Exam 16: Current Liabilities Management

The cost of giving up a cash discount under the terms of sale 1/10 net 60 (assume a 360-day year) is

In giving up a cash discount, the amount of the discount that is given up is the interest being paid by the firm to keep its money by delaying payment for a number of days.

A firm has directly placed an issue of commercial paper that has a maturity of 60 days. The issue sold for $980,000 and has an annual interest rate of 12.24 percent. The value of the commercial paper at maturity is

Factoring accounts receivable is a relatively expensive source of unsecured short-term funds.

In a line credit arrangement, the firm pays interest on

Secured short-term financing has specific assets pledged as collateral and appears on the balance sheet as current liabilities.

Pledges of accounts receivable are normally made on a nonnotification basis, meaning that a customer whose account has been pledged as collateral in not notified.

Appropriate collateral for a secured short-term loan is

All of the following goods represent appropriate collateral for a secured loan to a candy manufacturer EXCEPT

A floating inventory lien is a lender's claim on the borrower's general inventory as collateral for a secured loan.

Compared to a line of credit, a revolving credit agreement generally will be

Tangshan Mining issued $1,000,000 of commercial paper for $992,500 for 45 days. Based on this information, the effective annual rate of interest on the commercial paper would be

For firms that are able to raise funds through the sale of commercial, it is generally cheaper than if the same firm were to borrow from a commercial bank.

The prime rate of interest fluctuates with changing supply-and-demand relationships for short-term funds as well as the risk of the bank's business borrowers.

If possible, it would be a more financially sound decision to pay employees once every two weeks rather than once a month.

A single-payment note is a secured fund which can be obtained from a commercial bank when a borrower needs additional funds for a short period.

The major attraction of a line of credit from the bank's point of view is that it eliminates the need to examine the credit worthiness of a customer each time it borrows money.

A ________ is an agreement between a commercial bank and a business that states the maximum amount of unsecured short-term borrowing the bank will make available to the firm over a given period of time, provided sufficient funds are available.

Appropriate collateral for a loan secured under a floating inventory lien is

If one borrows $1,000 at 8 percent interest on a discount basis, the effective rate of interest is about 8.7 percent.