Exam 16: Current Liabilities Management

Appropriate collateral for a loan secured under a trust receipt inventory loan is

A firm is offered credit terms of 1/10 net 45 EOM by a major supplier. The firm has determined that it can stretch the credit period (net period only) by 25 days without damaging its credit standing with the supplier. Assuming the firm needs short-term financing and can borrow from the bank on a line of credit at an interest rate of 14 percent, the firm should

Under a line of credit agreement, a bank may retain the right to revoke the line if any major changes occur in the firm's financial condition or operations.

The higher cost of unsecured as opposed to secured borrowing is due to the greater risk of default.

Most commercial paper is purchased by

A ________ is a type of loan made to a business by a commercial bank. This type of loan is made when the borrower needs additional funds for a short period but does not believe the need will continue or reoccur on a seasonal basis.

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

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

With a floating-rate note, the interest rate on the note changes

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 ________. 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 ________.

For firms that are in a financial position to take a cash discount, it is generally a more financially sound decision not to take the discount if the terms offered are 2/10 net 30.