Exam 16: Current Liabilities Management

Tangshan Mining borrowed $100,000 for one year under a revolving credit agreement that authorized and guaranteed the firm access to $200,000. The revolving credit agreement had a stated interest rate of 7.5 percent and charged the firm a 1 percent commitment fee on the unused portion of the agreement. Based on this information, the effective annual interest rate on the loan was

Although more expensive than a line of credit, a revolving credit agreement can be less risky from the borrower's viewpoint.

Tangshan Mining borrowed $10,000 for one year under a revolving credit agreement that authorized and guaranteed the firm access to $20,000. The revolving credit agreement had a stated interest rate of 8 percent and charged the firm a half percent commitment fee on the unused portion of the agreement. Based on this information, the effective annual interest rate on the loan was 8.50 percent.

A ________ guarantees the borrower that a specified amount of funds will be available regardless of the tightness of money.

The effective interest rate on a bank loan depends on whether interest is paid when the loan matures or in advance.

Most commercial paper has maturities ranging from

The cost of giving up a cash discount under the terms of sale 5/20 net 120 (assume a 360-day year) is

Accounts payable result from transactions in which merchandise is purchased but no formal note is signed to show the purchaser's liability to the seller.

A line of credit is an agreement between a commercial bank and a business specifying the amount of unsecured short-term borrowing the bank will make available to the firm over a given period of time.

One advantage of factoring accounts receivable is the ability it gives the firm to turn accounts receivable immediately into cash without having to worry about repayment.

Revolving credit agreements are

In a revolving credit agreement, the firm pays interest on

Bessey Aviation has just sold an issue of 30-day commercial paper with a face value of $5,000,000. The firm has just received $4,958,000. What is the effective annual interest rate on the commercial paper?

Discuss and contrast the three types of loans discussed in the text that use inventory as collateral: floating inventory liens, trust receipt inventory loans, and warehouse receipt loans.

If a firm anticipates stretching accounts payable, its cost of giving up a cash discount is increased.

Commercial paper is a form of financing that consists of short-term, secured promissory notes issued by firms with a high credit standing.

Unlike the spontaneous sources of unsecured short-term financing, bank loans are negotiated and result from deliberate actions taken by the financial manager.

In credit terms, EOM (End-of-Month) indicates that the accounts payable must be paid by the end of the month in which the merchandise has been purchased.

When a firm stretches accounts payable without hurting its credit rating, the cost of foregoing the cash discount is

A field warehouse is