital assets. 
B)  cover seasonal peaks in financing caused by inventory and receivables buildup. 
C)  finance merger and/or acquisition activity. 
D)  recapitalize the firm. 
A)  finance capital assets. 
B)  cover seasonal peaks in financing caused by inventory and receivables buildup. 
C)  finance merger and/or acquisition activity. 
D)  recapitalize the firm.

Question 15

Tina's Apple Company would like to manufacture and market a new packaging. Tina's has sold an issue of commercial paper for $1,500,000 and maturity of 90 days to finance the new project. Compute the annual interest rate on the issue of commercial paper if the value of the commercial paper at maturity is $1,650,000.

Accepted Answer

Interest paid = $1,650,000 - 1

Question 16

A compensating balance, which is a required checking account balance equal to a certain percentage of the borrower's short-term unsecured loan, may not only forces the borrower to be a good customer of the bank but may also raise the interest cost to the borrower, thereby increasing the bank's earnings.

Accepted Answer

A) True 
 B)False

Question 17

Lenders require collateral to

Accepted Answer

A)  reduce the risk of default. 
B)  control the borrowing firm. 
C)  reduce the losses if the borrower defaults. 
D)  extend to the borrower an unsecured loan. 
A)  reduce the risk of default. 
B)  control the borrowing firm. 
C)  reduce the losses if the borrower defaults. 
D)  extend to the borrower an unsecured loan.

Question 18

Under a line of credit agreement, a bank may require an annual cleanup, which means that the borrower must pay off all its outstanding debts to all lenders for a certain number of days during the year.

Accepted Answer

A) True 
 B)False

Question 19

Financing that matures in one year or less and has specific assets pledged as collateral is called

Accepted Answer

A)  spontaneous financing. 
B)  unsecured short-term financing. 
C)  secured short-term financing. 
D)  none of the above. 
A)  spontaneous financing. 
B)  unsecured short-term financing. 
C)  secured short-term financing. 
D)  none of the above.

Question 20

Inventory is attractive as collateral since it normally has a market value greater than its book value, which is used to establish its value as collateral.

Accepted Answer

A) True 
 B)False

The two major sources of short-term financing are

The effective interest rate for a discount loan is greater than the loan's stated interest rate.

3/10 net 45 EOM translates as

________ are the major source of unsecured short-term financing for business firms.

Commercial paper is generally issued in multiples of

For firms that are in a financial position to take a cash discount, it is generally a more financially sound decision to take the discount if the terms offered are 2/10 net 30.

Pledges of accounts receivable are normally made on a notification basis because the lender does not trust the borrower to collect the pledged account receivable and remit these payments as they are received.

Tangshan Mining 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, would be

Accruals and accounts payable are ________ sources of short-term financing.

Spontaneous liabilities such as accounts payable and notes payable represent a source of financing that arise from the normal course of business.

Lines of credit are guaranteed loans that specify the maximum amount that a firm can owe the bank at any point in time.

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

Short-term self-liquidating loans are intended to

Lenders require collateral to

Under a line of credit agreement, a bank may require an annual cleanup, which means that the borrower must pay off all its outstanding debts to all lenders for a certain number of days during the year.

Financing that matures in one year or less and has specific assets pledged as collateral is called

Inventory is attractive as collateral since it normally has a market value greater than its book value, which is used to establish its value as collateral.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

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Exam 16: Current Liabilities Management

The two major sources of short-term financing are

The effective interest rate for a discount loan is greater than the loan's stated interest rate.

3/10 net 45 EOM translates as

________ are the major source of unsecured short-term financing for business firms.

Commercial paper is generally issued in multiples of

For firms that are in a financial position to take a cash discount, it is generally a more financially sound decision to take the discount if the terms offered are 2/10 net 30.

Pledges of accounts receivable are normally made on a notification basis because the lender does not trust the borrower to collect the pledged account receivable and remit these payments as they are received.

Tangshan Mining 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, would be

Accruals and accounts payable are ________ sources of short-term financing.

Spontaneous liabilities such as accounts payable and notes payable represent a source of financing that arise from the normal course of business.

Lines of credit are guaranteed loans that specify the maximum amount that a firm can owe the bank at any point in time.

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

Short-term self-liquidating loans are intended to

Lenders require collateral to

Under a line of credit agreement, a bank may require an annual cleanup, which means that the borrower must pay off all its outstanding debts to all lenders for a certain number of days during the year.

Financing that matures in one year or less and has specific assets pledged as collateral is called

Inventory is attractive as collateral since it normally has a market value greater than its book value, which is used to establish its value as collateral.

The Role of Managerial Finance

The Financial Market Environment

Financial Statements and Ratio Analysis

Cash Flow and Financial Planning

Time Value of Money

Interest Rates and Bond Valuation

Stock Valuation

Risk and Return

The Cost of Capital

Capital Budgeting Techniques

Capital Budgeting Cash Flows

Risk and Refinements in Capital Budgeting

Leverage and Capital Structure

Payout Policy

Working Capital and Current Assets Management

Hybrid and Derivative Securities

Mergers, Lbos, Divestitures, and Business Failure

International Managerial Finance

Filters