Exam 8: Sources of Short-Term Financing

The Magic Pumpkin Limousine Company wants to purchase a car entertainment system for one of its automobiles. The entertainment system vendor has offered to finance the $2,000 purchase over one year in 12 installments, with a total of $200 in interest to be paid on the loan. Magic Pumpkin's bank has offered to finance the purchase with an installment loan, where $155 in interest will be repaid and payments on the loan must be made quarterly. What are the effective interest rates on these loans? Which loan should they select?

(Essay)

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Question 61

The biggest category of asset backed securities is the home equity loan, followed by automobile receivables and credit card receivables.

(True/False)

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Question 62

Commercial paper represents secured short-term borrowing by large companies.

(True/False)

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Question 63

Multinational firms have found that they can lower borrowing costs

(Multiple Choice)

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Question 64

Ms. Smith borrowed $2,000 at an 8% stated rate of interest and was to pay back the loan in 24 monthly payments. What is her effective rate of interest?

(Multiple Choice)

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Question 65

The most common form of short-term financing is a bank loan.

(True/False)

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Question 66

Small businesses frequently find commercial paper a useful means of obtaining funds when it is not possible to raise funds by other means.

(True/False)

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Question 67

A trade discount is a percentage reduction from the invoice price given for purchasing certain minimum quantities.

(True/False)

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Question 68

Which of the following is not a true statement about commercial paper?

(Multiple Choice)

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Question 69

General Motors Acceptance Corp is one of the biggest issuers of asset-backed securities.

(True/False)

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Question 70

All commercial paper involves the physical transfer of actual paper certificates.

(True/False)

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Question 71

Even though a firm factors its receivables to a finance company, it is still liable if the account becomes uncollectible.

(True/False)

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Question 72

A self-liquidating loan is preferable to a bank because it generally provides them with a higher return.

(True/False)

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Question 73

Which of the following is not a characteristic of commercial paper?

(Multiple Choice)

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Question 74

What is the effective rate of interest if the bank uses a discounted loan?

(Essay)

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Question 75

What is the effective rate of interest if the loan is an installment loan with 12 payments?

(Essay)

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Question 76

A cash discount calls for a reduction in price if payment cannot be made within a specified time period.

(True/False)

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Question 77

Compensating balances are important for banks because their existence allows them to make loans at lower quoted rates.

(True/False)

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Question 78

A compensating balance will be lower in periods of tight money than in periods of credit ease.

(True/False)

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Question 79

The reasons why a company may choose to pledge accounts receivable are all of the following except:

(Multiple Choice)

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Question 80

Showing 61 - 80 of 127

The biggest category of asset backed securities is the home equity loan, followed by automobile receivables and credit card receivables.

Commercial paper represents secured short-term borrowing by large companies.

Multinational firms have found that they can lower borrowing costs

Ms. Smith borrowed $2,000 at an 8% stated rate of interest and was to pay back the loan in 24 monthly payments. What is her effective rate of interest?

The most common form of short-term financing is a bank loan.

Small businesses frequently find commercial paper a useful means of obtaining funds when it is not possible to raise funds by other means.

A trade discount is a percentage reduction from the invoice price given for purchasing certain minimum quantities.

Which of the following is not a true statement about commercial paper?

General Motors Acceptance Corp is one of the biggest issuers of asset-backed securities.

All commercial paper involves the physical transfer of actual paper certificates.

Even though a firm factors its receivables to a finance company, it is still liable if the account becomes uncollectible.

A self-liquidating loan is preferable to a bank because it generally provides them with a higher return.

Which of the following is not a characteristic of commercial paper?

What is the effective rate of interest if the bank uses a discounted loan?

What is the effective rate of interest if the loan is an installment loan with 12 payments?

A cash discount calls for a reduction in price if payment cannot be made within a specified time period.

Compensating balances are important for banks because their existence allows them to make loans at lower quoted rates.

A compensating balance will be lower in periods of tight money than in periods of credit ease.

The reasons why a company may choose to pledge accounts receivable are all of the following except:

The Goals and Functions of Financial Management

Review of Accounting

Financial Analysis

Financial Forecasting

Operating and Financial Leverage

Working Capital and the Financing Decision

Current Asset Management

The Time Value of Money

Valuation and Rates of Return

Cost of Capital

The Capital Budgeting Decision

Risk and Capital Budgeting

Capital Markets

Investment Banking: Public and Private Placement

Long-Term Debt and Lease Financing

Common and Preferred Stock Financing

Dividend Policy and Retained Earnings

Convertibles, Warrants, and Derivatives

External Growth Through Mergers

International Financial Management

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