Exam 16: Short-Term Business Financing

The most important reason for directly issuing or using commercial paper dealers is:

Which of the following short-term sources of funds is available only to the financially strongest concerns?

Advance factoring is where the firm selling its accounts receivable is paid on the normal collection date or net due date of the account.

If a company can stretch its accounts payable without damaging its credit rating, it is effectively ___________ its operating cycle.

Trade credit may be considered the least formal of all forms of financing.

Which would not be likely to be accepted as collateral for an inventory loan?

Assume that Ningbo Steel borrows $1,000,000 for one year under a line of credit with a stated interest rate of 7.5 percent and a 15 percent compensating balance and that the firm keeps no money on deposit in its checking account. Based on this information, the effective annual interest rate on the loan is

Commercial paper issued by large U.S. corporations is backed by:

Tangshan Mining was extended credit terms of 3/15 net 30. The cost of giving up the cash discount, assuming payment would be made on the last day of the credit period, would be ________.

A firm that engages in accounts receivable financing by purchasing accounts and assuming all credit risks.

The prime rate is the interest rate the bank charges its most creditworthy customers.

Factoring accounts receivable has all of the following characteristics except:

The Small Business Administration does not assist in the financing of small businesses in which of the following way?

Pledging accounts receivable has all of the following characteristics except:

The most frequently cited justification for requiring a compensating balance is:

For compensating balance loans, to receive the desired usable funds, the loan request must equal Desired usable funds x (1 - Compensating balance requirement).

When accounts receivable are factored: money is advanced to the borrower as a loan against accounts receivable; accounts receivable balances remain on the balance sheet; the customer payment is made to the firm, which then submits the payment to the bank; and interest is charged on the loan.

Commercial banks lend unsecured short-term funds in the following three basic ways:

Eriez Magnetics purchased goods with a purchase price of $10,000 and credit terms of 3/10 net 40. The firm paid for these goods on the 5th day after the date of sale. The firm must pay ________ for the goods.

The effective annual interest rate on a loan in which a company borrows $1,000,000 for one year at 8 percent and requires a compensating balance of 10 percent is: