Question 1

The prime rate is:

Accepted Answer

A)  the highest rate of interest charged on business loans to the best business borrowers by the nation's leading banks' premium rate 
B)  the lowest rate of interest charged on business loans to the best business borrowers by the nation's leading banks. 
C)  the average rate of interest charged on business loans to the best business borrowers by the nation's leading banks. 
D)  the treasury bill rate 
A)  the highest rate of interest charged on business loans to the best business borrowers by the nation's leading banks' premium rate 
B)  the lowest rate of interest charged on business loans to the best business borrowers by the nation's leading banks. 
C)  the average rate of interest charged on business loans to the best business borrowers by the nation's leading banks. 
D)  the treasury bill rate

Question 2

Which of the following operating characteristics does not affect a firm's short-term financing strategy?

Accepted Answer

A)  industry and company factors 
B)  seasonal variation 
C)  fixed asset investments 
D)  cyclical variations 
A)  industry and company factors 
B)  seasonal variation 
C)  fixed asset investments 
D)  cyclical variations

Question 3

Which of the following are not typical of an accounts receivable loan arrangement?

Accepted Answer

A)  basic interest charge 
B)  compensating balance 
C)  fee to cover extra work need for such a loan 
D)  inventory pledging 
A)  basic interest charge 
B)  compensating balance 
C)  fee to cover extra work need for such a loan 
D)  inventory pledging

Question 4

An owner of a business may not assign life insurance as collateral for a short-term loan.

Accepted Answer

A) True 
 B)False

Question 5

An influence that affects the selection of a short-term financing strategy includes:

Accepted Answer

A)  cost 
B)  market risk 
C)  term risk 
D)  arbitrage 
A)  cost 
B)  market risk 
C)  term risk 
D)  arbitrage

Question 6

A line of credit is also often referred to as a revolving credit agreement.

Accepted Answer

A) True 
 B)False

Question 7

The choice of financing strategy involves a tradeoff between return and risk.

Accepted Answer

A) True 
 B)False

Question 8

Compensating balances decrease the effective cost of borrowing.

Accepted Answer

A) True 
 B)False

Question 9

If life insurance is pledged as collateral for a loan, how much can be borrowed?

Accepted Answer

A)  face value of the policy 
B)  cash surrender of the policy 
C)  an amount equal to the annual premium 
D)  only 50% of the face value of the policy 
A)  face value of the policy 
B)  cash surrender of the policy 
C)  an amount equal to the annual premium 
D)  only 50% of the face value of the policy

Question 10

Permanent current assets reflect the minimum investment level in cash, accounts receivable, and inventories needed to support sales.

Accepted Answer

A) True 
 B)False

Question 11

Short-term financing sources include bank loans, trade credit, and commercial paper.

Accepted Answer

A) True 
 B)False

Question 12

What is the most important overall source of short-term business financing both in the U.S. and worldwide?

Accepted Answer

A)  lines of credit 
B)  trade credit 
C)  notes 
D)  commercial paper 
A)  lines of credit 
B)  trade credit 
C)  notes 
D)  commercial paper

Question 13

The factor, unlike the commercial finance company:

Accepted Answer

A)  engages in accounts receivable financing 
B)  purchases the accounts receivable outright 
C)  assumes limited credit risks 
D)  is not responsible for the collection of accounts 
A)  engages in accounts receivable financing 
B)  purchases the accounts receivable outright 
C)  assumes limited credit risks 
D)  is not responsible for the collection of accounts

Question 14

If total assets are $100,000, fixed assets are $30,000, current liabilities are $20,000, then net working capital is:

Accepted Answer

A)  $100,000 
B)  $70,000 
C)  $50,000 
D)  $0 
A)  $100,000 
B)  $70,000 
C)  $50,000 
D)  $0

Question 15

If a borrowing firm does not qualify for an unsecured bank loan and pledges its accounts receivable as security, it eliminates the need for a credit investigation.

Accepted Answer

A) True 
 B)False

Question 16

Net working capital is defined as:

Accepted Answer

A)  current assets plus current liabilities 
B)  current assets less fixed assets 
C)  current assets less current liabilities 
D)  current liabilities plus long-term liabilities 
A)  current assets plus current liabilities 
B)  current assets less fixed assets 
C)  current assets less current liabilities 
D)  current liabilities plus long-term liabilities

Question 17

Permanent current assets are:

Accepted Answer

A)  accounts receivable that have become bad debts 
B)  inventories that have become obsolete 
C)  the level of current assets equal to fixed assets 
D)  the level of current assets needed to support sales 
A)  accounts receivable that have become bad debts 
B)  inventories that have become obsolete 
C)  the level of current assets equal to fixed assets 
D)  the level of current assets needed to support sales

Question 18

Find the annualized cost of a commercial paper issue the has a $1,000,000 face value, matures in 180 days, has a placement fee of 1.5% and an interest charge of 8.5% over the 6 month period it is outstanding.

Accepted Answer

A)  10% 
B)  11.1% 
C)  23.5% 
D)  24.5% 
A)  10% 
B)  11.1% 
C)  23.5% 
D)  24.5%

Question 19

The effective annual interest rate on a one-year, $1,000,000, 10% discount loan that requires a 10% compensating balance is

Accepted Answer

A)  11.1%. 
B)  13.3%. 
C)  20%. 
D)  10.0%. 
A)  11.1%. 
B)  13.3%. 
C)  20%. 
D)  10.0%.

Question 20

Commercial finance companies obtain loanable funds:

Accepted Answer

A)  to a lesser extent than commercial banks through equity capital 
B)  through both long- and short-term borrowing 
C)  from the Small Business Administration 
D)  primarily from the sale of preferred stock 
A)  to a lesser extent than commercial banks through equity capital 
B)  through both long- and short-term borrowing 
C)  from the Small Business Administration 
D)  primarily from the sale of preferred stock

The prime rate is:

Which of the following operating characteristics does not affect a firm's short-term financing strategy?

Which of the following are not typical of an accounts receivable loan arrangement?

An owner of a business may not assign life insurance as collateral for a short-term loan.

An influence that affects the selection of a short-term financing strategy includes:

A line of credit is also often referred to as a revolving credit agreement.

The choice of financing strategy involves a tradeoff between return and risk.

Compensating balances decrease the effective cost of borrowing.

If life insurance is pledged as collateral for a loan, how much can be borrowed?

Permanent current assets reflect the minimum investment level in cash, accounts receivable, and inventories needed to support sales.

Short-term financing sources include bank loans, trade credit, and commercial paper.

What is the most important overall source of short-term business financing both in the U.S. and worldwide?

The factor, unlike the commercial finance company:

If total assets are $100,000, fixed assets are $30,000, current liabilities are $20,000, then net working capital is:

If a borrowing firm does not qualify for an unsecured bank loan and pledges its accounts receivable as security, it eliminates the need for a credit investigation.

Net working capital is defined as:

Permanent current assets are:

Find the annualized cost of a commercial paper issue the has a $1,000,000 face value, matures in 180 days, has a placement fee of 1.5% and an interest charge of 8.5% over the 6 month period it is outstanding.

The effective annual interest rate on a one-year, $1,000,000, 10% discount loan that requires a 10% compensating balance is

Commercial finance companies obtain loanable funds:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

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Exam 16: Short-Term Business Financing

The prime rate is:

Which of the following operating characteristics does not affect a firm's short-term financing strategy?

Which of the following are not typical of an accounts receivable loan arrangement?

An owner of a business may not assign life insurance as collateral for a short-term loan.

An influence that affects the selection of a short-term financing strategy includes:

A line of credit is also often referred to as a revolving credit agreement.

The choice of financing strategy involves a tradeoff between return and risk.

Compensating balances decrease the effective cost of borrowing.

If life insurance is pledged as collateral for a loan, how much can be borrowed?

Permanent current assets reflect the minimum investment level in cash, accounts receivable, and inventories needed to support sales.

Short-term financing sources include bank loans, trade credit, and commercial paper.

What is the most important overall source of short-term business financing both in the U.S. and worldwide?

The factor, unlike the commercial finance company:

If total assets are $100,000, fixed assets are $30,000, current liabilities are $20,000, then net working capital is:

If a borrowing firm does not qualify for an unsecured bank loan and pledges its accounts receivable as security, it eliminates the need for a credit investigation.

Net working capital is defined as:

Permanent current assets are:

Find the annualized cost of a commercial paper issue the has a $1,000,000 face value, matures in 180 days, has a placement fee of 1.5% and an interest charge of 8.5% over the 6 month period it is outstanding.

The effective annual interest rate on a one-year, $1,000,000, 10% discount loan that requires a 10% compensating balance is

Commercial finance companies obtain loanable funds:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters