Deck 16: Mastering Financial Management

Question 1

What types of businesses obtain venture capital financing? How does venture capital differ from a private placement?

Answer 1

Answer not provided.

Question 2

In what situations would you seek short-term financing? In what situations would you seek long-term financing?

Answer 2

Answer not provided.

Question 3

Morgan's Transition
Morgan is currently a manager of a small financial planning firm.He is seeking a new career with a large corporation in the banking industry.He recently applied for the financial manager opening at G & T Bank.He is concerned that the transition from his small firm to a large corporation will be difficult.To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance.The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing.Morgan now believes he has strengthened his competitive advantage in his quest for the job.
Refer to Morgan's Transition.During his job interview, Morgan was asked to talk about money received from the owners or from the sale of shares of ownership in a business.Which of the following would best describe these funds?

A) debt capital
B) equity capital
C) proceeds from a merger or acquisition
D) proceeds from the sale of assets
E) sales revenue

Answer 3

B

Question 4

Morgan's Transition
Morgan is currently a manager of a small financial planning firm.He is seeking a new career with a large corporation in the banking industry.He recently applied for the financial manager opening at G & T Bank.He is concerned that the transition from his small firm to a large corporation will be difficult.To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance.The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing.Morgan now believes he has strengthened his competitive advantage in his quest for the job.
Refer to Morgan's Transition.When Morgan has to counsel clients on short-term versus long-term financing needs, which of the following should he identify as a short-term financing need?

A) speculative production
B) business start-up costs
C) acquisitions and mergers
D) replacement of equipment
E) expansion of facilities

Question 5

Describe the characteristics and traits required for a successful career in financial management.

Question 6

McGines, Inc.
Sam McGines, CEO of McGines, Inc., decided that upon his retirement, he would elect his son Derrick to become the new CEO.Sam thought it would be a good idea to have Derrick shadow him at work to understand the roles and responsibilities of a CEO.Derrick shadowed his father for months in order to learn every aspect of the business.Sam knew that the best way for Derrick to learn was to actually perform some of the tasks he did on a daily basis, rather than simply describe them.The company generally focused on short-term financing, and Sam felt that it was important for Derrick to understand the different types of financing.Derrick learned about the type of bonds that the company usually offered to raise capital.These bonds allow the purchasers of the bond to keep them until maturity.Derrick also learned the process of obtaining bonds and the various types of long-term financing methods.Job shadowing was indeed a worthwhile experience for Derrick.
Refer to McGines, Inc.From his work experience, Derrick should have learned that ____ has a repayment period of thirty to sixty days.

A) factoring
B) a promissory note
C) commercial paper
D) trade credit
E) a secured loan

Question 7

What is speculative production and how does it impact a firm's financial planning?

Question 8

What is the main difference between unsecured short-term financing and secured short-term financing? Which method is better from the viewpoint of the borrower?

Question 9

Often high-risk decisions generate larger returns while conservative decisions generate lesser returns.From a financial management standpoint does this make sense? Also, what can a financial manager do to reduce risk while increasing the firm's financial return?

Question 10

State the purpose of a promissory note.Describe why a supplier would use a promissory note for short-term financing instead of trade credit.

Question 11

McGines, Inc.
Sam McGines, CEO of McGines, Inc., decided that upon his retirement, he would elect his son Derrick to become the new CEO.Sam thought it would be a good idea to have Derrick shadow him at work to understand the roles and responsibilities of a CEO.Derrick shadowed his father for months in order to learn every aspect of the business.Sam knew that the best way for Derrick to learn was to actually perform some of the tasks he did on a daily basis, rather than simply describe them.The company generally focused on short-term financing, and Sam felt that it was important for Derrick to understand the different types of financing.Derrick learned about the type of bonds that the company usually offered to raise capital.These bonds allow the purchasers of the bond to keep them until maturity.Derrick also learned the process of obtaining bonds and the various types of long-term financing methods.Job shadowing was indeed a worthwhile experience for Derrick.
Refer to McGines, Inc.If Derrick were to offer advice to a client about obtaining a loan, which of the following would be the first step?

A) get to know potential lenders before requesting debt financing
B) have the financial manager meet with the loan officer
C) fill out a loan application
D) show current business plan
E) have your CPA prepare financial statements

Question 12

Are there any risks for a corporation that uses long-term debt financing? Support your answer.

Question 13

Compare the relative costs of using long-term equity financing and of using long-term debt financing.

Question 14

What is a budget? How is it used by a business firm?

Question 15

Morgan's Transition
Morgan is currently a manager of a small financial planning firm.He is seeking a new career with a large corporation in the banking industry.He recently applied for the financial manager opening at G & T Bank.He is concerned that the transition from his small firm to a large corporation will be difficult.To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance.The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing.Morgan now believes he has strengthened his competitive advantage in his quest for the job.
Refer to Morgan's Transition.Having taken the classes, Morgan should describe cash flow as which of the following?

A) the movement of money from one account to another
B) money that will be used for one year or less
C) the movement of money into and out of an organization
D) money that will be used for longer than one year
E) proceeds from any sales transactions only

Question 16

What does it mean to use equity financing? Why might a large corporation want to do this?

Question 17

McGines, Inc.
Sam McGines, CEO of McGines, Inc., decided that upon his retirement, he would elect his son Derrick to become the new CEO.Sam thought it would be a good idea to have Derrick shadow him at work to understand the roles and responsibilities of a CEO.Derrick shadowed his father for months in order to learn every aspect of the business.Sam knew that the best way for Derrick to learn was to actually perform some of the tasks he did on a daily basis, rather than simply describe them.The company generally focused on short-term financing, and Sam felt that it was important for Derrick to understand the different types of financing.Derrick learned about the type of bonds that the company usually offered to raise capital.These bonds allow the purchasers of the bond to keep them until maturity.Derrick also learned the process of obtaining bonds and the various types of long-term financing methods.Job shadowing was indeed a worthwhile experience for Derrick.
Refer to McGines, Inc.If a client asks, Derrick should be able to identify that ____ is the type of stock the owner may exchange for a specified number of shares of common stock.

A) convertible common stock
B) convertible preferred stock
C) preferred stock
D) common stock
E) IPO

Question 18

What is cash flow? Why is cash flow important to a business?

Question 19

Morgan's Transition
Morgan is currently a manager of a small financial planning firm.He is seeking a new career with a large corporation in the banking industry.He recently applied for the financial manager opening at G & T Bank.He is concerned that the transition from his small firm to a large corporation will be difficult.To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance.The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing.Morgan now believes he has strengthened his competitive advantage in his quest for the job.
Refer to Morgan's Transition.When Morgan creates a financial plan, his first step should be which of the following?

A) identify available sources of financing
B) decide which goals to finance
C) describe which type of financing to use
D) establish a set of valid goals and objectives
E) determine how much money is needed to accomplish each goal

Question 20

Morgan's Transition
Morgan is currently a manager of a small financial planning firm.He is seeking a new career with a large corporation in the banking industry.He recently applied for the financial manager opening at G & T Bank.He is concerned that the transition from his small firm to a large corporation will be difficult.To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance.The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing.Morgan now believes he has strengthened his competitive advantage in his quest for the job.
Refer to Morgan's Transition.Morgan's business classes taught him that the financial manager should do which of the following?

A) determine the best way to raise money
B) ensure the business success of the company
C) ensure that projected uses are congruent with the organization's goals
D) Both a and b are correct.
E) Both a and c are correct.

Question 21

In regards to cash flow, a firm should ideally have

A) enough money coming into the firm to cover the expenses in that period.
B) more cash flowing out than in since this represents growth.
C) to use short-term financing only two to three times a year.
D) a constant need for short-term financing.
E) most of its cash going to its customers.

Question 22

Proper financial management can ensure all except which of the following?

A) Financial priorities are established in line with organizational objectives.
B) Spending is planned and controlled in accordance with established priorities.
C) Products are properly marketed.
D) Excess cash is invested in certificates of deposit, U.S.Treasury bills, or marketable securities.
E) Sufficient financing is available when needed, now and in the future.

Question 23

Inventory requires considerable investment for most manufacturers, wholesalers, and retailers.This problem is complicated by the fact that most goods are manufactured four to nine months before they are actually sold to consumers.Manufacturers that engage in this type of speculative production often need short-term financing to do all except which of the following?

A) buy materials
B) pay wages
C) pay rent
D) buy equipment
E) buy supplies

Question 24

Long-term financing should be used to do which of the following?

A) pay for speculative production
B) purchase inventory for resale
C) pay salaries
D) pay utilities
E) develop new products

Question 25

McGines, Inc.
Sam McGines, CEO of McGines, Inc., decided that upon his retirement, he would elect his son Derrick to become the new CEO.Sam thought it would be a good idea to have Derrick shadow him at work to understand the roles and responsibilities of a CEO.Derrick shadowed his father for months in order to learn every aspect of the business.Sam knew that the best way for Derrick to learn was to actually perform some of the tasks he did on a daily basis, rather than simply describe them.The company generally focused on short-term financing, and Sam felt that it was important for Derrick to understand the different types of financing.Derrick learned about the type of bonds that the company usually offered to raise capital.These bonds allow the purchasers of the bond to keep them until maturity.Derrick also learned the process of obtaining bonds and the various types of long-term financing methods.Job shadowing was indeed a worthwhile experience for Derrick.
Refer to McGines, Inc.At one point, Derrick was not sure about which type of bond was backed only by the reputation of the issuing corporation.Which of the following would you suggest?

A) mortgage bond
B) convertible bond
C) debenture bond
D) registered bond
E) corporate bond

Question 26

The ____ ratio is based on the principle that a high-risk investment should generate higher financial returns for a business and more conservative decisions often generate lesser returns.

A) return on owners' equity
B) risk-return
C) earnings
D) investment-to-equity
E) quick return

Question 27

McGines, Inc.
Sam McGines, CEO of McGines, Inc., decided that upon his retirement, he would elect his son Derrick to become the new CEO.Sam thought it would be a good idea to have Derrick shadow him at work to understand the roles and responsibilities of a CEO.Derrick shadowed his father for months in order to learn every aspect of the business.Sam knew that the best way for Derrick to learn was to actually perform some of the tasks he did on a daily basis, rather than simply describe them.The company generally focused on short-term financing, and Sam felt that it was important for Derrick to understand the different types of financing.Derrick learned about the type of bonds that the company usually offered to raise capital.These bonds allow the purchasers of the bond to keep them until maturity.Derrick also learned the process of obtaining bonds and the various types of long-term financing methods.Job shadowing was indeed a worthwhile experience for Derrick.
Refer to McGines, Inc.If Derrick has learned and understood the business, he should know that today most corporate bonds are _____.

A) convertible bonds
B) mortgage bonds
C) debenture bonds
D) nonconvertible bonds
E) registered bonds

Question 28

All of the activities concerned with obtaining money and using it effectively are called _____.

A) financial management
B) long-term financing
C) budgeting
D) financial planning
E) unsecured financing

Question 29

For a department store such as Macy's, the most likely need for short-term financing will be for _____.

A) inventory
B) employee wages
C) extending credit policies
D) new locations
E) additional cash registers

Question 30

Jones Manufacturing needs $450,000 to build a new plant.It must also spend $200,000 on new equipment for the plant.Both of these needs are examples of

A) equity-capital needs.
B) debt-capital needs.
C) short-term financing needs.
D) long-term financing needs.
E) cash-flow problems.

Question 31

All of the following except which are uses of long-term financing?

A) beginning a new business
B) eliminating immediate cash-flow problems
C) executing mergers and expansions
D) developing and marketing new products
E) replacing obsolete equipment

Question 32

Borrowed money that will be used for more than one year is called _____.

A) trade credit
B) long-term financing
C) equity capital
D) secured financing
E) short-term financing

Question 33

Casey Broadway's responsibility at his company is overseeing all the activities concerned with obtaining money and using it effectively.Casey is a(n) _____.

A) accountant
B) financial manager
C) financial planner
D) investment advisor
E) loan officer

Question 34

MCB Company experienced a significant increase in sales as a result of its new promotional campaign.Yesterday, however, it realized that because most of those sales were on credit, it did not have enough money in the bank to pay this month's bills.MCB can take care of this situation temporarily by

A) obtaining long-term financing.
B) disallowing credit sales.
C) selling commercial drafts.
D) obtaining short-term financing.
E) issuing stock.

Question 35

Sally Overall is thinking about two different decisions.One decision is quite risky, while the other decision is more conservative.To help her make the right decision, she decides to calculate the _____.

A) quick ratio
B) management analysis
C) money factor
D) risk-return ratio
E) entrepreneurial ratio

Question 36

Money that will be used for one year or less is called _____.

A) open credit
B) equity capital
C) short-term financing
D) nonsecured financing
E) long-term financing

Question 37

Slater Co.has very old computers and manufacturing equipment and knows it needs to upgrade them or risk losing much of its business.Slater does not have the money to purchase the computers, so it will most likely need

A) a short-term loan.
B) to keep using the old computers.
C) to deduct the cost from employees' salaries.
D) long-term financing.
E) to use increased cash flow from sales.

Question 38

To be successful while pursuing a career in finance, an employee must

A) graduate from a four-year university.
B) have a strong background in accounting or mathematics.
C) have fifteen years of experience.
D) be driven by a motive to become very rich.
E) start a career as a bank officer.

Question 39

Todd develops a plan for obtaining and using the money necessary for his company to implement its goals.This is called a(n) _____.

A) credit policy
B) capital budget
C) operational plan
D) financing agreement
E) financial plan

Question 40

Tidewater Distributors is successfully using short-term financing to buy inventory for resale.As sales climb, the managers realize that they must decide what to do with the money.Since you are the financial manager, they ask for your advice.You advise them to first

A) repay the short-term obligations out of the sales revenue.
B) use the money to buy a yacht for the managers.
C) increase all employees' wages.
D) enroll all the salespeople in a sales training course.
E) borrow more money.

Question 41

Which of the following is not a characteristic of short-term financing?

A) It must be repaid within three years.
B) It is easier to obtain than long-term financing.
C) There is less risk of nonpayment to the lender.
D) The amounts are usually smaller than amounts obtained through long-term sources.
E) There is a close working relationship between borrower and lender.

Question 42

The Fruitiest Candy Company finds that from time to time it needs short-term funds to cover its operating expenses.It wants to establish a prearranged loan with a bank but has not found a bank that will guarantee such a loan.Perplexed by this, the management team asks you how they should proceed.You recommend that they

A) file a suit against the banks.
B) find a bank out of state or out of the country that will guarantee that the money will be available when needed.
C) simply file a claim with the FDIC.
D) retaliate by withdrawing all cash from the local bank and canceling all certificates of deposit.
E) set up a line of credit with a bank that offers a revolving credit agreement.

Question 43

For a corporation, money received from the sale of shares of ownership in a business is called _____.

A) sales revenue
B) debt capital
C) equity capital
D) factor proceeds
E) cash flow

Question 44

Financial managers should

A) ignore minor budgeting problems and concentrate on major problems when budgeting.
B) establish a means of monitoring financial performance on an interim basis.
C) prepare budgets and hope for the best.
D) hire a person to go over interim budgets.
E) fire or demote individual managers when budgeting goals are not achieved.

Question 45

A tool that managers use to estimate major expenditures for assets, expansion of facilities, and mergers and acquisitions is called a(n) _____.

A) capital budget
B) cash budget
C) revenue forecast
D) negative-flow budget
E) equity budget

Question 46

In a revolving credit agreement, the borrower typically pays ____ on the ____ portion of the revolving credit agreement.

A) 1.0 to 3.0 percent; unused
B) 1.0 to 3.0 percent; used
C) only regular interest; used
D) 0.25 to 1.0 percent; used
E) 0.25 to 1.0 percent; unused

Question 47

Jacob and Molly decide to start a new cake-decorating business.They each contribute $10,000 to get the business off the ground.This money is considered _____.

A) sales revenue
B) long-term debt
C) equity capital
D) short-term financing
E) cash flow

Question 48

Money obtained through various types of loans is called _____.

A) cash flow
B) factor proceeds
C) dividends
D) equity capital
E) debt capital

Question 49

A statement that projects income and/or expenditures over a specified future period is called a _____.

A) financial plan
B) cash flow plan
C) resources plan
D) resource allocation statement
E) budget

Question 50

Sara Lee Corporation is a large conglomerate of businesses participating in a variety of industries.Sara Lee is considering the purchase of Bryan Foods.If Bryan Foods represents a tremendous opportunity to make the company more successful, Sara Lee may as a last resort

A) seek short-term financing.
B) use trade credit to pay for Bryan Foods.
C) use future sales revenues now.
D) share the idea with competitors.
E) sell assets from another division to pay for Bryan Foods.

Question 51

The kinds of funds available to a business include all except which of the following?

A) debt capital
B) sales of assets
C) government grants
D) sales revenue
E) equity capital

Question 52

The greatest part of a firm's financing is provided by _____.

A) debt equity
B) sale of assets
C) government grants
D) sales revenue
E) equity capital

Question 53

Short-term financing not backed by collateral is called _____.

A) debt capital
B) unsecured financing
C) mortgage bonds
D) trade credit
E) unprotected financing

Question 54

John Martin and Bob Johnston want to start a small manufacturing business.To obtain the financing they need, they decide to sell stock to their friends.The sale of stock is _____.

A) sales revenue
B) debt capital
C) equity capital
D) factor proceeds
E) cash flow

Question 55

The steps in effective financial planning are

A) establishing organizational goals and objectives, identifying expenses, and budgeting.
B) establishing organizational goals and objectives, budgeting for financial needs, and identifying sources of financing.
C) developing a plan of action, monitoring the plan, and evaluating.
D) identifying sources of financing, budgeting, and evaluating.
E) None of the above are correct.

Question 56

When a seller allows a buyer thirty to sixty days to pay for a purchase, the sales arrangement is called _____.

A) a bank loan
B) trade credit
C) a promissory note
D) equity financing
E) None of the above is correct.

Question 57

Specific statements detailing what an organization intends to accomplish within a certain period of time are called _____.

A) plans
B) budgets
C) objectives
D) contingencies
E) charters

Question 58

Which of the following sources of funds would be the last resort for a corporation?

A) sales revenues
B) common stock
C) preferred stock
D) debt capital
E) the sale of assets

Question 59

Maria has been asked by the top management to develop financial ____ that the company will achieve over the next one- to ten-year period.

A) strategies
B) directives
C) plans
D) objectives
E) goals

Question 60

Kliting Co.is concerned with whether or not it will be able to pay its bills with money coming in from sales.It would be helpful for Kliting to prepare a ____ to better understand its needs.

A) capital budget
B) negative-flow budget
C) cash budget
D) loan application
E) revolving credit agreement

Question 61

Assume that the First State Bank of Chicago requires a 20 percent compensating balance on short-term loans.If you borrow $50,000, at least ____ of the loan amount must be kept on deposit at the bank.

A) $4,000
B) $10,000
C) $1,000
D) $20,000
E) $50,000

Question 62

____ is (are) short-term promissory notes with no collateral that are issued by large corporations.

A) Serial bonds
B) Sinking funds
C) Convertible bonds
D) Credit agreements
E) Commercial paper

Question 63

A firm that specializes in buying other firms' accounts receivable is called a(n) _____.

A) factor
B) broker
C) credit officer
D) agent
E) trustee

Question 64

Jackson Ski Equipment receives an invoice for $10,000 worth of merchandise from one of its suppliers.The invoice has discount terms of 2/10, net/60.Twenty days later, Jackson Ski Equipment writes a check for ____ to pay the invoice.

A) $10,200
B) $10,000
C) $9,800
D) $9,000
E) $200

Question 65

Which of the following companies would most likely be able to issue commercial paper?

A) Mike's Pizza Place
B) a local housing construction company
C) General Motors Acceptance Corporation
D) a medium-sized advertising agency
E) United Way

Question 66

Max Beauty Supply has ordered $5,000 worth of merchandise from Kelly's Beauty Supply, Inc.The invoice to Max has discount terms of 2/10, net/30.Max writes a check within ten days for _____.

A) $100
B) $1,000
C) $4,000
D) $4,900
E) $5,000

Question 67

The amounts owed to a firm by its customers are called _____.

A) factors
B) revolving credit agreements
C) dividends
D) accounts receivable
E) commercial drafts

Question 68

Jacobson Landscaping receives an invoice from one of its suppliers.The amount of the invoice is $30,000 with terms of 2/10, net/30.If the invoice is paid on the fifth day, Jacobson is entitled to a ____ cash discount and will write the check for ____.

A) $6; $29,994
B) $600; $29,400
C) $600; $0
D) $6,000; $29,400
E) $6,000; $0

Question 69

Beard Auction receives an invoice from one of its European suppliers for antiques.The amount of the invoice is $40,000 with terms of 3/10, net/60.If the invoice is paid on day 20, Beard is entitled to a ____ cash discount and will write the check for ____.

A) $1,200; $1,200
B) $1,200; $38,800
C) $0; $40,000
D) $0; $41,200
E) $0; $1,200

Question 70

Suppose IBM decided to issue commercial paper in denominations of $5,000 to raise a large sum of money.Since the commercial paper is secured only by IBM's reputation

A) IBM does not have to pay back the principal.
B) IBM has to pay interest rates higher than those charged by commercial banks for short-term loans.
C) no interest is paid.
D) no collateral is involved.
E) the commercial paper can be issued only in $1,500 or $10,000 denominations.

Question 71

Mrs.Thomas has received an invoice from the manufacturer for which she distributes products.The invoice states credit terms of 3/10, net/30.Puzzled by this, she calls on you to explain.You indicate that the notation 3/10 means that

A) she may take a 30 percent discount if she pays the invoice within three days.
B) she must pay the entire amount in three days.
C) after three days, she must pay the new amount in ten days.
D) her line of credit is equivalent to three-tenths of the dollar value of her business.
E) she may take a 3 percent discount if she pays the invoice within ten days.

Question 72

Rick's Wholesale Office Supplies prefers to handle its accounts receivable itself, but it also needs to use them to facilitate short-term borrowing.What can Rick's do?

A) use loans secured by inventory
B) purge its accounts receivable
C) pledge them as collateral
D) force all customers to pay now
E) sell commercial paper

Question 73

The most popular form of short-term financing is _____.

A) bank loans
B) trade credit
C) sale of bonds
D) sale of stock
E) loans from insurance companies

Question 74

Harlen Manufacturing is hesitant to extend trade credit to Brendan Drake.Instead, Brendan agrees to sign a promissory note.Harlen prefers this note because

A) it specifies when the goods will be delivered.
B) the money will still be paid if Brendan declares bankruptcy.
C) it is a legally binding and enforceable agreement.
D) it is a form of commercial paper.
E) it will receive the money from Brendan much sooner.

Question 75

A written pledge by a borrower to pay a certain sum of money to a creditor at a specified future date is called _____.

A) a promissory note
B) collateral
C) a factor account
D) a charge account
E) a term loan agreement

Question 76

The assets most commonly used as collateral for short-term financing include

A) cash and accounts receivable.
B) accounts payable and notes payable.
C) inventory and equipment.
D) marketable securities and owners' equity.
E) accounts receivable and inventory.

Question 77

If Sun Microsystems were to take out a short-term loan from Chase Manhattan for $5 million and were required to keep $500,000 of that in its Chase account, this would be called a(n) _____.

A) compensating balance
B) security deposit
C) commercial-paper arrangement
D) reserve requirement
E) insurance policy

Question 78

Sanchez Company sells its garden hoses to Gary's Lawn and Garden Center but does not require Gary's to pay for them right away.If this is a standard trade-credit agreement, Gary's will have to pay for the garden hoses in

A) 30 to 60 days.
B) 1 to 20 days.
C) 45 to 90 days.
D) 60 to 180 days.
E) as many days as it takes to sell the merchandise.

Question 79

The lowest rate of interest charged by a bank for a short-term loan is known as _____.

A) the discount rate
B) dividends
C) add-on interest
D) the compound interest rate
E) the prime interest rate

Question 80

Over the years, Zebra Productions has been slow making payments to its bank.Now it is in need of financing.Based on past experience, the interest rate Zebra will pay is the

A) interest rate determined by the SBA.
B) finance rate determined by the Department of Commerce.
C) prime rate.
D) prime rate plus 4 percent.
E) prime rate minus 2 percentage points.