Exam 16: Current Liabilities Management

The interest rate charged on a secured short-term loan to a corporation is typically ________ the interest rate on an unsecured loan.

Collateral is typically required for a

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

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

The interest rate charged on secured short-term loans to a corporation is generally higher than that charged on unsecured short-term loans because

Tangshan Mining borrowed $100,000 for one year under a line of credit with a stated interest rate of 7.5 percent and a 15 percent compensating balance. Normally, the firm keeps a balance of about $10,000 in its checking account. Based on this information, the effective annual interest rate on the loan was

If a firm gives up the cash discount on goods purchased on credit, the firm should pay the bill

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

The outright sale of accounts receivable at a discount in order to obtain funds is called pledging accounts receivable.

The major type of loan made by banks to businesses is the

A bank lends a firm $500,000 for one year at 8 percent and requires compensating balances of 10 percent of the face value of the loan. The effective annual interest rate associated with this loan is

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

Tangshan Mining issued $10,000 of commercial paper for $9,925 for 60 days. Based on this information, the effective annual rate of interest on the commercial paper would be about 4.19 percent.

Pledges of accounts receivable and factoring of accounts receivable are made on ________ basis, respectively.

Generally, lenders recognize that holding collateral can reduce losses if the borrower defaults, but the presence of collateral has no impact on the risk of default.

Cull Incorporated recently borrowed $250,000 from Century Bank when the prime rate was 4%. The loan was for 90 days with interest to be paid at the end of the period with a rate fixed at 1.5% above the prime rate. What is the total interest paid on this loan and what is the effective annual rate? (Assume a 365 day year.)

The interest rate on a line of credit is normally stated as a fixed rate-the prime rate plus a percent.

The effective interest rate generally is

Short-term self-liquidating loans are intended to

The prime rate of interest fluctuates with